Updated: May 31, 2020
1. For applicability and implementation of the FEMA provisions for any transactions, one needs to check the residential status of the transacting parties. The residential status of a person shall further decide the applicability / non applicability of particular provision under the FEMA Law.
2. Therefore, determination of residential status is of prime importance under the FEMA. Residential status under FEMA significantly defers from the one under the Income Tax Act.
3. Under FEMA there are two types of residential status i.e. “person resident in India” and “person resident outside India”. These terms are defined u/s 2(v) and 2(w) of the FEMA respectively, which discussed hereunder: -
(v) “person resident in India” means—
(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include—
(A) a person who has gone out of India or who 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;
(B) a person who has come to or stays in India, in either case, otherwise than—
(a) 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;
(ii) any person or body corporate registered or incorporated in India,
(iii) an office, branch or agency in India owned or controlled by a person resident outside India,
(iv) an office, branch or agency outside India owned or controlled by a person resident in India;
4. “Person Resident outside India” is defined under section 2(w) of FEMA, 1999 wherein a person is not resident in India.
5. On analysis of the above definition, one can say that under FEMA residential status is primary based on the physical stay in India for 182 days or more in the preceding financial year. However, same has been diluted by introducing the exceptions based on “Intention” test in the definition itself. Accordingly, the intention is allowed to prevail over the condition of physical stay in India.
6. By this, it can be concluded that the intention of the person going out / staying out of India or Coming in / staying in India would supersede the condition / requirement of 182 days test. Further mere having the “Intention” will not work, one has to prove his intention by bringing on record some positive evidences such as employment Visa, business visa, Green Card, citizenship permit ect.
7. Body corporate will be considered as “person resident in India” only if it is registered or incorporated in India (Registration Test).
8. Residential status of any office, branch or agency is to be decided by twin test – location of office, branch or agency and ownership and control test, which is summarized as under: -
9. Any office, branch or agency will be “person resident in India”, if
10. In may also relevant to note that the residential status of a Branch would always depend on Residential status of the HO. Whereas under FEMA residential status of a branch would depend on the location test and ownership and control test as explained above.
11. Concept of “Not Permanently Resident”
11.1 Apart from the two categories of ‘person resident in India’ and ‘Person resident outside India’, a third category is carved out under various Rule / notifications under FEMA, which are summarized as under: -
11.2 In all these rules /notification, “Not permanently Resident” has been defined separately but in common manner, which is –
'not permanently resident' means a person resident in India for employment of a specified duration (irrespective of length thereof) or for a specific job or assignment, the duration of which does not exceed three years.
12. Indian Students Studying Abroad are Resident or Non Resident? As above definition didn’t mention anything regarding Indian students studying abroad and the act being silent raised many issues on this. As to solve this issue A.P(DIR Series) Circular No.45 dated 08/12/2003 was issued which stated that above Indian students shall be Non Resident Indian (NRI’s) 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.
13. On careful reading and understanding of the above stated legal position with respect to the residential status under FEMA, one need to deeply analyse the same on case to case basis.