NRIs must meet 182-day stay requirement to qualify as residents: Tribunal

Non-Resident Indians (NRIs) returning to India now face a more stringent residency requirement as per a recent appellate tribunal ruling. The decision mandates a physical presence of at least 182 days in the prior financial year to qualify as a resident under the Foreign Exchange Management Act (FEMA). This ruling overrides the Reserve Bank of India’s (RBI) intent-based approach, which previously allowed NRIs to be classified as residents based on their intention to stay, facilitating easier conversion of non-resident accounts and access to resident-specific transactions.

The tribunal’s ruling insists on the 182-day residency rule, prompting experts to advise NRIs to exercise caution. Transactions like accepting gifts or investing in certain assets are restricted for non-residents. Until the regulations are clarified, NRIs are advised against hastily converting NRE/NRO accounts to resident accounts or initiating significant financial transactions.

The ruling has implications on property purchases as well. Historically, NRIs would often buy land soon after returning. However, this needs to be postponed until they have resided for at least 182 days in the financial year prior to the one in which land is purchased. This change underscores the shift from RBI’s intent-based approach to a more rigid interpretation under FEMA.

The shift in residency requirements introduces potential delays for NRIs returning to India. A person may have to wait up to 18 months before declaring themselves a person resident in India. Conversion of non-resident accounts to resident accounts will only occur in the financial year following a qualifying 182-day stay. Premature conversion may lead to non-compliance under Fema.

Beyond residency status, the requirements affect investments. NRIs must adhere to FEMA’s sectoral caps, pricing guidelines, and reporting obligations. The ruling poses challenges for NRIs hoping to reintegrate financially into India’s economy. Gifting limits under the Liberalised Remittance Scheme must be respected.

Experts are concerned about the retrospective impact of this ruling on past transactions, which could subject NRIs to scrutiny under FEMA. Until the legislative position is settled, compliance with FEMA is advised to avoid potential legal and financial repercussions. The ruling has made it clear that for an NRI to be considered a person resident in India, they need to fulfil the test of having been a resident for at least 182 days in the previous financial year.