COVID-19 and NRI taxation : An analysis in light of the case of Gaurav Baid v. UOI



COVID-19 was an unprecedented situation. Nobody expected it and thus, nobody was prepared. The legal industry was also not left untouched by its effects. Several issues related to force majeure, taxation, adoption, insurance claims, etc. arose. The issue regarding taxation of NRIs during COVID-19 was one such issue that the Court dealt with. The Central Board of Direct Taxation (CBDT) provided some respite to the Non-residential Indian (NRI) taxpayers but it was not enough and then the Supreme Court had to interfere. Let us study this whole scenario in light of the judgment of Gaurav Baid v. Union of India, (2021).

Provisions regarding payment of taxes based on residence

Section 6 of the Income Tax Act, 1961 lays down the provisions for residence for the payment of taxes. It lays down provisions for a resident, non-resident, and non-ordinarily resident.


If the person is in India in that year for a period of 182 days in totality, or, if he has been living in India for a term of 365 days in the immediately preceding four years and for a minimum of 60 days in the current financial year, he qualifies as a resident.

Non-ordinarily resident

A person is said to be ‘non-ordinarily resident’ in India for any previous year if he is a non-resident for 9 out of ten years preceding that taxable year or who has lived in India for a period less than 729 days for the preceding seven years.


An individual living in India for less than 182 days in a fiscal year will be a Non-Resident Indian. Once the classification is done, the tax is obtained from them. For the resident Indians, the domestic residence rules determine the tax and for the non-resident Indians, the tax is calculated based on their income in India. Section 5 of the Income Tax Act lays down the provisions for the source rule. Section 5 (2) lays down that the income of a non-resident Indian for a previous year is that which is received in India or which is received on behalf of that person. It is also the income that is accrued by that NRI in India in that particular year.

Recently through the Finance Bill, 2020-2021, the exception provided in clause (b) of Explanation 1 of sub-section (1) to Section 6 was amended and now the period of 184 days for visiting India in that year (for the purpose of taxation) has been decreased to 120 days. This amendment has become effective from April 2021 and will apply for assessment from the year 2021-22. This amendment will only apply in those cases where the income is more than 15 lakhs, otherwise, the older provisions would apply. Thus, the following table can be referred to while deciding the taxation depending upon the resident-

S.No.DescriptionResident and Ordinarily Resident and taxationResident and Not Ordinarily Resident and taxationNon-resident and taxation
Income received or deemed to be received in IndiaYesYesYes
Income which accrues or arises or is deemed to accrue or arise in IndiaYesYesYes
Income that accrues or arises outside of India from-

-Business set up in India

-Other income








COVID-19 and its impact on NRI taxation

Due to the Coronavirus, a lockdown was announced on 24th March 2020. Everyone got stuck wherever they were. The same happened with NRIs and they got stuck in India and were forced to stay here beyond their estimated limits. This led to fear amongst them as now they had to pay higher taxes as they were staying in India. The Central government acknowledged their fear and issued a notification that provided tax relief to such stranded NRI’s. The Central Board of Direct Taxes issued the following notification for the NRI’s who came to visit India on or before 22nd March 2020-

  1. If the NRIs have been unable to leave India on or before 31st March, then the period between 22nd March and 31st March would not be considered in the 182 days.
  2. If they were quarantined in India during or after March and thus were unable to leave, the duration of this stay would not be counted in the 182 days.
  3. If they have been evacuated from India on or before 31st March then the period between 22-31st March would not be counted in the taxation period.

This circular sought to provide some relief to these non-resident Indians. However, another lockdown happened in the financial year (FY) 2020-2021 and again the NRI’s were in hot soup. But this time, no circular was issued by the CBDT clarifying the status of taxation by such NRI’s. Therefore, a plea was filed by the petitioner Gaurav Baid seeking clarification from the Apex Court.

Gaurav Baid v. Union of India (2021)

This petition was filed by Gaurav Baid, an Indian residing in UAE. He had come to visit India but was later stranded here due to the suspension of international flights. His time limit of 182 days was exceeded. Against this backdrop he filed a writ petition in the Supreme Court, asking for relief from paying taxes during his duration of overstay in India. He brought the CBDT’s March 2020 circular to the attention of the Court and asked for similar relief in the present situation. The Supreme Court asked the petitioner to approach CBDT within three days of the present writ. It further ordered CBDT to solve the petitioner’s problem within 3 weeks and then the Court dismissed the case.

Impact of Gaurav Baid’s case

In pursuance of the orders of the Hon’ble Supreme Court, CBDT passed a notification for the NRIs who got stranded in India during the FY 2020-21. Following are the provisions laid down by the notification-

  1. A short stay would not qualify a non-resident Indian or a resident but not ordinarily resident Indian to become an Indian Resident.
  2. The circular said that as the provisions for residency for taxation are similar in other countries like the US and France, the relief should be provided in all jurisdictions and not just in India. In short, it discussed the consequences of such relief.
  3. The CBDT held that the tie-breaker rule shall be applicable in such a case. The tie-breaker rule is laid down in the Double Taxation Avoidance Agreements (DTAA) and is used to decide which residency shall be applicable in a given case for the purpose of taxation.
  4. It also talked about the employment income and said that it would be applicable under ‘DTAA’.
  5. It said that NRI’s would be able to avail the benefit of rule no. 128 of the Income Tax Rules, 1962 in case they have paid taxes in other jurisdictions.
  6. It notified that in case of double taxation, an NRI may approach the Principal Chief Commissioner of tax who will then decide if any specific reliefs have to be provided.

Thus, the  CBDT passed this circular in light of the judgment of Gaurav Baid and provided relief to the NRI’s ensuring that no one should be taxed twice. CBDT concluded by stating that, “there does not appear a possibility of the double taxation of the income the Previous Year, 2020-2021”.

An analysis of CBDT’s notification

The notification had several loopholes and did not provide the remedy that the petitioner Gaurav Baid was looking for. The notification specifically applies to the employed NRI’s and also for the taxation under the DTAA agreement. This would not provide respite to the whole NRI class and would only benefit certain strata. Also, the judgment does not throw light on the plight of such persons who have shifted to a new jurisdiction within the past two or three years. This would lead to a problem for such people who might have been stranded during the lockdown in FY 2020-21 and were not able to return. They will not be able to qualify as a resident or a non-ordinary resident.

The circular stated that the unsatisfied people, that is, those who have been taxed twice can approach the Principal Chief Commissioner of Tax. This may lead to ambiguity and subjectivity comes into play. The Commissioner can get burdened with cases and the applicants may have to wait for a very long period. The circular fails to consider those cases where an unintended business might be set up in India owing to the overstay. Under Section 9, an income can accrue in India due to an overstay and the CBDT’s notification is mute on the same. A person stranded in India may qualify as a ‘resident’ but not ‘ordinarily resident’ and still have to pay exorbitant taxes in comparison to ordinary residents. Further, the circular expects that all stranded NRI’s might be able to travel back to the countries in which they were residing under the air bubble agreement. But it fails to reconsider the consequences for the countries for which there is no air bubble agreement. Also, some people might not want to travel due to the threat of infection. There are challenges from the perspective of Place of Effective Management (POEM) and Business Connection (BC) / Permanent Establishment (PE) that might act as the bone of contention. Therefore, the circular by CBDT gives some relief but is not at par with the expectations of the non-resident Indians.