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What is the chaos around NRI taxation in Income Tax Act?
Currently IT Act provides that if you are a resident of India (as per tests laid down in IT Act - your residency depends on the number of days you stay in India cumulatively), your worldwide income will be taxed in India.
If you are non-resident in India (ie you don't cross the threshold of number of days for residency) only income received in or sourced to India will be subject to tax in India.
The finance bill now proposes to add a provision to IT Act which connects your taxability in India to your citizenship. So if you are a citizen of India but not paying tax in any other jurisdiction in the world, you'll have to pay tax in India.
This means if you are an Indian Citizen who is non-resident in India and earning income outside India (ie our income is not received in India or cannot be sourced to India) you may still have to pay tax in India if you are not paying tax anywhere else.
While this is the proposed section, Government came out with a press release today which says that this is just an anti-abuse provision and you don't have to be worried if you are a 'bonafide worker' outside India, earning income outside India.
BUT the Finance Bill does not define who a 'bonafide worker' is. Currently there are no standards under IT Act, which clarify who a 'bonafide worker' is. You have to prove if you are a bonafide worker or not.
This means tax authorities may still come after you, you may still have to undergo assessment/ litigation to prove you are a bonafide worker. Even the exemption of bonafide worker is only under the press release, not in the IT Act.
The Press Release says that this exemption for bonafide workers MAY BE made in the proposed amendment IF REQUIRED. So it cannot be said for sure if the language of "bonafide worker" will make it to the amended IT Act, let alone the clarity on its definition.
Arguing for exemption as a bonafide worker on the basis of a Press Release may be harder than arguing on the basis of the written law (IT Act).

Hope this helps.
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