The residential status (RS) of a person in India depends generally on his period of stay in India. The period of stay is counted in number of days for each financial year beginning from 1st April to 31st March (known as previous year under the Income-tax Act, 1961). It is pertinent to note that the day of departure from India and the day of arrival in India shall also be considered as a day of stay in India. The definition is explained in simple terms below:

·        NON-RESIDENT

An individual who satisfies understated both the conditions of clause (1) of Section 6 of the Income-tax Act, 1961 (the “Act”) then he shall be considered as a Non-Resident as per the Act:

  *However, the condition of stay of 60 days is extended as below for the following individuals:

  ** As per recent amendments vide Finance Act, 2020

·        DEEMED RESIDENT:

Over the years, some individuals especially HNIs would arrange their affairs in such a manner that they would qualify as Non-resident in India as well as overseas and consequently, escaped paying taxes in both India and overseas or paid lower taxes in certain jurisdiction. In order to curb such circumstances, concept of deemed residency was introduced vide Finance Act 2020.

An individual is deemed to be “Resident” in India in the relevant previous year, irrespective of number of days of stay in India, if the following conditions are satisfied:

a.    Individual is Citizen of India;

and

b.    has total income exceeding Rs. 15 lakhs (other than income from the foreign sources) in India during the previous year;

and

c.    who is not liable to tax in any other country or territory by reason on his domicile or residence or any other criteria of similar nature.

Such individuals shall be ‘deemed residents’ and shall be considered as “RNOR” (explained in below paragraphs).

However, the above provision of deemed residency shall not apply to the following cases:

-         An individual, who is already said to be resident in India under clause (1) of Section 6 of the Act (explained in below paragraphs)

-         Individuals who are bonafide workers in other countries including Middle East, and who are not liable to tax in the said countries (As per CBDT press Release dated February 2, 2020).

Accordingly, an Indian Citizen working in UAE will not be considered as deemed to be ‘Resident’ in India, since he/she is a bonafide worker in UAE. In order to bring more clarity, an amendment was subsequently introduced in the statute in lines with the CBDT Press Release and the expression “liable to tax” was defined in the Act. 

·        RESIDENT:

In a case where any one of the above two conditions, as explained under clause (1) of Section 6 are not satisfied (refer above table), the person shall be treated as a “Resident in India”.

Resident is further classified into two categories:

1)   RESIDENT BUT NOT ORDINARILY RESIDENT (RNOR)

2)   RESIDENT AND ORDINARILY RESIDENT (ROR)

1)   RESIDENT BUT NOT ORDINARILY RESIDENT (RNOR):

     A person is given a special status of RESIDENT BUT NOT ORDINARILY RESIDENT (RNOR) if he satisfies one of the following conditions:

2)   If an Individual does not satisfy all of the above conditions, then he will be considered as RESIDENT AND ORDINARILY RESIDENT (ROR) and may be subject to tax on his/her global income.

IMPORTANT NOTES:

1.    Generally, a person who is returning to India after 9 years of stay outside India (and who was non-resident for each of the 9 years under the Act), may remain RNOR for the period of minimum two years

2.    The calculation of Rs. 15 lakhs income is important for determination of RS. However, there is no complete clarity on what is included in income other than foreign source and how to compute such income. It has to be decided on case-to-case basis under professional advice.

3.  RS of a person is very important as taxability of income in India is based on individual’s RS.

- Updated 01/2023

A.   Who is a Non-Resident as per FEMA:

An Indian citizen residing abroad is popularly known as Non-Resident Indian (NRI). The NRI status is legally defined under the Foreign Exchange Management Act, 1999 (FEMA) and the Income Tax Act, 1961 for applicability of respective laws.

Person resident in India and Person resident outside India as defined under FEMA is iterated as under:

Ø     A person is said to be resident in India if he has resided in India for more than 182 days during the preceding FY but does not include the following:

1)   a person who has gone out of India or who stays outside India, in either case—

·        for or on taking up employment outside India, or

·        for carrying on outside India a business or vocation outside India, or

·        for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

2)   a person who has come to or stays in India, in either case, otherwise than—

·        for or on taking up employment in India, or

·        for carrying on in India a business or vocation in India, or

·        for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period

Ø     Further, person resident outside India" means a person who is not resident in India

Ø     In simple terms, the RS of individual under FEMA is determined as under:

1)   The residential status of a person leaving India will be determined us under: 

If a person leaves India for the purpose of employment, business or for any other purpose that indicates his intention to stay outside India for an uncertain period; then he becomes a Person resident outside India (non-resident) from the day he leaves India for such purpose. 

All those who left India to settle outside India are covered under this.

2)   The residential status of a person returning to India will be determined us under: 

If a person comes to India for the purpose of employment, business or for any other purpose that indicates his intention to stay in India for an uncertain period; then he becomes a person resident in India from the day he comes to India for such purpose. 

3)   Considering the above explanation, in our opinion, if a person comes as a tourist, or for any purpose (not for employment or business in India), AND, he comes for a fixed or certain period of time he will continue be a person resident outside India 

Ø     As per the definition given in the Foreign Exchange Act, stay for a period of 182 days in India in a previous year makes an individual a Person resident in India. However, in our opinion, the period of stay does not affect determination of status as stated in (1) and (2) above.  

Ø      Anyone who is a person resident outside India (non-resident) under FEMA, has restrictions on entering into financial transactions in India or with anyone who is a resident in India. The restrictions consist of prohibition, prior or post permission or reporting compliance under the Regulations and or under FEMA. 

Ø      Residential status as per FEMA under various scenarios if a person leaving India on 1^st June 2022:

B.   Who is a Person of Indian Origin (PIO)?

Person of Indian Origin (PIO) means a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by the Central Government, satisfying the following conditions:

a.    Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or

b.    Who belonged to a territory that became part of India after the 15th day of August, 1947; or

c.    Who is a child or a grandchild or a great grandchild of a citizen of India or of a person referred to in clause (a) or (b); or

d.    Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred to in clause (a) or (b) or (c)

C.   Who is an Overseas Citizen of India (OCI)?

The Constitution of India does not allow holding dual citizenship i.e. Indian citizenship and citizenship of a foreign country simultaneously.

However, after repeated demand from persons of Indian origin for allowing dual citizenship, Government in 02.12.2005 started Overseas Citizen of India scheme. However, it is to be noted OCI is not dual citizenship of India. Registration as an OCI provides the registrant few benefits.

However, as per Gazette notification No. 26011/01/2014IC.I published on 09.01.2015 all the existing PIO card holders registered as such under new PIO Card scheme 2002, shall be deemed to be Overseas Citizens of India Cardholder (OCI).

Therefore from 09.01.2015, one can only register as OCI cardholder and existing PIO cardholders may be considered as OCI cardholders.

Further, few major benefits of becoming an OCI are as below:-

·        A multiple entry/ multi- purpose life-long visa for visiting India

·        Exemption from registration with local police for any length of stay in India

·        OCI may be granted Indian citizenship after 5 years from date of registration provided he/she stays in India for 1 year before making application and citizenship of other country is renounced.

·        Employment allowed in all areas except mountaineering, missionary and research work and other work requiring PAP/RAP (PAP-protected area permit, RAP- Restricted area permit)

·        Parity with NRIs in financial, economic and educational fields except in the acquisition of agricultural or plantation properties.

                                                                                                                                                                                                           - Updated 05/2023