On Sunday, Union Finance Minister Nirmala Sitharaman presented the budget for fiscal 2020-21 in her 160-minute long speech. The Finance Bill has proposed three significant changes to prevent tax abuse by citizens. Ms Sitharaman claimed the new structure would surely be beneficial for taxpayers in specific brackets.

The new tax system has reduced the number of days that an Indian citizen can be granted non-resident status for tax purposes from 182 to 120, citizens who do not pay taxes anywhere will now be considered as a resident, and the definition of ‘not ordinarily resident’ has been tightened.

“Let’s say an NRI, living in Dubai or elsewhere, is not taxed for his income there, but has some earnings through something in India for which he doesn’t pay tax here. We are saying, for that income which is generated in India, pay a tax,” Ms Sitharaman said. 

“The new provision is being interpreted to create an impression that those Indians who are bonafide workers in other countries, including in the Middle East, and who are not liable to tax in these countries, will be taxed in India on the income that they have earned there. This interpretation is not correct,” she added.

The budget 2020 has offered the taxpayers the option to choose between the existing income tax regime and a new tax regime with slashed income tax rates and new income tax slabs but no tax exemptions and deductions. On Saturday night, the government revealed a list of exemptions applicable for taxpayers changing the new tax system.

However, Kerala Chief Minister Pinarayi Vijayan wrote to Prime Minister Narendra Modi, saying his state disagrees with the new budget provision as it will hurt Indians in the Middle East. Responding to the criticism, Ms Sitharaman said that the ministry would issue more clarifications on the matter.

 In new tax slabs, introduced on Saturday, the government reduced rates for an annual income of up to 15 lakh for those ongoing exemptions and deductions under a simplified tax regime. Once the parliament passes the proposals, the changes will become effective from the financial year 2020-21.

“There are a few exemptions which we allow under the new rates too. I believe that many of the calculations which have come out in the newspapers today have probably not taken those on board into account,” the minister added.

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