Explanation: How non-resident status is determined under FEMA regulations

There are two types of legal frameworks that apply to non-residents. The first is the Income Tax Act, 1961, which regulates the taxation of income of non-residents. The other legal framework is the Foreign Exchange Management Act (FEMA), 1999, which regulates the investment avenues available to non-residents and the banking transactions that non-residents can engage in. We have already discussed when one becomes a non-resident under income tax laws and its implications.

In this article, I will explain how a person becomes a FEMA non-resident.

When a person becomes a non-resident under FEMA, unlike the income tax law which determines a person’s status based on his physical stay in India, foreign exchange regulations are generally governed by the person’s intention in addition to his physical stay in India. Thus, under FEMA, a person is treated as a resident if he has been in India for more than 182 days during the previous year. However, even in the following circumstances, when a person leaves India, he will not be treated as a resident under FEMA. He will become a non-resident immediately, despite having been in India for more than 182 days during the tax year immediately preceding that year.

When will you become a non-resident?

1) As soon as you leave India to take up employment outside India or

2) Leaves India to start any business or profession outside India or

3) You leave India with the intention of staying away for an indefinite period.

In the circumstances described above, you will become a non-resident when your flight takes off or your ship sets sail. 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 fixed period, you are considered a resident of India under FEMA.

However, the FEMA Act treats students who go outside India for studies as non-residents as soon as they leave the country, even if their stay outside India is for a definite period.

Similarly, if you return to India to take up employment, carry on any business or profession, or stay here for an indefinite period, such as spending your retirement years here in India, you will become a resident for an indefinite period of time. FEMA purposes immediately after arrival.

Under the Income Tax LawA person’s resident status is usually determined after the end of the financial year based on his or her physical stay in India. However, the status under FEMA changes instantly when a person leaves India with the intention of staying outside the country for an uncertain period or comes to India to stay here indefinitely.

So, if you leave India to spend your retirement life with your children, you will immediately become a non-resident. However, you will remain a resident if you leave the country to take care of your daughter-in-law during her pregnancy in the US, irrespective of your stay outside India.

It may be noted that a foreign national can become a resident of India under the provisions of FEMA and retain his foreign citizenship, and an Indian citizen can become a non-resident without having to renounce his citizenship. A person’s citizenship has no bearing on his status as a resident under the provisions of FEMA.

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.

Read all our personal finance stories here

Balwant Jain is a tax and investment expert and can be contacted at [email protected] and @jainbalwant on social media platform X (formerly Twitter).

Disclaimer: The opinions and recommendations expressed above are those of individual analysts and not those of Mint. We recommend that investors consult with certified experts before making any investment decisions.