Concept of residence under the Income-tax Act depends upon the number of days one stays in India.

Residential status in India is a highly confusing subject, particularly to those who are not familiar with Indian tax as well as exchange control laws. Whenever a person says that he is a non-resident Indian (NRI) and wishes to claim certain tax benefits on the basis of such status, the question often springs to mind as to whether he really is an NRI. Most NRIs are not aware of the fact that in India, the concept of non-resident is not uniform, but quite different under the exchange control laws, which are governed by the provisions of the FOREIGN EXCHANGE MANAGEMENT ACT, 1999, from that prevailing under income-tax laws, which are governed by the provisions of the Income-tax Act, 1961.

To add to the complication, there is a concept of person of Indian origin (PIO) under exchange control laws, which is a category of persons entitled to almost similar benefits as those available to NRIs under exchange control laws. Under exchange control laws, different regulations have different definitions of PIO. Further, there is a definition of PIO under the income-tax law as well. A PIO under exchange control laws or under tax law is not to be confused with the holder of a PIO card issued by the government of India—a person may be a PIO under exchange control laws or under tax law merely by virtue of his birth to an Indian citizen or by virtue of former citizenship of India, though he may not necessarily be a PIO cardholder.

It is often possible that a person may be a non-resident of India under exchange control laws, but may be resident of India under income-tax laws, or vice-versa. To complicate matters further, certain provisions of the Income-tax Act grant a tax benefit to persons who are NRIs under exchange control laws, irrespective of their residential status under the income-tax law. For example, the exemption for interest on a non-resident external account (NRE) with a bank is available to a person who is non-resident under exchange control laws, irrespective of his residential status under income-tax laws.

The concept of residence under the Income-tax Act depends upon the actual number of days for which one stays in India, whereas that under exchange control laws also depends upon the intention to stay in India or to stay abroad. A person would be a resident of India for income-tax purposes if he is in India for more than 182 days during the fiscal, beginning 1 April and ending 31 March.

Does that mean that if you are in India for less than 182 days during the fiscal, you automatically become a non-resident? While that is true in most cases, there is also an alternative condition for being a resident of India, namely, if you are in India for 60 days or more during the year and 365 days or more during the earlier four fiscals. If you fulfil both these conditions, you are regarded as a tax resident of India, though you have been in India for less than 182 days.

There are two relaxations available from this period of 60 days, which provide relief to many NRIs, preventing them from becoming tax residents of India. The first relaxation applies only to an Indian citizen, who leaves India for the purposes of employment outside India or as a member of the crew of an Indian ship during the relevant year. In this case, instead of the requirement of 60 days or more, the requirement is 182 days or more. Therefore, a person leaving India for taking up a job outside India would not be a tax resident of India, if he is in India for less than 182 days during the relevant fiscal.

The second relaxation applies not only to Indian citizens but also to PIOs as defined under tax laws. Under tax law, a PIO is a person who, or either of whose parents, or any of his grandparents, was born in undivided India. The benefit is available if such a person is outside India and comes on a visit to India during the fiscal. In such a case, again the period of 60 days or more is replaced by a period of 182 days or more. Therefore, most NRIs who come to India to visit their relatives once a year and stay for a couple of months, or a little longer, need not fear becoming tax residents of India and having their worldwide income taxed in India.

Therefore, the next time you say that you are an NRI or a PIO, you should be clear that you are mentioning such status from the perspective in which you are stating that—from the viewpoint of exchange control laws or from the viewpoint of the income-tax law.