Private Client Series
Series 1 | Article 2
Determining your residential status is important because the Foreign Exchange Management Act, 1999 (“FEMA”) treats “residents” and “non-residents” differently. FEMA and the Income Tax Act, 1961 (“Tax Act”), serving different purposes, define and determine residential status of an individual differently. While the criteria to determine residential status under the Tax Act is important for tax considerations, we will in this article focus on the criteria set out under FEMA.
As it relates to individuals, FEMA defines the term, “person resident in India” from the perspective of a person's intention to reside in India physically for an uncertain or indefinite period.
Under FEMA an individual is considered a person resident in India if they have resided in India for more than 182 days in the preceding financial year, i.e. April to March.
This includes a person who has come to or stays in India:
for employment in India, or
for carrying on in India a business or a vocation, or
for any other purpose that would indicate their intention to stay in India for an uncertain period.
Example 1: An individual, not being an Indian citizen, is appointed the CEO of an Indian entity and comes to and stays in India for more than 182 days, they will be considered a person resident in India in the following financial year. In this example both conditions of being employed in India and residing in India for more than 182 days in the previous financial year are satisfied.
Example 2: An individual, not being an Indian citizen, is appointed the CEO of a multinational company and visits India for business purposes periodically and within the financial year cumulatively for more than 182 days. They will be considered a person resident in India in the following financial year. The condition of spending 182 days in India in the previous financial year and the visit being for the purpose of business are both met.
Example 3: An individual, permanently based in a country other than India visits India for business for a period of 180 days in a financial year. They will not be considered a person resident in India in the following financial year, the condition of residing in India for more than 182 days not being met.
Example 4: An individual, being a citizen of a foreign country but being an overseas citizen of India, having retired comes to India with the intention of residing in India indefinitely. They spend more than 182 days in a financial year in India and continue residing in India. They will be considered a person resident in India as they have satisfied the condition of residing in India for more than 182 days as well as residing in India for a reason that indicates their intention to reside in India for an uncertain period of time.
However, the definition of “a person resident in India” does not include a person who has gone out of India:
for employment outside India, or
for carrying on outside India a business or vocation, or
for any other purpose which indicates that they intend to reside outside India for an uncertain period.
Example 1: An Indian citizen permanently employed and residing in the United Kingdom visited India for more than 182 days in the preceding financial year and then returned to the United Kingdom. They will not be considered a person resident in India as they are employed outside India and the visit to India does not indicate an intention to reside in India for an uncertain period having gone back to the United Kingdom.
Example 2: An Indian citizen acquires the residence of another country by virtue of residing there for a long time and intending to reside there indefinitely. They have their business established in that foreign country and a permanent residence. They visit India periodically to visit family and may even spend more than 182 days in India in a financial year. They will not be considered a person resident in India.
The next article will deal with the residential status of an individual under the law of Income Tax.
About the Author
Pranay Mangharam is a founding member of MZD Legal Consultancy. He leads the firm's private client; technology; and transaction advisory practices. Pranay advises high-net-worth individuals, closely held businesses, and family offices on a range of private matters including their investments, succession planning, trans-border holdings, etc. He can be contacted at pranay@mzdlegal.in
About MZD Legal Consultancy
MZD Legal Consultancy is a boutique law firm in Mumbai, India. The firm was established in 2011 and comprises professionally qualified lawyers with varied levels of experience and expertise in specific practice areas. To know more, click here www.mzdlegal.in
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