A day after the Indian government proposed to tweak rules to prevent Non-Resident Indians (NRIs) from evading tax in India, the Finance Ministry on Sunday clarified that bona fide workers abroad, including those in the Middle East, who do not pay taxes in those countries, will not be affected by the new provision, according to an IANS report from New Delhi.

In a separate statement, the Central Board of Direct Taxes (CBDT), too, said the new provision is not intended to include in the tax net those Indian citizens who are bona fide workers in other countries.

A Finance Ministry official said the proposed provision in the general budget presented by Indian Finance Minister Nirmala Sitharaman on February 1 is not intended to include in the tax net those Indian citizens who are bona fide workers in other countries, the IANS report noted.

Earlier, an Indian citizen would become an NRI if he stayed out of the country for over 182 days and enjoyed tax benefits.

Under the new proposal, he now would have to stay outside India for 241 days to get the tax relief.

Amending the present provision in the income tax law, the budget proposed that "notwithstanding anything contained in Clause (1), an individual — being a citizen of India — shall be deemed to be a 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 a similar nature".

The official on Sunday said if an Indian citizen becomes a deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession.

Tax experts have claimed that the new NRI provision would disincetivise people from spending more time in India and hence make the country less attractive for entrepreneurs.

"Reducing the threshold of physical presence to 120 days in a year will make visiting NRIs more conscious of their travel dates. On one hand, the government has been keen to attract talent and onshore funds whereas on the other hand, this move will disincentivise people from spending more time in India," said Shefali Goradia of Deloitte India.

Sunday, the finance minister said the government has full sovereign right on the income generated by an NRI in India and as such s/he will be taxed as per Indian laws.

She, however, said the income accruing to the NRI from the country s/he is living in would not be taxed by India.

"What we are saying now (in the budget) that pay tax for the income generated in India," she said.

"If he is earning in a no-tax jurisdiction, why would we include that into our calculations? If you have a property in India and have got a rent through it, therefore, you carry this income too, meaning no tax there or no tax here. We have corrected this because this income is in the jurisdiction of India," the minister said.

"We have got full sovereign right to take consideration of the income from India property for those NRIs. I am not taxing what the NRI is earning elsewhere," she told IANS.

Meanwhile, the CBDT statement said "an Indian citizen shall be deemed to be resident in India if he is not liable to be taxed in any country or jurisdiction. This is an anti-abuse provision since it is noticed that some Indian citizens shift their stay in low or no tax jurisdictions to avoid payment of tax in India".

"The new provision is not intended to include in tax net those Indian citizens who are bona fide workers in other countries," it stressed.

The statement said it was incorrect to suggest that those Indians who are bona fide workers in other countries, including in the Middle East, and who are not liable to tax in those countries, will be taxed in India on the income that they have earned there.

"In order to avoid any misinterpretation, it is clarified that in case of an Indian citizen who becomes a deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession. Necessary clarification, if required, shall be incorporated in the relevant provision of the law," the statement added.