How the deemed residency rule can hurt NRIs in some West Asian countries

Subscribe to enjoy similar stories.For over two decades, an Oman-based NRI has called Muscat home, building a career in a country that levies zero personal income tax.In India, he filed his tax returns dutifully, claimed NRI status and availed the concessional rates that came with it, including the 5-20% flat tax on interest and dividend income, which would otherwise be taxed at slab rates for residents. It was meant to be a watertight benefit under the Double Taxation Avoidance Agreements (DTAA).Then, last year, the income tax department came knocking.

The assessing officer opened the NRI's assessment and labelled him a deemed resident of India under Section 6 (1A) of the Income Tax Act, stripping away all non-resident benefits in one move.Section 6 (1A), introduced via the Finance Act 2020, targets a very specific profile: an Indian citizen, not resident in India and not liable to pay tax in any other country by reason of domicile or residence. If the income from India of such an individual exceeds ₹15 lakh in a financial year, they are treated as a deemed resident and classified as Resident but Not Ordinarily Resident (RNOR).“An RNOR is exempt from paying tax on foreign income in India but must pay tax on Indian income as a resident, and more importantly, will be devoid of any DTAA benefits,” said Bhawna Kakkar, chartered accountant and founder of Kakkar & Company.This Oman-based NRI qualified on all counts as his interest and dividend income combined exceeded ₹15 lakh consecutively for a few years.

Despite never setting foot in India in those years, he was deemed a resident."As a non-resident, I was getting a beneficial taxation rate of 20% on interest income from NCDs I had bought in India. But now this benefit on