New Delhi: Non-resident Indians (NRIs) working in income tax-free jurisdictions such as the UAE will have to pay tax only on their income generated in India, and not on their earnings outside the country, finance minister Nirmala Sitharaman said on Sunday.

Sitharaman said the clarification will be included in the statute to clear any confusion among tax officials.

A provision in the Finance Bill, 2020 said that an Indian citizen who is not liable to be taxed in any other country or territory shall be deemed a resident of India. This led to worries that NRIs working in countries that do not tax personal income would be taxed in India on their global earnings, similar to how residents are taxed on their global income. A 30% tax plus cess and surcharge on NRIs’ income abroad would leave less money in their hands.

The finance ministry also said that in case of an Indian citizen who becomes a deemed resident of India under the provision in the Finance Bill, “income earned outside India by him or her shall not be taxed in India unless it is derived from an Indian business or profession. Necessary clarification, if required, shall be incorporated in the relevant provision of the law".

“I would certainly not desire any confusion in the minds of the tax authority. If there is any confusion in the minds of assessees, I am here to answer," the minister said, when asked if the government was open to tweaking the Finance Bill provision to avoid officials attempting to tax global income of NRIs.

The intention of redefining the concept of residence for tax purposes was to plug a gap that leaves the India income of NRIs out of the tax net because they do not live here, Sitharaman said.

“An NRI living in another country earns money there that is not taxed there at all. He has some earnings through something in India, but does not pay tax here either because he does not live here. What we are saying is that for the income generated in India pay a tax. If you have property here that generates rental income here, but because you live there, you pay tax neither there nor here. I am not taxing what you earn in Dubai," the minister said.

Sitharaman also said the finance ministry would come out with a detailed impact assessment of the new low income-tax rate scheme for individuals, who forgo tax incentives, to offer clarity to people regarding its benefits.

“Eventually, we should have a system where the tax rate is significantly lower and simpler for people to comply with. That means removing all exemptions and ifs and buts. Today, the middle and low income people need more money in their hands and we offered this scheme," the minister said.

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