Tax Tribunal Clarifies: Days Spent Job-Hunting Abroad Count for NRI Status

Mumbai, 15th March 2025: The Mumbai Income Tax Appellate Tribunal (ITAT) has ruled in favor of an individual who claimed to be a non-resident for tax purposes after spending 210 days abroad for work-related purposes. The tribunal clarified that tax residency must be determined solely based on the number of days spent in India, irrespective of whether some of the time spent overseas was for job hunting.

The case involved M. Gulati, who did not disclose his foreign earnings of ₹1.2 crore for the financial year 2015-16, asserting that he had stayed outside India for more than 182 days and therefore qualified as a non-resident. The Income Tax (I-T) department, however, argued that of the 210 days he spent abroad, 28 days were dedicated to searching for a job, and thus, he should be considered a tax resident of India.

The ITAT firmly rejected the tax department’s contention, stating that the law does not differentiate between days spent abroad for employment and those spent in search of employment. “The determination of residential status must be based strictly on the number of days spent in India, without making subjective distinctions about how the time abroad was utilized,” the tribunal observed.

This ruling is expected to benefit expatriates and professionals who travel abroad for employment opportunities, ensuring that days spent looking for a job are counted toward their non-resident status.

Under the provisions of Section 6(1) of the Income Tax Act, an individual who leaves India for the “purpose of employment” is considered a non-resident if they spend fewer than 182 days in the country during a financial year. However, from FY 2020-21, the threshold was reduced to 120 days for individuals whose total non-foreign income exceeds ₹15 lakh.

A tax resident is liable to pay taxes on their global income, whereas a non-resident is taxed only on income accrued or earned within India, such as rent from property or bank interest.

In this case, the assessing officer initially ruled that only the days of active employment should be considered and recalculated Gulati’s stay in India. As a result, he was deemed to have spent over 182 days in India, making him a tax resident. Consequently, his foreign salary of ₹86.2 lakh and Indian interest income of ₹2.8 lakh were subjected to taxation in India.

The Commissioner of Income Tax (Appeals) upheld the tax department’s decision, asserting that the 28-day period spent searching for employment could not be considered under the “purpose of employment” clause, as Gulati was not earning a salary during that period.

However, ITAT, citing judicial precedents, overruled the decision. The tribunal clarified that both employment and job searches fall under the scope of “purpose of employment” as per tax laws. “There is no legal distinction between a period spent securing a job and one spent in active employment,” ITAT ruled, setting a crucial precedent for future cases.

This verdict reinforces that individuals leaving India to seek job opportunities abroad will not be unfairly taxed on their overseas income, provided they meet the stipulated non-residency criteria.