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Last Updated : Jul 23, 2019 04:08 PM IST | Source: Moneycontrol.com

Deciding residential status for taxes, a complex affair

A taxpayer’s foreign income is charged to tax in India if he is a resident in India

Sanjeev Pandit

A large number of Indians are working abroad or have expanded their business ventures overseas and `shifted’ from India. A person working with a company having businesses in several countries may have to travel all over the world, including to India, throughout the year. If an individual resides abroad, his taxpayer spouse or parents may join him in the foreign country. But, at the same time, they keep travelling to India for an extended period of time.

Individual taxpayers having businesses in India as well as overseas also stay in India for a long period of time. In all such cases, the question that arises is whether the taxpayer is a resident of India during the year. A taxpayer’s foreign income is charged to tax in India if he is a resident in India. On the other end, if he is a non-resident, he is not liable to declare and pay tax on his income earned in the other country. It, therefore, becomes important to decide the residential status of a person.

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Deciding residential status

For deciding whether an individual is resident in India in any year, his physical presence in that year, as well as in the earlier years, is primarily the deciding factor. It is common knowledge that if a person stays 182 days or more in India, he is a resident of India for the purposes of taxation. Apart from this condition, a person may become a resident in a situation where he has been in India for 365 days or more in the four earlier years and in the tax year he’s in India for 60 days or more. This limit of 60 days is relaxed in three cases and, in these three situations, the taxpayer can be a non-resident so long as he isn’t present in India for 182 days or more in the tax year.

These three cases are: (i) a citizen of India leaving India as a member of crew of Indian ship; (ii) a citizen of India who leaves India for the purposes of employment outside India; and (iii) a citizen of India or a person of Indian origin, who is otherwise outside India, comes on a visit to India in the current year.

The first two cases where the taxpayer leaves India as a crew member of Indian ship or for employment outside India do not generally create any problem. However, the third case of a person visiting India at times creates difficulty. In order to get the benefit of staying in India for up to 181 days and yet be a non-resident, the law requires that the taxpayer who has been outside India comes on a visit to India and not vice versa. A question that often arises is whether the person, when he’s in India, is visiting India or in fact, he is primarily residing in India and visiting a foreign country for an extended period of time.

Subjective definition

Whether a person is visiting India or if he is visiting a foreign country is rather subjective and so the answer depends on the accompanying details. For example, if a person has businesses both in India and other countries and such a person is present in India for, say, 170 days at a stretch, the question arises whether he is visiting India or if he is primarily in India and only visits various countries during the remaining days of the year. In such cases, facts become important.

Does the person have a house only in India or does he have a property in the foreign country? Did he come to India on a return ticket for a pre-determined period? Does he hold an executive position in a company in India or abroad? All such factors and many more will have to be taken into account to decide whether the person is visiting India. If one comes to a conclusion that he was in fact visiting the other countries rather than visiting India, then he would be resident if his stay in India is 60 days or more.

A similar situation may arise, wherein the taxpayer’s spouse or parents stay in India for part of the year and in the foreign country for the balance period. Deciding on this issue becomes difficult, although the consequences of becoming resident may not be very serious if the spouse or the parents do not have any income in the foreign country. It’s another issue that their income in India may become chargeable to tax in the foreign country if they become resident of that country due to their long stay in that country.

When the stay of the taxpayer in India is close to the number of days that will make him a resident, it becomes important to calculate the days that the person has stayed in India. Do you include the day of the arrival and the day of the departure in calculating your stay in India? It can make a significant difference if you have come to India and left many times during the year.

The courts, in a few cases, have held that the day of the arrival and the day of the departure need not be included in calculating how long a person has stayed in India. The conservative view is that on both the day of arrival and the day of the departure, the person was in India, although may have been for a very short period.  It is better to plan in advance and avoid controversy.

(The author is a Chartered Accountant and views are personal)

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First Published on Jul 23, 2019 04:08 pm
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