Introduction
For any individual undertaking any transaction in India or outside India, the most critical issues are the taxability of the transaction from a tax point of view and its permissibility from a FEMA perspective.
Before addressing complex issues related to permissibility and taxability, the first step is to determine the residential status of the persons involved in the transaction.
In this write-up, we will explain and examine the legal provisions concerning residential status for any individual from both tax and FEMA perspectives.
Residential Status under the Income Tax Act, 1961
Key Criteria (Section 6 of the Income Tax Act, 1961)
| Condition | Stay in India (Previous Year) | Stay in India (Past 4 Years) |
| Resident | 182 days or more | Irrelevant |
| Resident | 60 days or more | More than 365 days |
| Resident but Not Ordinarily Resident (RNOR) | 120-181 days (Indian Income > Rs. 15 lakhs) | More than 365 days |
| Non-Resident | Less than 60 days | Irrelevant |
Example Scenarios
| Name | Stay in India | Income in India / Status |
| Arvind | 200 days | Resident |
| Tanvi | 110 days | Rs. 18 lakh – Deemed Resident (RNOR) |
| Nikhil | 120 days | Rs. 20 lakh – RNOR |
| Sunita | 190 days | RNOR |
Residential Status under FEMA, 1999
Classification of Residents and Non-Residents under FEMA
| Case | Stay in India >182 days | Residential Status under FEMA |
| In India for employment | Yes | Resident |
| In India for business/profession | Yes | Resident |
| Indefinite stay in India (e.g., retirement) | Yes | Resident |
| Leaving India for employment | No | Non-Resident |
| Leaving India for business/profession | No | Non-Resident |
| Leaving India for an indefinite stay abroad | No | Non-Resident |
Example Scenarios
| Name | Scenario |
| Alex | Moved to India for a full-time job – Resident |
| Anna | 4-month business assignment in India – Non-Resident |
| Amit | Retired in India after 20 years abroad – Resident |
| Priya | Moved to Singapore to start a business – Non-Resident |
| Jamil | Working in Dubai, visits India for 80 days – Non-Resident |
Conclusion
Understanding your residential status is essential for tax planning and compliance with FEMA regulations. Once your status is determined, you can assess your tax liability and permissible financial transactions accordingly.
For queries, contact: [email protected].
Disclaimer
This blog is for informational purposes only and does not constitute legal, financial, or tax advice. Readers are advised to consult with a professional before making any decisions based on the content provided.
