For non residents there are two set of legal framework applicable to them. The first legal framework is provided under the Income Tax Act, 1961 which deals with taxation of income of Non Residents. The other legal framework, deals with investment avenues available to an NRI and banking transactions which a non resident can carry out, is provided under the FEMA (Foreign Exchange Management Act) 1999. In this article I shall deal with the circumstances under which a person becomes a non resident for the purposes of FEMA.
When a person becomes a non resident under the FEMA
Unlike under the income tax law which determines status of a person on the basis of his physical stay in India, the foreign exchange regulations go by intention of an individual in addition to his physical stay in India. So under FEMA a person is treated as resident in case he has been in India for more than 182 days during the year prior to that year. However even under the following circumstances when an individual leaves India, he will still be not be treated as resident under FEMA and will become a non resident immediately in spite of he being in India for more than 182 days during the financial year immediately before that year. So you will become a non resident:
- As soon as you leaves India in order to take up an employment outside India or
- You leave India in order to start any business or profession outside India or
- Even you will become a non resident immediately as soon as you leave India with an intention to stay outside for an indefinite period of time.
So in the circumstances given above you will become a non resident as soon as your flight takes off your ship sails on water. However if you leave the country for availing medical treatment outside India or on a business trip or on holidays or even for taking study you would still not become a non resident as the intention to stay outside India is for a definite period and is not for an indefinite period. Likewise if you come back to India for taking up an employment or for carrying on any business or profession or to spend your retirement years here in India, you will become a resident for FEMA purpose immediately on your arrival.
Unlike under the provisions of Income Tax Laws the residential status is generally determined at the end of the year based on the physical stay in the country but the status under FEMA changes instantly on a person either leaving the country with an intention to stay out of India for uncertain period of time or coming to India with an intention to stay here for indefinite period of time.
So you would become a non resident if you leave the country to spend your retired life with your children immediately but you would still be a resident if you leave the country to take care of your daughter in law during her pregnancy in US.
It may be noted that a foreign citizen can become a resident of India under FEMA provisions and an Indian Citizen can become a non resident. Citizenship of a person does not have any bearing on your status under the FEMA provisions.
(The author is a CA, CS and CFP. He can be reached at jainbalwant at gmail.com and @jainbalwant)
By Balwant Jain (CA, CS and CFP)The author is a CA, CS and CFP. Presently working as Company Secretary of Bombay Oxygen Corporation Limited. Views are personal., He can be reached at firstname.lastname@example.org and @jainbalwant