How completely different is the residential standing beneath FEMA and Income Tax Act?

How does the residential standing of a person decide his or her tax legal responsibility? This query turns into related to each particular person each time they enter or depart India. The standards to find out residential standing in India are completely different beneath Income Tax (IT) Act and Foreign Exchange Management Act (Fema).

As per the IT legal guidelines, an individual can both be a resident or a non-resident in India. Individuals are handled as residents in India in the event that they fulfil any one of many two situations: They had been in India for 182 days or extra in the course of the related monetary 12 months or had been in India for 60 days or extra within the related FY and their cumulative keep in India is one year or extra within the 4 previous FYs.

These are the fundamental provisions the place a person shall be handled as resident, whereas in all different instances, an individual shall be handled as a non-resident.

However, as per Finance Act, 2020, for these with an annual revenue above ₹15 lakh, the interval of staying within the nation has been decreased to 120 days or extra.

For instance, can an Indian citizen who stayed in India in the course of the related FY for a interval of 129 days be handled as resident in India as per Income Tax Act? Their keep in India of instantly previous 4 earlier years is of 460 days. The reply is ‘no’ since this particular person has not stayed in India for a interval of 182 days, despite the fact that she has stayed for greater than one year within the previous 4 earlier years. However, if this particular person’s whole revenue (aside from revenue accrued or arising from international sources) exceeds ₹15 lakh, she shall be handled as resident of India as a result of she has stayed for greater than 120 days in the course of the related monetary 12 months.

Residential Status as per Fema: Fema recognises people as a ‘Person Resident in India’ or ‘Person Resident Outside India’. If in the course of the earlier monetary 12 months an individual stays for greater than 182 days in India, then the particular person shall be handled as resident beneath Fema; in all different instances he shall be handled as non-resident. However, there are some exceptions to this rule.

An individual is handled as non-resident with fast impact despite the fact that he has stayed in India for greater than 182 days in the course of the related earlier 12 months if in the course of the present 12 months the particular person leaves India or stays outdoors India for employment, for enterprise or trip or for an unsure interval of keep.

Likewise, when a person has not stayed in India for greater than 182 days in the course of the related earlier 12 months, however in the course of the present 12 months involves India or stays in India for any of the three functions acknowledged above, she turns into a resident with fast impact. Under Fema, it might occur that an individual was resident in India for a part of the 12 months and an individual resident outdoors India for one more a part of the 12 months.

For occasion, if the particular person was in India for 182 days or extra in the course of the related earlier 12 months however goes out of India for employment objective and once more comes again for employment objective; then the particular person shall be Person Resident in India earlier than he leaves India, he shall be Person Resident Outside India after he leaves India and once more shall be handled as Person Resident in India when he comes again to India for employment objective.

The key distinction in figuring out residential standing as per IT Act and Fema are that beneath the previous, there is just one residential standing for the related 12 months, whereas there might be multiple residential standing for the related 12 months beneath Fema .

Further, beneath the IT Act, citizenship of the particular person is essential, if a person needs to get exemption from paying tax in India. However, beneath Fema, citizenship is just not essential. It ought to be famous that the nationality of an individual doesn’t influence its residential standing neither beneath IT Act nor beneath Fema.

Now, the query to ask is how does residential standing beneath IT Act and FEMA have an effect on taxability and to whom ought to the taxpayer give priority?

Residency standing as per IT Act determines taxability of the entire revenue and it’s also related for submitting Income Tax Return (ITR). Residency standing beneath Fema doesn’t have an effect on tax legal responsibility as a result of on this case a person’s residency adjustments from a selected date and might not be the identical for the total 12 months.

Under Fema, the residency standing primarily impacts cross border funds and who can train the liberalised remittance scheme (LRS) as it isn’t allowed to non-residents.

Jigar Mansatta is proprietor, Jigar Mansatta & Associates.

Catch all of the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint.
Download The Mint News App to get Daily Market Updates.

More
Less