Introduction
Under FEMA, residential status is not fixed for a single point in time but is an ongoing status relevant to whether a person can undertake certain foreign exchange transactions at that particular moment. For example:
- Only NRIs (Non-Resident Indians) can maintain NRE/FCNR accounts.
- NRIs can borrow freely from foreign banks, while residents face restrictions.
Hence, knowing residential status at the time of transaction is crucial.
1. Definition of ‘Person’ under FEMA
A Person includes:
- Individual
- Hindu Undivided Family (HUF)
- Company
- Firm
- Association of Persons (AOP) / Body of Individuals (BOI)
- Artificial juridical person not in above categories
- Agency, office or branch owned or controlled by such persons
2. Classification of Persons for Residential Status
FEMA classifies persons into:
- Individual
- Persons other than individuals (companies, firms, LLPs, HUF, trusts, cooperatives, etc.)
- Office, Agency, or Branch
3. Types of Residential Status under FEMA
- Person resident in India
Determined by stay (for individuals) or place of incorporation/control (for entities). - Person resident outside India
Anyone who does not qualify as resident in India under FEMA is a non-resident.
4. Residential Status of Different Persons
4.1 Individual
- Resident if physically present in India for more than 182 days in the preceding financial year (April 1 – March 31).
- Exceptions apply (e.g., individuals coming for employment).
4.2 Persons other than Individuals
- Resident if registered/incorporated in India.
4.3 Office, Branch or Agency
- If outside India but owned/controlled by a resident person → deemed resident in India.
- If situated in India but owned/controlled by non-resident → deemed resident in India.
5. Meaning of ‘Owned’ or ‘Controlled’
Though FEMA doesn’t define these terms, FDI Policy 2020 and NDI Rules 2019 define:
- Owned: More than 50% beneficial ownership by resident Indian citizens/companies ultimately owned by resident Indians.
- Control: Right to appoint majority directors or control management/policy decisions through shareholding or agreements.
Note: The term emphasizes resident Indian citizen status, not just residency.
6. Summary Table
| Person Type | When Resident in India | When Resident Outside India |
|---|---|---|
| Individual | Stay in India > 182 days (preceding FY) | Stay in India ≤ 182 days |
| Company | Incorporated in India | Incorporated outside India |
| Firm or LLP | Registered in India | Registered outside India |
| Cooperative Society | Registered in India | Registered outside India |
| Trust | Registered in India | Registered outside India |
| Office, Branch or Agency | Situated in India OR owned/controlled by resident person | Situated outside India AND owned/controlled by non-resident |
7. Difference Between Residential Status under FEMA and Income Tax Act
| Aspect | FEMA | Income Tax Act |
|---|---|---|
| Reference Year | Preceding Financial Year (Apr 1 – Mar 31) | Current Financial Year (Previous Year) |
| Period of Stay | >182 days (must be more than 182, i.e., 183+) | ≥182 days |
| Intention of Stay | Intention to stay or leave India is critical | Based purely on number of days physically present |
| Result | Ongoing determination relevant to transactions | Relevant for taxability of income in a year |
8. Practical Example
- An individual staying 182 days in India:
- Resident under Income Tax Act (since ≥182 days).
- Non-resident under FEMA (needs more than 182 days).
- An Indian resident who leaves India for a job abroad on Nov 3:
- Becomes non-resident under FEMA from Nov 3 (intention to stay abroad).
- May still be resident under Income Tax Act for that year.
9. Conclusion
- FEMA residential status depends on physical presence in the preceding financial year and intention to stay.
- Residential status under FEMA is transaction-specific and ongoing.
- It impacts the ability to undertake foreign exchange transactions, maintain accounts, borrow, remit funds, etc.
