A week later, the Supreme Court delivered a similar message in a separate case involving Tiger Global. It ruled that the investor must pay tax on its 2018 sale of shares in an Indian portfolio company, rejecting its attempt to claim treaty benefits through Mauritius. The court held that a tax residency certificate alone is not sufficient and that foreign investors must demonstrate real commercial substance in the overseas jurisdiction, rather than operate through shell entities set up primarily to avoid tax in India.
Together, the two rulings signal closer scrutiny by the tax department of cases where taxpayers rely on technical non-resident rules or treaty provisions without having real economic or personal presence outside India.
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“For individuals working or investing overseas, tax residency has long been viewed as a day-count exercise. But Binny Bansal’s judgment changes that by applying the principle of substance over form,” said Bhawna Kakkar, chartered accountant and founder of Kakkar & Company.
Why is the Bansal case important
The dispute in Bansal’s case centred on whether he could be treated as a non-resident for FY20, the year in which he sold shares in India and earned substantial capital gains. If he qualified as a non-resident Indian (NRI), he could claim benefits under the India-Singapore tax treaty and avoid paying capital gains tax in India.
Under Indian tax law, an individual is treated as a resident if either of two conditions is met in a financial year: if the person stays in India for 182 days or more; or if the person stays in India for at least 60 days in that year and has spent a total of 365 days or more in India during the preceding four years.
The law provides limited relaxations. If an Indian citizen leaves India for employment, the 60-day trigger is extended to 182 days in the year of departure. Similarly, Indian citizens or persons of Indian origin who are genuinely living abroad and only visiting India can also benefit from the relaxed 182-day threshold. These exceptions are meant to protect genuine overseas workers and long-term non-residents.
In Bansal’s case, he moved to Singapore in February 2019, just weeks before the start of FY20, and took up employment there. During FY20, he made several short trips back to India but kept his total stay below 182 days. On this basis, Bansal claimed that he qualified as a non-resident under the Income Tax Act and argued that once he had taken up employment abroad, his visits to India should be treated as visits by a person ‘outside India’, allowing the relaxed 182-day threshold to apply.
The tax department disagreed. It argued that someone who has lived in India for many years and moved overseas only recently could not automatically be treated as a person genuinely “outside India”. In such cases, the stricter rule applies: if a person stays in India for more than 60 days in the year and has spent more than 365 days in India over the preceding four years, the person continues to be treated as a resident.
The tribunal accepted the department’s view and denied Bansal non-resident status for FY20.
Tax experts say the timing of the move played a crucial role.
“The person left India only a couple of months before the sale, so the department could see the move was largely driven by tax planning rather than a genuine relocation. Because the amount involved was large, the tribunal examined the facts very closely,” said Prakash Hegde, a Bengaluru-based chartered accountant.
Hegde explained that the law effectively works in phases. “In the year a person leaves India for employment, staying under 182 days in India can qualify him as non-resident. In the middle years, once the person is genuinely settled abroad, the 182-day rule can again apply for short visits to India. But in Bansal’s case, the tribunal held that he had only recently moved overseas and was not yet truly settled abroad, so the stricter 60-day rule applied. In the year of permanent return to India, the 60-day rule applies again.”
Hitesh Kumar, a chartered accountant and direct tax specialist, agreed and said recent movers cannot ignore their past ties to India. “Long-term residential pattern, employment base, investments and frequency of visits can all be examined by the tax department.”
The ruling therefore goes beyond one individual case and has wider implications for anyone who relocates abroad for short periods primarily to claim non-resident status.
Not a tax loophole to be exploited
Ashish Karundia, founder of CA firm Ashish Karundia & Co., said the judgment is particularly relevant for founders, business owners and high-net-worth individuals who temporarily relocate to tax-friendly jurisdictions such as Dubai or Singapore with the primary objective of becoming NRIs.
Tax advisers say many young entrepreneurs now register companies in Dubai or other West Asian jurisdictions, spend six or seven months abroad, and declare themselves non-residents while continuing to operate largely from India. On paper, such structures may appear compliant. But the key question is where management, decision-making, and commercial activity actually take place.
“If the business is effectively run from India, the company’s place of effective management can still be treated as India, regardless of where it is incorporated,” Karundia said. Simply holding board meetings abroad or maintaining a registered address is not sufficient.
Another common reason for relocating overseas is the intention to sell large holdings of shares or mutual funds.
India’s tax treaties with countries such as the United Arab Emirates, Singapore, Oman, Qatar, Saudi Arabia, Kuwait and Malaysia provide that capital gains (other than on immovable or business-linked assets) are taxable only in the seller’s country of residence. Since many of these countries do not levy capital gains tax, non-residents can potentially avoid paying any tax at all on their capital gains booked in India.
However, experts caution that residency planning may now require clear evidence of a genuine shift in personal and economic life.
Going forward, the precedent allows the tax department to scrutinize such cases more closely and serves as a reality check for taxpayers attempting short-term residency planning around major asset sales.
Karundia added that the department increasingly relies on automated systems and data analytics to flag unusual patterns, such as sudden changes in residential status or large transactions timed with overseas moves. “There is no formal government registration for becoming an NRI; it is self-declared in tax returns. Smaller cases may escape attention initially, but large or repeated patterns are more likely to be picked up over time,” he said.
For founders and professionals exploring overseas setups, recent rulings reinforce that residency claims must reflect commercial reality. As Kumar put it, “Foreign relocation must be real in terms of family life, business control, investments and day-to-day presence. Otherwise, the tax outcome may not match expectations.”
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