Person resident in India

FEMA divides the world in two. You are either a person resident in India or you are not. Almost every rule about foreign investment starts there.

The headline test is a day count. A person normally residing in India for more than 182 days during the preceding financial year is resident.

But the day count is not the end of it. FEMA then removes two groups of people from it, and both turn on why they moved and how long they meant to stay. Someone who has gone abroad for work or business, in circumstances showing an intention to stay away for an uncertain period, is not resident even if the days say otherwise. Someone who came to India for a reason other than work or business, in circumstances showing an intention to stay for an uncertain period, is not resident either.

Residence is also given to things, not just people. A company registered in India is resident. So is an Indian branch of a foreign company, and a foreign branch of an Indian company.

The important warning is this. FEMA residence and income-tax residence are different tests, and the workbook tells investors to check both separately.

Who is a person at all (section 2(u) of FEMA). A person includes an individual, a HUF, a company, a firm, an association of persons, a body of individuals whether incorporated or not, every artificial judicial person, and any agency, office or branch owned or controlled by such person.

The four categories under section 2(v) (Chapter 15, section 15.19.2). A person resident in India is one of:

1. A person normally residing in India for more than 182 days during the course of the preceding financial year — but not a person who has gone out of India, or stays outside India, for employment, business or vocation outside India, or for any other purpose, in circumstances indicating an intention to stay outside India for an uncertain period; and not a person who has come to or stays in India otherwise than to take up employment, business or vocation, or for any other purpose, in circumstances indicating an intention to stay in India for an uncertain period.
2. Any person or body corporate registered or incorporated in India.
3. An office, branch or agency in India owned or controlled by a person resident outside India.
4. An office, branch or agency outside India owned or controlled by a person resident in India.

The line the workbook draws twice. FEMA relies on residence to tell domestic from foreign investors. The definition of residence under FEMA need not correspond exactly with that under the Income Tax Act, so investors must check their residential status under both laws separately. And the reason they differ is stated plainly: under FEMA the intention of stay is pertinent to prove residence, while under the Income-tax Act the physical stay is what decides it.

Where it bites in AIF practice (section 15.27). An AIF set up in an International Financial Services Centre and regulated by IFSCA may seek registration as a Foreign Portfolio Investor under the SEBI (FPI) Regulations, 2019 — and its Manager or Sponsor must be a Resident Indian, that is, a person resident in India under FEMA, 1999. The mandatory Sponsor Commitment is:

Such AIFs may invest via the automatic route to the extent of that mandatory sponsor commitment. And note the reason the FPI registration is needed at all: entities set up in IFSCs are equivalent to non-residents for Indian foreign exchange purposes, so SEBI and RBI restrictions on Indian residents participating in FPIs apply to IFSC AIFs by default.

Two related definitions, and a wrinkle. For FEMA, an NRI is an individual resident outside India who is a citizen of India. A PIO is a citizen of any country other than a listed set, who held an Indian passport at any time, or whose parent, grandparent or great-grandparent was a citizen of India, or who is the spouse of an Indian citizen — and for FEMA purposes a citizen of Bangladesh, Pakistan or Sri Lanka is excluded from the PIO definition.

The wrinkle is on the same page. The workbook says a person resident outside India will be an NRI if he is either a citizen of India or an OCI cardholder — and then, in the next sentence, that for the purpose of FEMA, NRI means a person resident outside India who is a citizen of India. Two formulations, one page, and OCI cardholders inside one and outside the other. Both are in the paper; cite section 15.19.1 rather than choosing.

The people, the fund and the rupee amounts are illustrative; the 182-day test, the four categories, the intention rule and the sponsor commitment figures are the workbook's.

Meridian IFSC Alternatives is setting up a Category III AIF in GIFT City with a corpus of USD 40 million, and wants FPI registration so it can buy listed Indian securities. Four residence questions have to be answered first.

