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Residential status of a Person Under FEMA,1999 - FEMA Ready Reckoner - FEMAExtract As per section 2(u) of FEMA Act, 1999 define the person person includes- (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) every artificial juridical person, not falling within any of the preceding sub-clauses, and (vii) any agency, office or branch owned or controlled by such person; The definition of person is similar to the definition in the income-tax Act, 1961. The term person includes entities such as companies, firms individual, HUF, Associates of persons(AOP), Artificial juridical person agencies as well as offices and branches, Agencies, offices and branches do not have independent status separate from their owners. yet these have been considered as person. Person Resident in India As per section 2(v) of FEMA Act,1999 define the person resident in India Means (i) a person residing in India for more than 182 days during the course of the preceding financial year Exception:- The following person does not resident, in India even though they may have resided in India for more than 182 days a person who has gone out of India or who stays outside India, for any of the three purposes given below Exception :- a person who has come to or stays in India, in either case, otherwise than for any of the theses purposes given below For three Purposes (a) for or on taking up employment outside India, or (b) for carrying on outside India a business or vocation out-side India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay outside 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; Under FEMA such offices and branch are included in definition of person resident in India. Therefore they have been included in the definition of person Analysis In case of individuals to be considered as resident , the person should have resided in India in the preceding financial year for more than 182 days. Citizenship is not the criteria for determining whether or not a person is resident in India There are three stages in the definition First stage prescribed the number of days stay. Second stage, it is states that if a person leaves India in any of the Three Purposes we saw in section 2(v) of FEMA Act, 1999 above, he will not be a person resident in India. He will be a person resident outside India Third Stage, this is complex clause as first stage read with third stage has two exception. stage one use the phrase but not include . Third stage uses the phrase otherwise than . use of two exception make it complex reading. Example:-- if a person comes to India on 1st June 2023 for visiting his parents. However, his parents fall sick and he stays till 31st March 2023. Thereafter he continues to stay in India. It is however certain that he will leave India in next 6 months when his parents recover. His stay in India is neither for employment, nor for business, nor for circumstances which show that he will stay in India for an uncertain period. In such a case, if he has resided in India for more than 182 days in FY 2019-20, he will continue to be a non-resident from 1st April 2020 also. In FY 2019-20, he is of course a Person Resident Outside India (PROI) as he did not reside in India for more than 182 in FY 2018-19. If a person comes to India on 1st June 2019 for employment, business or circumstances which indicate his intention to stay in India for an uncertain period, he will be a Person resident in India (PRII) from 1st June 2019. It is understood that this condition applies only to individuals . It will not apply to HUF, AOP or artificial juridical person as they cannot get employed, cannot go out of India or come to India. Hence, they do not come within the ambit of the second and third stage. These entities like HUF and AOP are not required to be registered or incorporated like corporate entities nor the definition can be far stretched to cover by applying the criteria of owned or controlled . Hence legally the definition for HUF, AOP, BOI fail. Practically if the HUF, AOP etc. are in India, they will be considered as Indian residents Difference between Income tax and FEMA Provisions: One major distinction between Income Tax and FEMA provisions is that for purpose of Income Tax, purpose of stay (in India or abroad) is not relevant, only duration of stay is relevant. Residential status is not for a year. It is from a particular date. This is different from income-tax law. Under income-tax law, a person has to pay tax in respect of the income of the previous year. Therefore, it is possible to look at a complete year for determining residential status under the Income Tax Act, 1961. FEMA is a regulatory law. One has to know the person s status at the time of undertaking a transaction. Example:- A person comes to India for employment, and if his status can be known only when the year is completed, how will he and other people enter into commercial transactions with each other? If he is considered as a Person Resident Outside India till the year is over, then people will not be able to enter into transactions with him. This is the reason why the residential status is not for a year but from particular date. Difference between Stay and Reside: There is distinction between stay and reside . Stay means physical presence in India while reside indicates permanency. Thus, even if an airplane pilot stays in India for more than 182 days during his transit travel, it cannot be said that he resides in India. In case of Person or Body Corporates Any person or body corporate registered on incorporated in India, will be considered a Person resident in India (PRII). This definition too, does not apply to AOP, BOI etc. In case of Office or Branch Any agency, branch or agency outside India but owned or controlled by person resident in India (PRII) will be considered as person resident in India (PRII). Thus one cannot set up a branch outside India and attempt to avoid FEMA provisions. Any agency, branch or agency in India but owned or controlled by person resident in outside India (PROI) will be considered as person resident in India. This is relevant residents can deal with such branch in India without considering FEMA. IF such branch is considered as a person resident in India (PROI) then it will be difficult to undertake several transactions. Example 1 :- Mr. Ramesh had resided in India during the financial year 2022-2023. he left India on 1st September, 2023 for Singapore for pursuing higher studies for three year. what would be his residential status during financial year 2023-2024 and during 2024-2025? Ans. RBI has clarified in its AP circular no. 45 dated 8th December 2003 , that students will be considered as non-residents. This is because usually students start working there to take care of their stay and cost of studies. Mr. Ramesh had resided in India during financial year 2022-2023 for more than 182 days. After that he has gone to Singapore for higher studies. He has not gone out of, or stayed outside India for or on taking up employment, or for carrying a business or for any other purpose, in circumstances as would indicate his intention to stay outside India for an uncertain period. Accordingly, he would be person resident in India during the financial year 2023-2024. For the financial year 2024-2025, he would not have been in India in the preceding financial year (2023-2024) for a period exceeding 182 days. Accordingly, he would not be person resident in India during the financial year 2024-2025. Example 2 :- : UeeLee Ltd. is a Taiwan company having several business units all over the world. It has a robotic unit with its head quarters in Delhi and has a branch in Singapore. The Headquarters at Delhi controls the Singapore branch of the robotic unit. What would be the residential status of the robotic unit in Delhi and that of the Singapore branch? Answer: UeeLee Ltd. being a Taiwan company would be a person resident outside India. [Section 2(w)] . Section 2(u) defines person . Under clause (viii) thereof person would include any agency, office or branch owned or controlled by such person . The term such person appears to refer to a person who is included in clauses (i) to (vi). Accordingly, robotic unit in Mumbai, being a branch of a company, would be a person . Section 2(v) defines person resident in India . Under clause (iii) thereof person resident in India would include an office, branch or agency in India owned or controlled by a person resident outside India. Robotic unit in Delhi is owned or controlled by a person resident outside India . Hence, it would be person resident in India . The robotic unit headquartered in Delhi , which is a person resident in India as discussed above, controls the Singapore branch, Hence, the Singapore branch is a person resident in India .
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