Residential Status: Some Guidance

Under the income tax act a individual would be resident in India, if he is physically present in India for a period of:

(a) 182 days or more during  the financial year or

(b) 60* days or more during the financial year & for an aggregate period of 365 days or moreduring the immediately preceding four financial years

Note: A financial year is a  period of twelve months from April 1 to March 31

A person would be resident & not ordinarily resident if he satisfies the following additional conditions:

(1) he has been a non resident in India in 9 financial years out of the 10 financial years immediately preceding the relevant financial years

(2) his physical stay in India is less than or equal to 729 days during the seven financial years immediately preceding the relevant financial year

However if he does not satisfies both the additional conditions he will be treated as a Resident and Ordinarily resident in India

* The period of 60 days stands extended to 182 days in case of a citizen of India leaves
India for the purpose of employment outside India.

“For the purpose of employment” has been discussed in some judicial precedents.
The same is reproduced below:

ITO vs. Abbott Laboratories (P) Ltd, 31 ITD 183 (ITAT Bombay)

–        It would mean posting outside India either temporarily or for a long period, and when an employee working in India goes abroad for a few days, he cannot be said to have an “employment outside India”

Second ITO vs. K Y Patel, 33 ITD 714 (ITAT Bombay)]

–        Merely undertaking tours abroad in connection with one’s employment in India did not attract the application of 182 days rule so as to convert a resident into a non-resident

The case discussed the distinction between ‘for the purposes of’ and ‘in connection with’ employment outside India

British Gas India Private Limited (AAR 725 of 2006)

The AAR held that to qualify as a person who has left India “for the purposes of employment”:

•          A person need not be unemployed at the time of leaving India for providing services outside India

•          The fact that he was already employed at the time of leaving India was not relevant.

AAR concluded that there is a difference between the word ‘for employment” and “for the purposes of employment”