MY SPACE

My Space
Mr. 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.

Indian Citizenship
at a Crossroad
An Insider into the contradicting
governance of Acts
In a laymans language a non-resident means a person who doesnt 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 persons 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.
Pankaj Garg
he definition of a nonresident 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

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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.

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 :

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
(b) above.]

PROVISIONS UNDER THE I.T. ACT

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

(a) 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.

CONVERSELY, HE WILL BE TREATED AS NONRESIDENT IF HE STAYS IN INDIA IN THAT

YEAR FOR LESS THAN 182 DAYS.
(3) 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 365
days or more.

1. An individual will be treated as a

resident in India in any previous year if he
fulfills any of the following two conditions:
(a) he/she is in India in that year for period
or periods amounting in all to 182 days or
more, or
(b) 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.
2. Under Explanation to section 6 (1) of the
Income-tax Act, the residential status of an
individual who is rendering service outside

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.
(b) An Indian citizen or a person of Indian
origin who resides outside India and who

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:

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MY SPACE

MY SPACE

(i) 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(a) for or on taking up employment outside
India, or
(b) for carrying on outside India a business
or vocation outside India, or
(c) for any other purpose, in such
circumstances as would indicate his
intention to stay outside India for an
uncertain period.
(ii) 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
b) for carrying on in India a business or
vocation in India, or
c) for any other purposes, in such
circumstances as would indicate his
intention to stay in India for an uncertain
period.

Citizenship should be the base for determining

the status of an Indian and not merely the
number of days he stayed in India or abroad. If
this residential status jurisprudence is globally
recognized then there will be lesser burden on
Double Taxation Avoidance Agreements.
(i) 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
(ii) He should have been in India for a
period or periods amounting in all to 730

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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.
(4) 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.
(5) 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.
(6) 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-

(iii) 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
b) for carrying on in India a business or
vocation in India, or
c) for any other purpose, in such
circumstances as would indicate his
intention to stay in India for an uncertain
period.
(iv) 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.

CONCLUSION

I refer the term Non Resident Indian which has been used for blending the
incidence of tax and allowing the benefits and imposing the restrictions of tax
under the IT Act 1961 and FEMA. The fundamentals, route and the intention of
the legislature behind the definitions of NRIs under 2 different enactments viz.
IT Act 1961 and FEMA is to recognize the Indians who are not residing in India.
The definitions of NRIs under both the acts are different and a non-resident
Indian has to classify himself as non-resident Indian separately under both the
acts. Therefore in order to avoid this anomaly, I wish that the definitions of NRIs
wherever this term is referred under any law for the time being in force, the
construed as the citizen of India.
The acid test under the IT Act 1961 and FEMA for granting the benefits and
imposing the restrictions should be whether the person is a citizen of India or
not. In the present era of globalization and freedom of trade and commerce
internationally, it is immaterial that how many days a person remains in India or
not. There should be no discrimination between 2 citizens of India, one who
is a resident and second who is a non-resident, otherwise it will infringe the
Article 14 of the Indian Constitution. If an Indian loses his/her Indian citizenship,
immediately he/she will become a foreign national like any other non-resident.
Therefore, in my opinion, citizenship should be the base for determining the
status of an Indian and not merely the number of days he stayed in India or
abroad. If this residential status jurisprudence is globally recognized then there
will be lesser burden on Double Taxation Avoidance Agreements.
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.

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