In India, management of foreign exchange is regulated under the Overview of Foreign Exchange Law in India. FEMA law regularises cross border transactions involving foreign exchange(s) and also imposes restrictions and requires approval procedures from regulatory authorities, in certain pre-identified transactions. The restrictions and approval procedures are applicable to an individual/ legal entity, depending upon their residential status under FEMA. Thus, it becomes imperative to determine the residential status under the law of FEMA before entering into any transactions where foreign exchange is involved.
A. Classification of residential status under FEMA:
- Person resident in India (“Resident Indian”):
- Residential Status of an Individuals: Person being an individual residing in India > 182 days during the course of the preceding financial year but does not include,
- Person who has gone out of India or who stays outside India, in either case
- Residential Status of an Individuals: Person being an individual residing in India > 182 days during the course of the preceding financial year but does not include,
- For or on taking up employment outside India; or
- For carrying on a business or vocation outside India; or
- For any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period.
- Person who has come to or stays in India, otherwise than,
- For or on taking up employment in India; or
- For carrying on a business or vocation in India; or
- For any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period.
- Residential Status of a person other than an Individual:
Residential status of a person other than an individual would cover under its ambit, HUF, Company, Firm, Association of Person, Body of Individuals and every artificial juridical person.
- If such person or body corporate are registered or incorporated in India, it would be considered as person resident in India.
- Further, any office, branch or agency of such person incorporated outside India whereby it is owned or controlled by person resident in India, such office, branch or agency would also be considered as person resident in India.
- Similarly, any office, branch or agency, incorporated in India, which is owned or controlled by a person outside India, would also be considered as person resident in India.
- Person resident Outside India:
Person resident outside India would refer to each case not falling in the above categories. It has been defined to mean a person who is not resident in India.
B. Detailed Analysis for determining residential status in India and case studies:
- As it can be read from above, intention of staying in India or outside India is important for analysing residential status of a person in India under the FEMA law.
- Even if a person has stayed in India for more than 182 days in the preceding financial year, but leaves India for say, taking up employment outside India, such person would not be considered as resident in India;
- Similarly, if a person comes to India and stays for less than 182 days in the preceding financial year, but intension of staying in India is for taking up employment, such person would be considered as resident in India for FEMA purposes immediately from the date of arriving in India;
- In light of ambiguity around student leaving India for higher studies, FEMA laws were not clear for their residential status. As it also involves possibilities of student staying abroad for taking up employment even if their primary purpose of attaining education is served. In such cases, based on several representations, vide notification from RBI[1], it has been clarified that such student would be considered as Non-Resident Indian (“NRI”), on both counts viz. their stay abroad for more than 182 days in the preceding financial year and their intention to stay outside India for an uncertain period when they go abroad for their studies.
Thus, intention of stay of person for residing in India or outside India, is primary factor for determining residential status under FEMA law.
- As per RBI master direction on Deposits and Accounts dated January 1, 2016, a non-resident individual travelling in India for taking up employment in India, would be considered as resident in India. In such case, NRE account needs to be redesignated as resident account or the funds held in these accounts may be transferred to the RCF account, at the option of the account holder,
- immediately upon the return of the account holder to India for taking up employment; or
- on change in the residential status.
- Further, even if intention of an individual travelling in India, is to stay in India for more than 182 days or has come to India for taking up employment or for carrying on business or vocation in India, period of completion of stay of 182 days in the preceding financial year is paramount if such an individual desires to acquire immovable property in India.
In a nut shell, it is responsibility of an Individual to prove his / her residential status in India. Even if intention would be most important factor for concluding residential status, under various procedures / transactions involving foreign exchange, actual days of stay would be of paramount importance before concluding residential status under FEMA law.
For more detailed discussion on the above subject, please do not hesitate to connect at contact@devadhaantu.in
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[1] AP Dir. Cir. No. 45 dated 8.12.2003