Analysis of Residence status for Individual under DTC (Standing Commitee Report)

  Clause 4 (1) of the Code deals with  residency of Individuals.

4(1) An individual shall be resident in India in any financial year, if he is in

India—

(a) for a period, or periods, amounting in all to one hundred and eighty-two days or more in that year; or

(b) for a period, or periods, amounting in all to—

(i) sixty days or more in that year; and

(ii)  three  hundred  and  sixty-five  days  or  more  within  the  four  years immediately preceding that year.

(2) The provisions of clause (b) of sub-section (1) shall not apply in respect of an individual who is—

(a) a citizen of India and who leaves India in that year as a member of the crew of an Indian ship; or

(b) a citizen of India and who leaves India in that year for the purposes of employment outside India.

Provision as per the existing Act

6.  (1) An individual is said to be resident in India in any previous year, if he—

(a)is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more ; or

(b)      [* * *]

(c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.

[Explanation.—In the case of an individual,—

(a) being a citizen of India, who leaves India in any previous year [as a member of the crew of  an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or] for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words ―sixty days‖, occurring therein, the words ―one hundred and eighty-two days‖ had been substituted ;

(b) being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words ―sixty days‖, occurring therein, the words

―one hundred and [eighty-two] days‖ had been substituted.]

Bombay  Chartered  Accountants  Society  has  suggested  the  following changes in this Clause:

As not to put NRIs to hardship by becoming Indian residents, they should be granted relief by increasing the period of stay to 181 days in a financial year. It is suggested that the relief available to NRIs under the ITA be continued in the DTC.In order to have clarity, it is suggested to provide that the day of arrival be considered  as  ‗in  India‘ and day of departure be considered as outside India‘

The Ministry have disagreed with the change on the following grounds:

―Through  Explanation to sub-section (1) of section 6 of the IT Act, the conditions of sixty days was relaxed to 182 days by Finance Act, 1994. As a result a non-resident Indian (i.e. a citizen of India or a person of Indian origin) who visits India in any year and does not stay for more than 181 days in the financial year, does not lose his non-resident status. However, over a period of time it has been noticed that this  provision is being misused  by  high  net  worth  individuals  who  make  huge  investments abroad, manage to stay in India for a period not exceeding 181 days. By so doing, they avoid tax in India on the income which accrues outside India. With a view to curb this misuse, the relaxation of 182 days in the case of NRI being outside India have not been provided in the DTC.

Further, the exclusion of this clause is necessitated by the situation where the provision is used to plan their stay in two or more countries in such a manner that the person does not become ‗resident‘ of any country. This results  in  ‗double-non  taxation‘  i.e.  the  person  does  not  pay  taxes anywhere.  Therefore,   this  is  an  anti-avoidance  measure  brought  to prevent misuse of the non-resident Indian status. When a large majority of citizens pay tax, there is no economic justification to exclude a specified category of persons even though they have a substantial nexus with the territory of India and are using public goods funded by taxpayers.

So far as the suggestion for reckoning the period of stay is concerned, the period of  stay  is counted with reference to the immigration stamp on passport of the person‖.

ICAI has suggested that  Section 4(1)(b)(i) may be re-worded as follows:

―(b) for a period, or periods, amounting in all to  -

(i)  NINETY days, or more, in that year, and‖

The Ministry have replied that there is no change in the basic criterion for an individual to be resident in India . Both the IT Act, 1961  as well as the DTC provide that an individual shall be resident in India if he is in India in any year for 182 days or more. If he is in India for less than 182 days in any year he shall be considered to be

resident  in that year if he remains in the country for 60 days or more in that year

 and    for 365 days or more in four years preceding that year. This is a settled position. Hence  there is no justification for altering the same.

The Committee observe that test of residency in the Code for individuals is on the same lines as the existing Act.  The only difference is that the relief granted to NRIs for  stay  upto 182 days in a year in the existing Act is not included in the Code.  Accordingly, NRIs will lose their non-residential status if their stay in India exceeds 60 days in a year.  This relaxation is relevant to those NRIs who frequently visit India for attending social functions,  family events, management  of  their  Indian  assets  etc.      The  Government  of  India  through Ministry of Overseas Indian Affairs has been following the policy of welcoming NRIs  to  invest  in  India.            The  Committee  are  therefore  of  the  view  that the proposed 60 days stay for NRIs to retain their non residential status may be a little too stringent which may act as a hurdle to building a long term mutually beneficial  relationship  between  India   and  its  diaspora.            The  Committee, therefore,  recommend  that  the  period  of  stay  for  NRIs  to  retain  their  non- resident  status  may  be  restored  to  the  existing  182  days,  subject  to  two conditions, namely (i) each person claiming NRI status should simultaneously indicate  the tax jurisdiction in which he is resident and, (ii) that all cases of fraud should be severely dealt with and nobody is allowed to become a global non-resident.                    Clause  4(1)  of   the   Code  may  accordingly  be  amended  to incorporate the suggested relief to NRIs.