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Questioning Citizenship-based Taxation in Budget 2020
The proposal in the Finance Bill, 2020 to introduce taxation on the basis of citizenship for those non-resident Indians who do not pay tax in their countries of residence has proven to be controversial. It creates an altogether new basis for taxation of income under Indian laws. While criticisms related to its (unintended) impact are justified, there is also a need to examine the constitutional validity of this move given the extraterritorial nature and impact of the tax.
The author would like to thank Akhileshwari Reddy, research fellow, and Mayank Singh, intern, at the Vidhi Centre for Legal Policy for their inputs.
Among the changes proposed to the Income Tax Act, 1961 in the Union Budget 2020–21, the introduction of a provision to tax Indian citizens, wherever they are, by deeming them to be “residents” for the purpose of the act has caught a lot of attention. The Finance Bill, 2020 proposes to do this by introducing Clause (1A) to Section 6 of the act, which defines residence in India for the purposes of the law.
(1A) Notwithstanding anything contained in clause (1), an individual, being a citizen of India, shall be deemed to be resident in India in any previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.1
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