Indian Citizenship at a Crossroad – An Insider into the contradicting governance of Acts

Pankaj Garg | January 2015

In a layman’s language a non-resident means a person who doesn’t reside in India or who is a foreigner. The residential status of a person under the Indian Tax Laws is governed by Section 6 of the Income Tax Act 1961 for the purpose of the taxability of a person’s income, a person can be a resident, resident but not ordinarily resident and non-resident. Once the residential status of a person is determined, the incidence of income tax is calculated.

The definition of a non-resident Indian is significant for any person who is either a citizen of India or a person of Indian origin and who is not a resident in India.

DEFINITION OF A NON-RESIDENT INDIAN (NRI)

An Indian Citizen who stays abroad for employment/carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident. (Persons posted in U.N. Organisations and Officials deputed abroad by Central/State Governments and Public Sector undertakings on temporary assignments are also treated as nonresidents). Non –Resident foreign citizens of Indian Origin are treated on par with non-resident Indian Citizens (NRIs) for the purpose of certain facilities.

The residential status of a person is decided under two different Acts, one under Income Tax Act, 1961, ( I.T. Act) and another under Foreign Exchange Regulation Act, 1973 (FERA). The concept of Non-Resident under FERA is different as compared to that under Income Tax Act. Under Income Tax Act, the residential status of a person is determined on the basis of number of days he stays in India whereas under FERA, it is the intention of a person to be in India or outside India would be an important factor determining his residential status.

PROVISIONS UNDER THE I.T. ACT

The residential status f or the Income Tax Act is determined in section 6 as under:

An individual will be treated as a resident in India in any previous year if he fulfills any of the following two conditions:

he/she is in India in that year for period or periods amounting in all to 182 days or more,
Having within the four years preceding that year been in India for a period or periods amounting in all to 365 days or more, and has been in India for 60 days or more in that year.

Under Explanation to section 6 (1) of the Income-tax Act, the residential status of an individual who is rendering service outside India and who visits India during leave or vacations in any previous year or an individual who is outside India and who comes on a visit to India in any previous year will be determined as under :

An Indian citizen who leaves India in any previous year for the purpose of employment outside India or as a crew member of an Indian ship would be treated as a resident in India if he stays in India in that year for 182 days or more [instead of 60 days as stated in 1 (b) above ]. Conversely, if he stays in India for less than 182 days, he will be treated as non-resident for that year and his foreign income would not attract tax liability.

Further, w.e.f. 1st April, 1999, a crew member will be treated as non-resident in India if he is on board such ship outside the territorial water of India for 182 days or more during any year.

An Indian citizen or a person of Indian origin who resides outside India and who comes on a visit to India in any previous year will be treated as resident in India if he stays in India in that year for 182 days or more [instead of 60 days as stated in 1
above.]

CONVERSELY, HE WILL BE TREATED AS NONRESIDENT IF HE STAYS IN INDIA IN THAT YEAR FOR LESS THAN 182 DAYS.

An individual (whether Indian citizens or not) who is outside India and who comes on a visit to India in any previous year will be treated as “non-resident” in India if he stays in India in that previous year less than 182 days subject to the condition that during the preceding four previous years his stay in India does not amount to 365days or more. An Individual who fulfills any of the conditions mentioned in section 6(1) is treated as resident in India. But in order to become an “ordinarily resident”, he must satisfy the following two conditions as laid down under section 6(6) (a) of the Incometax Act, 1961:

He should have been resident in India in nine out of the ten previous years preceding the previous year in which he is resident within the meaning of section 6(1); and
He should have been in India for a period or periods amounting in all to 730 days or more during the seven years preceding that previous year.

If he does not fulfill any of the above conditions, he will be treated as “not ordinarily resident”.

An individual who does not satisfy both the conditions as mentioned above as laid down in section 6 (1) will be treated as “non-resident” in that previous year.
A Hindu undivided family, firm or other association of persons will be treated as “non –resident” in India in any previous year if the control and management of its affairs is situated wholly outside India during that year.
A company will be treated as “nonresident” in India in any previous year if it is not an Indian company and also the control and management of its affairs is not situated wholly in India in that year.

THE PROVISIONS UNDER FOREIGN EXCHANGE REGULATION ACT (FERA):

Section 2 (p) and 2 (q) of FERA define resident and non-resident as under:

2(p) “person resident in India” means-

a citizens of India ,who has, at any time after the 25th day of March, 1947, been staying in India, but does not include a citizens of India who has gone out of, or stays outside, India in either case-

for or on taking up employment outside India, or
for carrying on outside India 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.

a citizen of India, who having ceased by virtue of paragraph (a) or paragraph (b) or paragraph (c) of sub-clause (i) to be resident in India, return to, or stays in, India, in either casea)

for or on taking up employment in India, or
for carrying on in India a business or vocation in India, or
for any other purposes, in such circumstances as would indicate his intention to stay in India for an uncertain period.

a person, not being a citizen of India, who has come to, or stays in India, in either casea)

for or on taking up employment in India, or
for carrying on in India 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.

a Citizen of India, who not having stayed in India at any time after the 25th day of March, 1947, comes to India for any of the purpose referred to in paragraphs (a), (b), and (c) of the sub-clause (iii) or for the purpose and in the circumstances referred to in paragraph (d) of that sub-clause or having come to India stays in India for any such purpose and in such circumstances.

Explanation.- A person, who has, by reason only of paragraph (a) or paragraph (b) or paragraph (d) of sub-clause (iii) been resident in India, shall, during any period in which he is outside India be deemed to be not resident in India.

ACQUISITION OF CITIZENSHIP

The Citizenship Act 1955 as amended by the Citizenship Amendment Act, 2005 describes the definition and the acquisition of the citizenship. Under the sections 3 to 7, various modes of acquiring the citizenship have been given under the Citizenship Act. Due to paucity of space, I am not discussing herein the various provisions of the said sections.

About Author

Pankaj Garg

Pankaj Garg is the Founding Principal Consultant at Prakash Legal Advisers, a Banking & Finance and Taxation focused law firm headquartered in Delhi NCR - India. The author has been assisted by Milind Garg, Senior Associate, Prakash Legal Advisers and dedicated the article to Neena Garg, Senior Consultant, Prakash Legal Advisers.