Finance Minister Nirmala Sitharaman announced the Indian Union Budget for 2021-22 today, February 1, 2021. Relief from double taxation and an increase in tax audit limits were the highlights specific to NRIs – Non-resident Indians.
Additionally, Sitharaman has proposed to allow NRIs to incorporate one-person companies (OPCs). While OPCs are going to be incentivized, this clause to include NRIs is a boost to those wanting to set up businesses in India.
Union Budget 2021 and NRIs
While the primary focus of the Union Budget 2021 is improve the economic conditions post pandemic, improve employment and give a boost to small businesses, NRIs have been given a generous consideration as well.
Merging NRI Investment Portfolio with Foreign Investment Portfolio
What Does That Mean?
Below we analyze the new features to NRIs from the Union Budget 2021:
While the details about the tax relief for NRIs are yet to be released, Sitharaman did point out that NRIs will be spared from being taxed both in India as well as in their country of residence. If approved after further debate, this tax relief for NRIs will go into effect on April 1, 2022. This means, relief will apply to the assessment year 2022-23 and beyond.
Related Read: What Is Double Taxation & Can NRIs Avoid It?
For returning NRIS, many are unable to coincide the taxation periods and do not get credit for Indian taxes in foreign jurisdictions end up suffering. They also deal with issues with their accrued incomes in their foreign retirement accounts.
In order to address these issues, the Indian Finance Minister government proposes adding a new section, 89A to the Income-Tax Act, 1961. This new section will address taxation for NRIs (specified person) from all foreign accounts (specified account) according to the Central Government’s new prescription of year taxed and methodology.
What Is A Specified Person?
According to the proposal in the Union Budget 2021, a ‘specified person is now who is residing in India but has accessed/opened the ‘specified account’ while resident in that foreign country.
What Is A Specified Account?
- A ‘specified account’ is defined as an account maintained by NRIs in a foreign country for retirement benefits.
- The amount in this specified account will not be taxable on an accrual basis.
- Instead, it will be taxed by the foreign country at the time of withdrawal or redemption.
One Person Company For NRIs
Encouraging more NRIs to invest in businesses in India, the Union Budget 2021 allows for more flexibility to set up One -Person Business enterprises in India.
Income Tax Act Redefines NRI Status
Not only will it be incentivized but the residency limit for an Indian citizen to set up an OPC will be reduced from 182 days to 120 days.
Another incentive is NRIs will be allowed to convert such businesses to any other forms of incorporated business without penalty as well. Previously, if the business turnover exceeded ₹200,00,000 in three years preceding consecutive years, the company had to convert the OPC to either to a private company or declare it a public company. This budget reverse this clause allowing for NRIs to grow OPC businesses unhindered.
Stay tuned to this space as further details of the Union Budget 2021 is released by the Finance Minister In India.