Adhere to the 182-day rule until clarity emerges

Assuming the status of a resident immediately after return could invite penalties

- HIMALI PATEL

A recent appellate tribunal ruling has complicated matters for non-resident Indians (NRIs) returning to India by replacing the Reserve Bank of India's (RBI's) intent-based residency test with the Foreign Exchange Management Act's (Fema) stricter requirement. Until clarity emerges, experts advise caution and suggest complying with Fema norms.

The controversy Section 2(v)(i) of Fema sets out two tests for residency: a physical stay of 182 days in the preceding financial year, or an intent-based test, which allows residency right away if the intention to reside in India is evident.

RBI has historically relied on the latter, allowing immediate conversion of non-resident external and non-resident ordinary (NRE and NRO) accounts when NRIs returned with the intention to settle.

"RBI places greater weight on intention and conduct, rather than requiring a 182-day physical stay in the previous financial year," says Suresh Surana, a Mumbai-based chartered accountant.

A tribunal in New Delhi, however, held that intention alone is insufficient. In the Pradeep Mishra versus Special Director, Directorate of Enforcement, Lucknow case, it ruled that 182 days of physical presence in the preceding financial year is mandatory under Fema.

"By doing so, the tribunal effectively subordinated the intent-based carve-outs to the 182-day condition, treating physical stay as a mandatory prerequisite," says Surana.