An individual residing abroad is defined as a Non-Resident in a Financial Year under the Income Tax Act if his stay does not exceed 181 days.However for determining residential status of an NRI returning to India for permanent settlement , for the year of return, besides the stay not exceeding 181 days an additional condition is applicable that of stay not totalling to 60 days or more in relevant year if his stay in earlier 4 years total to 365 days or more.
The current tax law states that an Indian citizen who stays abroad for employment or is carrying on business for an uncertain duration is a non-resident. However, an NRI becomes a ‘resident' of India in any financial year, if he stays in India for 182 days or more. The added stipulation is that a person will be deemed as resident if he has also visited in India for 365 days or more in the preceding four financial years.
In the new DTC (The New Direct Tax Code (DTC) is said to replace the existing Income Tax Act of 1961 in India. DTC bill was tabled in parliament on 3oth August, 2010.) , the 182-day requirement has been reduced to 60 days. This change could impact the residential status for select NRIs, say tax experts. But it has not been implemented yet.
“Under the Direct Tax Code, NRIs who have historically been spending significant time in India stand to become residents the moment their stay in India exceeds 60 days in the financial year” says Amitabh Singh, Partner, Tax & Regulatory Services, Ernst and Young.
A resident becomes ‘ordinarily resident' under the Income Tax Act if he was resident in India in nine out of the ten previous years and has been in India for 730 days or more during the seven years preceding that year. In such cases, even global income of these NRIs could be added to the Indian income.
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