New Changes to Indian Tax Laws Impacting Non-Resident Indians

The Indian government introduced several important changes through Finance Bill 2020 that directly affect Non-Resident Indians (NRIs). These changes relate to Tax Collected at Source (TCS) on foreign remittances and revised rules for determining residency status. Here is a summary of the key provisions.

Change 1: Tax Collected at Source (TCS) on Foreign Remittances

Effective: October 1, 2020

Under the Liberalised Remittance Scheme (LRS), the Authorized Dealer (bank or forex trader) is now required to collect TCS from remittances made outside India if the total remittances in a financial year exceed INR 700,000 (approximately USD 10,000).

Key Points on TCS

• The INR 700,000 limit is cumulative for the financial year (April 1 to March 31). TCS applies only on the amount exceeding this threshold.
• TCS is collected over and above the amount remitted (unlike TDS, which is deducted from the payment). It is deposited against the individual's PAN number and can be adjusted against their total tax payable for the year.
• In cases where the remitter does not have a PAN or Aadhaar, the TCS rate is 10%.
• TCS does not apply if the buyer is liable to deduct TDS under another provision and has already deducted it, or if the buyer is a government entity, embassy, or other notified person.

Overseas Tour Program Packages — No Monetary Limit

For payments made for the purchase of overseas tour program packages, TCS must be collected by the seller regardless of the amount — there is no INR 700,000 threshold. An "overseas tour program package" is defined as any package offering visits to countries outside India, including travel, hotel, boarding, lodging, or related expenses.

Change 2: Revised Residency Rules for Determining Tax Status

Effective: April 1, 2020

The number of days required to qualify as an Ordinary Resident of India has been reduced from 182 days to 120 days in the relevant tax year (for individuals with Indian income exceeding INR 1.5 million).

Residency Categories Under Indian Tax Law

• Ordinary Resident: Entire Indian and global income is taxable in India.
• Not-Ordinary Resident: Entire Indian income is taxable, plus global income derived from a business controlled in or a profession set up in India.
• Non-Resident: Only Indian-source income is taxable.

Revised Test for Ordinary Resident Status

An individual is considered an Ordinary Resident if they meet either of the following:

• Present in India for 120 days or more (previously 182 days) in the relevant tax year; or
• Present in India for 60 days or more in the relevant tax year and 365 days or more during the four preceding tax years.

Special Provision for Indian Citizens and PIOs

Indian citizens and Persons of Indian Origin (PIOs) who visit India are subject to a relaxed rule: they qualify as Ordinary Residents only if present in India for 120 days or more (previously 182 days) in the tax year, along with 365 days in the preceding four years. Importantly, this revised 120-day rule applies only to those whose Indian income exceeds INR 1.5 million in the relevant year.

What This Means for NRIs in Canada

If you are an NRI living in Canada with ties to India — including assets, investments, or family members — these changes may affect your Indian tax filing obligations and the tax treatment of funds you send to or receive from India. It is important to review your situation with a professional who understands both Canadian and Indian tax law.

At GADT Tax Advisory Inc., our senior partner Amarjeet Deol is a Chartered Accountant with deep expertise in international taxation, including cross-border Canada-India tax matters. Contact us to discuss how these changes may affect you.

Disclaimer: The information provided is intended for general guidance only and does not constitute professional tax advice. Please consult a qualified professional before making financial decisions.