Migrating from India? Here's how your tax obligations will change

There are many reports indicating that high net-worth individuals (HNIs) are leaving India. According to estimates, 35,000 wealthy Indians have left the country between 2017 and 2021, and 8,000 more are predicted to do so in 2022. Central government’s study shows that 1 per cent of India's total population lives outside the country. Among them, more than six lakh have renounced their Indian citizenship in the past five years. The US, the UK, Canada, Malaysia, Singapore, Australia, Germany and the Gulf countries are the most popular places for immigration. Better career prospects, higher education, healthcare facilities and lower taxes could be some of the reasons to move. Emigrating and starting life afresh in a new land is not an easy task compounded by the stringent income tax rules across the countries.

Residential Status

An individual’s ‘residential status’ is likely to change in the year of migration based on the date of departure, the number of days stayed in India and the purpose of leaving. If an individual has satisfied any one of the two conditions - stayed here for 182 days or more during the previous year (PY) or 60 days or more during the PY and 365 days or more during the four years immediately preceding previous year (PPY) - then he is treated as a ‘Resident’ in India. Further, he could be either ‘ordinarily resident’ or ‘not’ on certain additional conditions.

A ‘resident’ is subject to higher taxes than a ‘non-resident’. If an individual leaves India on October 3, 2022, his stay in India exceeds mandatory 182 days and his residential status for Assessment Year (AY) 2023-24 is likely to remain the same as ‘ordinarily resident in India’ assuming that he has been resident in India for at least 2 out of 10 PYs immediately preceding the relevant PY and his total stay was 730 days or more during 7 years immediately preceding the relevant PY. Suppose if he had left India just a few days earlier, by midnight September 28, 2022, and was non-satisfied with the aforesaid conditions, his residential status would have changed to ‘Non-Resident’.

As anti-measure, certain exceptions were introduced to the ‘Residency Rules’ from FY 2020-21 and AY 2021-22 onwards. Accordingly, for those who leave India for employment purposes and Indian citizen or Person of Indian Origin ‘visit’ India, ’60-days’ shall extend to 182 days. To curb the potential tax abuse practice, if the annual income of these two classes - excluding foreign income - exceeds Rs 15 lakh, shall be 120 days (or more but less than 182 days).
An individual can be a ‘Resident’ in both countries, which attracts double taxes. In that scenario, he can invoke Double Tax Avoidance Agreements (DTAA) and avoid it. Currently, India has such arrangements with 88 tax jurisdictions.

Tax Clearance Certificate (TCC)

An individual leaving India for good is required to make an application before the concerned tax authorities. Based on that, it may direct the applicant domiciled in India to obtain a TCC. Post application, the Jurisdictional Assessing Officer will issue a TCC. In the case of a not domiciled applicant, an ‘NoC’ is to be issued. Generally, the IT Department does not give such certificates, hence, it is advisable to carry the ‘acknowledgement’ issued while submitting the application to produce before the immigration authorities. In his future IT returns, he should state his residential status as ‘non-resident’ and avail of ‘DTAA-benefits’, if applicable.
As far as RBI is concerned, there is no such requirement. However, he should inform his bankers about his change in residential status and ensure all his accounts are re-designated as NRO accounts.

According to Business Standard, in 2021, the number of high net-worth individuals having net assets of Rs 225 crore or more, increased 11 per cent to 13,637, from 12,287 in 2020. Not all of them may leave, however, to minimise the likelihood of their migration to other countries in near future the central government should revisit the last two Direct Tax Committees’ Reports and bring much delayed ‘Individual Income Tax Rate Rationalisation’ at par with corporate taxes and put more efforts in creating better healthcare facilities, educational institutions, infrastructure, high-end jobs which will go a long way.

(The author is the Founder and CEO, Shree Tax Chambers)