Kerala Chief Minister Pinarayi Vijayan on Sunday criticised the Centre for proposing amendment to the section 6 of the Income Tax Act, 1961, which stipulates conditions for determining the residential status for tax purposes in India.
"We record our strong disagreement with the move in the Finance Bill, 2020, brought in under the guise of checking tax abuse, but is in reality going to hurt those who toil and bring foreign exchange to the country. The Central government should desist from going ahead with the amendment to section 6 of the Income Tax Act, 1961, proposing to reduce the stay period for the Indian citizens or persons of Indian origin from 182 days to 120 days, for being treated as residents for tax purposes," said Vijayan in a statement issued in Thiruvananthapuram.
He pointed out that most of the people working in the Middle East from Kerala are having houses and families in Kerala and they visit and stay in their home state to look after their domestic affairs.
In a clarification, the Finance Ministry said that "this is an anti-abuse provision since it is noticed that some Indian citizens shift their stay in low or no tax jurisdiction to avoid payment of tax in India".
However, Vijayan added, "Tax Evasion is not their intention and they do not fall in the category of persons who shift their bases to avoid taxes. Such persons will be hard hit by the amendment to section 6 of the Income Tax Act,1961."
Vijayan also pointed out that Kerala's economy is substantially supported by remittances, especially from those in the Gulf countries, who will be adversely affected by this amendment.
He, however, pointed out that they have no dispute with the fact that the undisclosed income of those who transfer money to tax havens need to be brought within the tax net and government should utilise such tax proceeds for social welfare programmes.
"This has been our consistent position. But here too, persons working in countries of the Gulf region which have no personal income tax, will be hit. Most of such persons are not in the economic upper crust. They need to be excluded from the ambit of this proposed amendment as they are mostly middle income people who bring to our country a part of their hard earned income," said Vijayan.
However, the Finance Ministry also clarified that "in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession". It added that the new provision is not intended to include those Indian citizens who are bonafide workers in other countries in tax net.
According to the latest Kerala Migration Survey conducted by the Centre for Development Studies, there are 2.1 million emigrants from Kerala across the world, whose estimated total remittances to Kerala stands at Rs 85,092 crore.