For non-residents, two sets of legal frameworks apply to them. The first legal framework is provided under the Income Tax Act of 1961, which deals with taxing Non-Residents' income. The other legal framework is provided under the FEMA (Foreign Exchange Management Act) 1999, which deals with investment avenues available to non-residents and banking transactions which a non-resident can carry out. We have already discussed the when one becomes a non-resident under income tax laws and its implications.
In this article, I will explain how a person becomes a non-resident of FEMA.
When a person becomes a non-resident under the FEMA, unlike under the income tax law, which determines the status of a person based on his physical stay in India, the foreign exchange regulations generally go by the intention of an individual in addition to his physical stay in India. So, under FEMA, a person is treated as a resident if he has been in India for more than 182 days in the preceding year. However, even under the following circumstances, when an individual leaves India, he will still not be treated as a resident under FEMA. He will become a non-resident immediately, despite being in India for more than 182 days during the financial year immediately before that year.
1)As soon as you leave India to take up employment outside India or
2) You leave India to start any business or profession outside India or
3)You leave India with the intention to stay outside for an indefinite period.
Under the circumstances above, you will become a nonresident when your flight takes off or your ship sails on water. If you leave the country for medical treatment outside India, on a business trip, or on holiday, and because your stay outside India is for a definite period, you are treated as a resident of India under FEMA.
However, the FEMA law treats students who go outside India to take up study as non-residents as soon as they leave India, even if their stay outside India is for a definite period.
Likewise, if you come back to India to take up employment, carry on any business or profession, or stay here for an indefinite period, like spending your retirement years here in India, you will become a resident for FEMA purposes immediately upon your arrival.
Under the Income Tax Law, the residential status of a person is generally determined after the end of the financial year based on your physical stay in India. Still, the status under FEMA changes instantly when a person either leaves India with the intention to stay out of India for an uncertain period or comes to India to stay here indefinitely.
So, you would become a non-resident immediately if you left India to spend your retired life with your children. However, you would still be a resident if you left the country to care for your daughter-in-law during her pregnancy in the US, irrespective of your stay outside India.
It may be noted that a foreign citizen can become a resident of India under FEMA provisions while retaining his foreign citizenship, and an Indian Citizen can become a non-resident without having to surrender his citizenship. A person's citizenship does not have any bearing on your residential status under the FEMA provisions.
Please note that a person can be a resident under FEMA, a non-resident under income tax laws, and vice versa at the same time.
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Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and on @jainbalwant on social media platform X (formerly Twitter)
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