Tax Residency Abroad – Not Just A Game Of Days Spent Outside India!

Despite relocation and overseas employment, ITAT denies 'NonResident' status and treaty benefits

In a landmark ruling with far‑reaching implications for high‑net‑worth individuals and globally mobile Indian entrepreneurs, the Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that Mr. Binny Bansal, co‑founder of Flipkart, did not qualify to be a non-resident of India under the Income‑tax Act, 1961 ("the Act") and further denied treaty relief under the India–Singapore Double Taxation Avoidance Agreement (DTAA).

Background and Facts

Mr. Binny Bansal (Mr. Bansal or assesse), an Indian citizen and co‑founder of Flipkart, had historically been a resident of India. Following the acquisition of Flipkart by Walmart in 2018, Mr. Bansal resigned from his executive roles in India and subsequently took up employment in Singapore with effect from February 2019, i.e. FY 2018-19. In Financial Year (FY) 2019‑20, Mr. Bansal sold shares of Flipkart Private Limited (Singapore). He claimed non‑resident status under the Act for the said year and contended that gains on such sale were exempt under Article 13(5) of the India–Singapore DTAA.

The Assessing Officer (AO) disputed the residential status of Mr. Bansal. According to the AO:

• Assesse had stayed in India for 141 days during FY 2019‑20.
• He had been present in India for more than 365 days during the preceding four years; and

He continued to maintain significant personal and economic ties with India.

The AO treated Mr. Bansal as a residentand an ordinarily resident, denied treaty relief, and brought the capital gains to tax in India. The Dispute Resolution Panel (DRP) upheld the AO's view, prompting an appeal to the ITAT.

Issues Before the Tribunal

• Whether Mr. Bansal qualified as a non‑resident under the Act for FY 2019‑20;
• Whether Mr. Bansal could be regarded as a resident of Singapore under Article 4 of the India–Singapore DTAA; and

If dual residency existed, whether the treaty tie‑breaker rules tilted residency to Singapore.

Tribunal's Ruling on Residential Status under the Act

Interpretation of Section 6(1)(c)

Under section 6(1)(c), an individual is resident in India if he is in India for 60 days or more in a financial year and has been in India for 365 days or more during the four preceding financial years.

It was undisputed that Mr. Bansal satisfied both conditions. The controversy therefore, centred on the applicability of Explanation 1, which relaxes the 60‑day threshold to 182 days in specified circumstances.

Scope of Explanation 1(b): "Being Outside India"

As per the said explanation, an individual who is a citizen of India, and is outside India, and comes to India for a visit in any year, should not be subject to 60-day threshold, and he shall be considered a resident of India only if he stays in India for 182 days or more.

Assesse's line of arguments:

• Having moved to Singapore for employment, he was a person "being outside India" who came on a visit to India in FY 2019-20 and therefore qualified for the extended 182‑day threshold. He further explained that his wife and children also lived with him in Singapore. His wife had taken up employment there, and his children attended school in Singapore. Thus, the migration to Singapore was bona fide for personal and professional reasons and was not occasioned by the sale of Flipkart Singapore shares.
• Residential status vs. Situs - He further contended that the language of Explanation 1(b) is wider to the effect that the expression "being outside India" is distinct and wider than "being non-resident in India". Had the intention of the law been to restrict the benefit to non-residents, the same would have been specifically provided for in the Act. Thus, a person who lives outside India upon taking up employment should be covered under explanation 1(b) even if he is not a non-resident for the said financial year.
• The assesse cited various CBDT Circulars, Finance Bills and memorandums liberalizing residential status overtime, including Circular No. 554 dated 13 February 1990, which clarified that the objective of the amendments for determining residential status of Indians working abroad was to enable them to manage investments and personal affairs in India without adverse tax consequences. The Tribunal rejected the above arguments and held that:
• The relaxation under Explanation 1(b) is intended only for individuals who are already non‑residents and visit India. Since the assesse was a resident for FY 2018-19, this explanation cannot be applied for FY 2019-20;
• The expression "being outside India" cannot be equated with merely having taken up overseas employment, and

Legislative history and subsequent amendments indicate that the provision aims to prevent abuse by frequent visitors, not to enable residents to indefinitely defer tax residency.

The tribunal further emphasized that the circular rather confirms that they are intended for genuine NRIs visiting India. The Tribunal observed that accepting the assesse's interpretation would lead to an absurd outcome where every visiting individual could claim extended relaxation year after year.

Explanation 1(a): Year of Departure

As per Explanation 1(a) to section 6(1)(c) of the Act, an individual who leaves India for the purpose of employment outside India, the threshold of 60 days shall not apply, and he shall be considered a resident of India only if he stays in India for 182 days or more.

The assesse alternatively argued that he is eligible for the relaxation provided by Explanation 1(a) since he left India for the purpose of employment. It is a fact that Mr. Bansal visited India in September 2019. During this visit, he resigned from his previous employer and accepted employment with another Singapore company. Hence, he argued that he left India during FY 2019-20 to take up employment outside India, and is therefore he eligible for the benefit under explanation 1(a).

