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New Delhi: The government has no intention of taxing non-resident Indians (NRIs) who earn an income in the United Arab Emirates and Bahrain, Revenue Secretary Ajay Bhushan Pandey told ThePrint in an interview, in what is likely to come as a relief to the Indian community living in those countries.

If required, the government will bring in necessary changes in the law to clarify this, Pandey said.

However, NRIs will have to pay tax for income such as that from rental property, accruing on account of property owned in India.

The Union Budget presented by Finance Minister Nirmala Sitharaman Saturday had a provision that sought to tax certain sections of NRIs. “An Indian citizen who is not liable to tax in any other country or territory shall be deemed to be resident in India,” the Budget documents stated. The government also reduced the number of days a person can stay in India in a year and still be considered a non-resident.

Tax analysts had pointed out that the wording of the provision were such that even NRIs who earn income in countries like UAE and Bahrain would be liable to pay tax in India, as these countries don’t levy any income tax of their own. This had caused a great deal of consternation in NRIs in those countries.

Also read: Lower income tax rates but no deductions — Modi govt creates optional second tax system

Idea isn’t to tax anyone who’s earning income abroad

Pandey said the idea of the provision was not to tax anyone earning an income abroad.

“Those non-residents who work in UAE and Bahrain will not be taxed in India on their income and salaries. If necessary, we will incorporate the explanation in the law itself,” he said in the interview.

Pandey said the provision was aimed at plugging loopholes in existing tax laws, wherein NRIs often use tax havens and treaty provisions to avoid paying tax even on income that is accruing in India.

In a post-Budget press briefing Sunday, Finance Minister Sitharaman had said NRIs will have to pay taxes in India if the income is generated in India.

“If you have property in this jurisdiction and that is giving you rent on property, then you have to pay tax on this rental income here in India,” Sitharaman said.

The government had defended the proposal in the Budget, stating that tax laws should not encourage a situation where a person is not liable to be taxed in any country.

“The current rules governing tax residence make it possible for HNWIs (high-net-worth individuals) and other individuals, who may be Indian citizens, to not to be liable for tax anywhere in the world,” the Budget documents said, pointing out that such a circumstance is certainly not desirable.

Also read: LIC to tax charter: Budget 2020 wants India in the big league, but offers mere quick fixes

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