1. The Manager. Meridian Capital Advisors LLP is registered in India. Under limb 2 of section 2(v) it is a person resident in India — full stop. It does not matter where its partners live or how many days anyone spent in the country. That satisfies the condition that the Manager or Sponsor be a person resident in India under FEMA.

2. The sponsor cheque. For a Category III AIF the mandatory sponsor commitment is 5% of corpus or USD 1.5 million, whichever is lower:

5% x USD 40 million = USD 2.0 million
Cap                 = USD 1.5 million
Commitment          = USD 1.5 million   (the lower)

Had it been a Category II AIF, the test would be 2.5% of corpus or USD 7,50,000 whichever is lower — USD 1.0 million against a cap of USD 7,50,000, so USD 7,50,000.

3. An individual who fails the day count but is still resident. Mr Arjun Bhat spent 200 days in India in the preceding financial year, then moved to Dubai on a three-year employment contract in March. The day count says resident. The exclusion in limb 1 says otherwise: he has gone out of India for employment outside India, in circumstances indicating an intention to stay outside India for an uncertain period. He is not a person resident in India under FEMA — and if he now commits Rs 8 crore to the fund, he does so as an NRI, under the FDI policy read with RBI's Master Directions.

4. An individual who passes the day count and is still not resident. Ms Lena Fischer, a German national, spent 210 days in India last financial year travelling and studying, with no employment or business here and no settled plan. The second exclusion in limb 1 catches her: she came to India otherwise than for employment, business or vocation, in circumstances indicating an intention to stay for an uncertain period. Day count 210, FEMA residence no.

And the trap underneath all four. Mr Bhat may well still be a resident for income-tax purposes on his physical stay of 200 days, while being non-resident under FEMA on his intention. The workbook says in terms that the two definitions need not correspond and that both must be checked separately. Getting this wrong means the wrong investment route, the wrong repatriation rights and the wrong tax return.

Chapter 15, sections 15.19 (Investment Framework under FEMA), 15.19.1 (NRIs and PIOs) and 15.19.2 (Residence under FEMA), with section 15.27 applying the definition to an IFSC AIF seeking FPI registration. Chapter 15 is the largest chapter in the paper and this is its gateway concept — every inbound route that follows depends on it.

Expect: the 182 days in the preceding financial year, the four categories under section 2(v), the contrast that FEMA turns on intention while the Income-tax Act turns on physical stay, and the requirement that an IFSC AIF's Manager or Sponsor be a person resident in India. The sponsor commitment figures — 2.5% or USD 7,50,000 for Category I and II, 5% or USD 1.5 million for Category III, whichever is lower — are a ready-made numerical question.

• More than 182 days, in the preceding financial year. Not 182 or more, and not the current year.
• Intention beats the day count under FEMA. Both exclusions in limb 1 turn on circumstances indicating an intention to stay for an uncertain period. A candidate who answers on days alone will get the workbook's own examples wrong.
• FEMA residence is not income-tax residence. The workbook says the definitions need not correspond and that both must be checked separately — FEMA on intention, the Income-tax Act on physical stay. Residential status is the income-tax page and a different test.
• Incorporation in India makes a body resident regardless of who owns it or where it operates.
• Both directions of branch are resident. An Indian branch of a foreign company is resident under limb 3; a foreign branch of an Indian company is resident under limb 4.
• An IFSC entity is a non-resident for FEMA. That is why an IFSC AIF needs FPI registration to buy listed Indian securities, and why its Manager or Sponsor must separately be a person resident in India.
• The sponsor commitment is the lower of the two tests, not the higher. And the two categories have different percentages and different dollar caps.
• The workbook gives two NRI definitions on one page — one including OCI cardholders, one confined to citizens of India. Cite section 15.19.1 and state both.
• Chapter 15 cites the Income-tax Act, 1961 while Chapter 14 works under the Income Tax Act, 2025. The same paper uses both statutes in different chapters; answer with the chapter you are asked about.