The Tribunal held that Explanation 1(a) is relevant only in the year of departure. Since the assesse left India in FY 2018‑19, the benefit could not be carried forward to FY 2019‑20, which was the year under dispute.

It was further observed that there were several factual inconsistencies in the dates submitted by the assesse in respect of both employments. Notably, both companies, i.e., the company from which he resigned , and the one with which he took up employment, were founded, promoted and controlled by him. They even shared the same address. Also, there was an overlap between the resignation date and the signing of the employment offer. Thus, it cannot be treated as new employment or an internal restructuring. Keeping substance over form in mind, the benefit of explanation 1(a) cannot be provided in the case of such so-called fresh employment.

Accordingly, the Tribunal denied the benefit of Explanation 1(a) to Mr. Bansal for the year under dispute.

Treaty Residency and Tie‑Breaker Analysis

Applicability of Article 4 of the DTAA

The Tribunal proceeded to examine treaty residency, noting that, even assuming dual residency, the tie‑breaker rules under Article 4(2) of the India – Singapore DTAA must be applied.

Permanent Home

The assesse argued that he had neither permanent residence nor a rented house in India. He had a property in Bangalore, that was still under construction and could not be considered as a home available to him in India. Further, he had rented a house in Singapore where he has been living with his wife and children.

The revenue authorities found that the assesse has declared, in his income tax return for several years, a particular Bangalore address, which is his permanent home in India. Further, there is no condition precedent for the home in India to be fully furnished. They also noted that the assesse's Singapore residence was a service apartment, indicative of a temporary nature.

Thus, the Tribunal held that the assesse owned and had access to residential properties in India. The rented accommodation in Singapore was not conclusively established as a permanent home. Thus, continued availability of a home in India weighed in favour of Indian residency.

Centre of Vital Interests

The assesse stated that his nuclear family resided with him in Singapore throughout FY 2019-20. He has no dependent family members in India. His wife is employed in Singapore, and his children attend school there, thereby strengthening his social ties there.

Further, in addition to being employed in Singapore his principal bank account and credit cards are also in Singapore. He operates all his investments from Singapore. He does not have any office or similar place of business in India, and thus, his economic ties are also stronger in Singapore.

The revenue authorities, however, noted from the assesse's assets and liabilities schedule in the income tax return that he held vehicles, unlisted equity shares and other investments in India, valued at several crores. In fact, his shares held in Singapore companies, as well as those sold derived substantial value from Indian subsidiaries. Further, the assesse had significant involvement in the Indian startup ecosystem. The Singapore companies also had major clients and operations that were India centric. Further, he had limited quantum and variety of assets in Singapore.

Assesse counter argued that most of the investments in India are passive and were acquired when he was a resident and should not have a bearing on his residential status after migration to Singapore, especially given the restrictions under FEMA on the repatriation of funds invested in India.

Having heard the assesse and the revenue authorities, the Tribunal held that the centre of vital interests must be examined for the entire previous year, not merely at the end of the year. Assesse's substantial investments, business interests, and economic exposure were predominantly India‑centric. Migration of family members to Singapore occurred gradually and did not decisively shift the centre of personal relations. The absenec of significant immovable property or comparable investments in Singapore weakened his claim that the centre of his vital interests is in Singapore.

Habitual Abode and Nationality

The assesse submitted that he is customarily or present in Singapore by virtue of his employment. He also submitted that his stay in India from FY 2020-21 till date has been minimal. Thus, his habitual abode is Singapore.

However, given his long‑standing presence in India in previous years, including a 141 day stay in the year in dispute and his Indian nationality, the Tribunal found that these factors also supported Indian residency.

Accordingly, even under treaty principles, the assesse was held to be a resident of India, and thus not entitled to the capital gains exemption under Article 13 or to overall treaty access.

Our Comments

• Residential status planning requires substance: Physical relocation alone is not sufficient without a clear shift in economic and personal nexus. Permanent home, investments, and day‑to‑day life outside India are critical factors in determining residency.
• Interpretation of Explanation 1 to section 6: "Being outside India" is intended for non-residents visiting India. The extended threshold of 182 days is relevant only in the year of departure
• Treaty tie‑breaker tests are holistic: The Judiciary examines facts across the entire year, not only at the end of a particular year or in the post migration period.

The ITAT's decision marks a decisive shift towards a stricter, substance‑oriented evaluation of residential status and treaty entitlement. The ruling serves as a cautionary precedent for globally mobile Indian citizens, particularly founders and investors.

Taxpayers with cross‑border careers and investments should proactively review their residential position and treaty claims in light of this ruling, especially in years involving significant capital transactions.

The decision emphasizes that residential status planning based solely on physical relocation, without a decisive shift of personal and economic nexus, may not help in overcoming tax liability in India.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.