Mumbai: The Mumbai Income-Tax Appellate Tribunal (ITAT) has ruled in favor of an individual who claimed non-resident (NR) status after spending 210 days working abroad, reaffirming that tax residency should be determined solely by the number of days spent in India.
The case involved M. Gulati, who did not disclose his overseas income of ₹1.2 crore for the financial year 2015-16, arguing that he had spent less than 182 days in India, thus qualifying as a non-resident. However, the Income-Tax (I-T) department contended that 28 days of his time abroad were spent job-hunting, which should not be counted towards his non-resident status. Based on this revised calculation, the I-T officer classified him as a tax resident, making his ₹86.2 lakh overseas salary and ₹2.8 lakh interest income taxable in India.
ITAT Ruling: Job Search Abroad Counts Toward Non-Resident Status
The ITAT rejected the tax department’s argument, emphasizing that any period spent abroad for employment or in search of employment qualifies as a valid reason under the Income-Tax Act. The tribunal clarified that under Explanation 1 to Section 6(1) of the I-T Act, an individual leaving India for “the purpose of employment” should be considered a non-resident if their stay in India is less than 182 days in a given financial year.
The ruling provides crucial clarity for expatriates and professionals who spend time overseas looking for jobs before securing employment. It reinforces that:
- The number of days physically spent in India determines tax residency.
- Job search abroad is a legitimate reason for non-resident classification.
- The tax department cannot selectively adjust days spent abroad based on employment status.
Tax Residency Rules & Recent Changes
A person classified as a tax resident of India must pay tax on their global income, while a non-resident is taxed only on income earned or accrued in India (e.g., rent from Indian property, interest on Indian bank deposits).
- Before FY 2020-21: A person was considered a tax resident if they stayed in India for 182 days or more in a financial year.
- From FY 2020-21 onwards: The threshold was reduced to 120 days for individuals earning more than ₹15 lakh in India (excluding foreign income).
This ITAT ruling sets a significant precedent for individuals splitting their time between work and job search abroad, preventing arbitrary reclassification of their tax residency by the authorities.
