Budget 2021: No double taxation for NRIs with foreign retirement accounts

Finance Minister Nirmala Sitharaman stated that NRIs returning to India often have issues regarding incomes in foreign retirement accounts.
Nirmala Sitharaman
Nirmala Sitharaman
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Finance Minister Nirmala Sitharaman has proposed the removal of double taxation for Non-Resident Indians (NRIs) on income accrued through foreign retirement benefits accounts, the minister announced in the Union Budget session on Monday. Nirmala said the tax department will notify rules to remove hardships of double taxation faced by NRIs in certain classes. 

“When Non-Resident Indians return to India, they have issues with respect to their accrued incomes in their foreign retirement accounts. This is usually due to a mismatch in taxation periods. They also face difficulties in getting credit for Indian taxes in foreign jurisdictions. I propose to notify rules for removing their hardship of double taxation,” she said. 

Double taxation refers to a situation in which NRIs are taxed on the same income twice, both in India and the country of residence. While NRIs are not taxed on global income in India, they are taxed on income earned or accrued within India. This can be salary earned in India, income on fixed deposits or savings accounts, income on housing property located within India, among others. Currently, double taxation can be avoided by seeking relief through The Double Tax Avoidance Agreement (DTAA). 

Nirmala’s announcement appears to specifically address taxation on income through foreign retirement benefit accounts, while addressing the challenges in securing credit on Indian taxes in other countries.

The Finance Minister also proposed to “incentivize the incorporation of One Person Companies (OPCs).” This includes allowing OPCs to grow without restrictions on paid-up capital or turnover, conversion into any other type of company, and reducing the residency limit for an Indian citizen to set up an OPC. In addition, NRIs would be allowed to incorporate One Person Companies (OPCs) in India.

An NRI refers to an individual who has not resided in India for a period of 180 days in the previous financial year or has not resided in India for sixty days in a particular year, in addition to 365 days in the previous four financial years.

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