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The Income Tax Appellate Tribunal (ITAT) Bengaluru bench has rejected Flipkart co-founder Binny Bansal's claim of non-resident status, denying him tax benefits under the India-Singapore Double Taxation Avoidance Agreement (DTAA).
Bansal argued that he resided in Singapore for employment and should be classified as a non-resident. But the ITAT ruled that he spent more than 60 days in India, satisfying the residential test under section 6(1)(c) of the Income Tax Act.
In its 189-page order, the tribunal said, "We hold that the assessee (Bansal) has been in India for more than 60 days and satisfied the residential test of provisions not section 6(1) c of the (Income Tax) Act and is not entitled to the relaxation in the period of stay...undisputedly, assessee is an Indian national."
The tax department also stated that relaxations under the IT Act relative to Bansal's claimed residential status can only apply to a person who is already a non-resident and not to an assessee who was a resident in the immediately prior year.
"If the stand of the assessee is accepted that for this assessment year [ AY 2020-21] also the assessee should get a benefit of extended time period of 182 days instead of 60 days as per the second limb of section 6 (1) (c) of the Act, than every person who visits India will get such an extension of period every year," the tribunal added.
Bansal sold equity shares of Indian companies and Flipkart Private Limited, incorporated in Singapore, during the financial year 2019-20.
Bansal sold approximately 600,000 shares to Tiger Global and other investors in 2019, and claimed that because he was a Singapore resident, he was not entitled to pay taxes in India under the India-Singapore Double Taxation Avoidance Agreement [DTAA].
However, the ITAT denied those claims of Bansal and asked the assessing officer to check and reissue a pending refund of over ₹5.8 crore, if it had not already been credited.
What you need to know to claim such a status
Residency Rules Under the Income Tax Act
NRI status is determined by the Income-tax Act of 1961, which classifies Indians living overseas as Resident, NRI, or RNOR based on their days in India. Residents are taxed on their worldwide income, whereas NRIs are taxed exclusively on income generated or received in India, making residential status critical for taxation and exemptions.
You are considered a non-resident if you don't fulfil either of the basic residency conditions in a financial year. These conditions involve staying in India for 182 days or more in the relevant financial year, or staying for 60 days or more in the current financial year plus 365 days or more in the four preceding years.
In the event of a citizen of India or a person of Indian origin, who is outside India and has been on a visit to India during the previous year, where the total income exceeds ₹15 lakh (excluding foreign income), the second condition's threshold becomes 120 days.
If an individual is a citizen of India and has a total income (other than foreign sources) in excess of ₹15 lakh during a fiscal year, he shall be deemed to be an Indian resident for that year if he is not a tax resident of any other nation.
Who is a Non-Resident in India?
If you do not meet the conditions listed above for being considered a resident of India, you would be classified as a Non-Resident Indian (NRI), according to ClearTax.
What is Double Taxation Avoidance Agreement?
The Double Taxation Avoidance Agreement (DTAA) is an agreement signed by India and several other nations to ensure that individuals and businesses are not taxed twice on the same income. DTAA is particularly important for a person making income in one nation while residing in another without DTAA; such income may be taxed in both countries.
But once the DTAA is in place, you will only be obligated to pay taxes in one country, not both. Your earnings would be taxable in both countries. However, taxes paid in one nation can be claimed as a credit in another, preventing double taxation under DTAA provisions.
The benefit of DTAA can be claimed through three methods:
- Deduction: Taxpayers can claim the taxes they pay to foreign governments in their home nation.
- Exemption: Tax reduction under this can be claimed in either of the two nations.
- Tax credit: This method allows for tax relief to be claimed in the nation of residence.
Bansal argued that he resided in Singapore for employment and should be classified as a non-resident. But the ITAT ruled that he spent more than 60 days in India, satisfying the residential test under section 6(1)(c) of the Income Tax Act.
In its 189-page order, the tribunal said, "We hold that the assessee (Bansal) has been in India for more than 60 days and satisfied the residential test of provisions not section 6(1) c of the (Income Tax) Act and is not entitled to the relaxation in the period of stay...undisputedly, assessee is an Indian national."
The tax department also stated that relaxations under the IT Act relative to Bansal's claimed residential status can only apply to a person who is already a non-resident and not to an assessee who was a resident in the immediately prior year.
"If the stand of the assessee is accepted that for this assessment year [ AY 2020-21] also the assessee should get a benefit of extended time period of 182 days instead of 60 days as per the second limb of section 6 (1) (c) of the Act, than every person who visits India will get such an extension of period every year," the tribunal added.
Bansal sold equity shares of Indian companies and Flipkart Private Limited, incorporated in Singapore, during the financial year 2019-20.
Bansal sold approximately 600,000 shares to Tiger Global and other investors in 2019, and claimed that because he was a Singapore resident, he was not entitled to pay taxes in India under the India-Singapore Double Taxation Avoidance Agreement [DTAA].
However, the ITAT denied those claims of Bansal and asked the assessing officer to check and reissue a pending refund of over ₹5.8 crore, if it had not already been credited.
What you need to know to claim such a status
Residency Rules Under the Income Tax Act
NRI status is determined by the Income-tax Act of 1961, which classifies Indians living overseas as Resident, NRI, or RNOR based on their days in India. Residents are taxed on their worldwide income, whereas NRIs are taxed exclusively on income generated or received in India, making residential status critical for taxation and exemptions.
You are considered a non-resident if you don't fulfil either of the basic residency conditions in a financial year. These conditions involve staying in India for 182 days or more in the relevant financial year, or staying for 60 days or more in the current financial year plus 365 days or more in the four preceding years.
In the event of a citizen of India or a person of Indian origin, who is outside India and has been on a visit to India during the previous year, where the total income exceeds ₹15 lakh (excluding foreign income), the second condition's threshold becomes 120 days.
If an individual is a citizen of India and has a total income (other than foreign sources) in excess of ₹15 lakh during a fiscal year, he shall be deemed to be an Indian resident for that year if he is not a tax resident of any other nation.
Who is a Non-Resident in India?
If you do not meet the conditions listed above for being considered a resident of India, you would be classified as a Non-Resident Indian (NRI), according to ClearTax.
What is Double Taxation Avoidance Agreement?
The Double Taxation Avoidance Agreement (DTAA) is an agreement signed by India and several other nations to ensure that individuals and businesses are not taxed twice on the same income. DTAA is particularly important for a person making income in one nation while residing in another without DTAA; such income may be taxed in both countries.
But once the DTAA is in place, you will only be obligated to pay taxes in one country, not both. Your earnings would be taxable in both countries. However, taxes paid in one nation can be claimed as a credit in another, preventing double taxation under DTAA provisions.
The benefit of DTAA can be claimed through three methods:
- Deduction: Taxpayers can claim the taxes they pay to foreign governments in their home nation.
- Exemption: Tax reduction under this can be claimed in either of the two nations.
- Tax credit: This method allows for tax relief to be claimed in the nation of residence.
