It seems that the proposed Income Tax Bill, 2025, has made a minor change in language with the residential status clause. Earlier, Indians who moved abroad ‘for the purpose of employment’ enjoyed a relaxation from Indian tax residency provisions namely 182 days instead of 60 days for others. While others had to satisfy the 60 days clause, but if these persons who moved abroad ‘for the purpose of employment’ stayed in India for less than 182 days in the current financial year then they would have been considered non-residents under the Income Tax Act, 1961. Now as per the proposed Income Tax Bill, 2025, the phrase mentioned above has been changed to Indians who moved abroad “for employment outside India”.Due to this change in language of the proposed Income Tax Bill, 2025, job-seekers, self-employed, professionals, etc may now fall outside the ambit of the relaxed Indian tax residency laws (182 days). Experts say due to this proposed change now a person may need an actual offer letter or official documentation showing his foreign employment status as without this he/she may not qualify for the relaxed conditions of Indian tax residency laws.
What is this new proposed change in tax residency status for employees working abroad?
Taxmann Advisory and Research in its published analysis stated that “Section Section 6 of the Income Tax Act, 1961 provides that the condition of stay in India for 60 days or more in the current year does not apply to a citizen of India who leaves India “for the purpose of employment outside India”. The Income Tax Bill, 2025 proposes to replace this expression with “for employment outside India”.
Advocate Divyasha Mathur, Assistant Professor of Legal Practice, Jindal Global Law School says, that under the current income tax law, Section 6 of the Income Tax Act, 1961 provides for a person to be treated as a tax resident of India if they:
- Stay for 182 days or more in India during a financial year; or
- Stay for 365 days or more in India in the last four years and are present in India for at least 60 days in the current financial year.
The last condition which specifies the 60 days clause has an exception. “There is an exception for Indian citizens leaving the country for ‘the purpose of employment.’ Instead of the usual 60-day threshold, they are allowed a longer 182-day period—they will be considered non-residents if they stay in India for less than 182 days in a financial year,” says Mathur.The exception to the 60 days clause is subject to many litigation court cases in the past. Over the years, the phrase “for the purpose of employment” has been subject to judicial interpretation.
“It has been settled that Indian citizens leaving India for self-employment (engaged in a business or profession) would also come under the purview of the exception. They currently qualify as non-residents if their stay in India is below 182 days. The new Income Tax Bill 2025, besides simplifying Section 6 about residence, has tightened this exception by replacing the words “for the purpose of employment” with “for employment outside India.” This change narrows the eligibility for claiming the exception. Although this appears to be a minor change, its impact could be significant,” Mathur says.
Rahul Charkha, Partner at Economic Laws Practice, agrees with Mathur and adds that the Income Tax Department in various court cases often would argue that the phrase ‘for the purpose of employment’ should be interpreted as employer-employee relationship and hence should be given a restrictive meaning. However taxpayers would contend that the expression includes travelling abroad on business visa to take up any employment or for any business carried outside India.
Charkha says: “The courts have accepted the taxpayers’ arguments and held that the expression “for purpose of employment” is said to include self-employment like business or profession taken up by the taxpayer abroad but excludes other purposes such as a tourist or for medical treatment or for studies or the like. The proposed replacement “for employment outside India” would restrict the meaning to employment falling within the purview of employer-employee relationship and specifically exclude travel outside India for the purpose of business.”
Taxsutra’s analyis of the proposed Income Tax Bill, 2025 said:
- Basic threshold of 182 days or more or 60 days /365 days for an individual to be a resident in India is retained in the New Bill.
- Overall the provisions related to citizens, person of Indian origin is retained in the new Bill.
- The noticeable change is the rephrasing or edits in the explanation which says that a citizen of India who leaves India in previous year “for the purpose of employment outside India shall be considered as resident …….” Under Section 6(3)(b) of the New Bill provides “for employment outside India”. This may have wide implications.
- Deemed resident in respect of an individual remains the same.
- RNOR provisions are retained.
How does this impact Indian employees with foreign jobs?
We have asked various experts about the possible impact, here’s what they said:
Divyasha Mathur, Assistant Professor of Legal Practice, Jindal Global Law School: The restricted and strict interpretation of the change could be such that only salaried employees, having confirmed employment agreements, will benefit from claiming non-residence. While the intent may be to curb tax avoidance, it could also potentially discourage global mobility for Indian professionals. However, despite the change, residential status is an exercise that differs from case to case and is factually intensive. The judicial rationale for including non-salaried persons or those engaged in business or profession within the scope of the exception will have to be re-tested with the new proposed replacement. In any case, taxpayers may have to maintain clear documentation of employment offers, contracts, or assignments before leaving India.
Rahul Charkha, Partner at Economic Laws Practice: Indian taxpayers going abroad to explore employment or business opportunities adopted a liberal view of these provisions and benefited from being taxed as a non-resident. The proposed replacement puts an end to such a liberal interpretation. Taxpayers will now have to be definitive about their employment status. They must possess an offer letter and start employment once they are outside India. Businessmen, professionals, consultants and job-seekers that benefitted from the prevailing provision will no longer qualify as non-residents by adopting the arguments taken earlier.
Chartered Accountant Ashish Karundia: Under the current residency rules, Indian citizens who leave the country “for the purpose of employment” abroad are required to meet a relaxed number of days test to determine their tax residency. Indian courts have broadly interpreted “for the purpose of employment,” applying it to both job seekers and employees on deputation, as well as citizens leaving for self-employment.
The proposed change alters this by replacing “for the purpose of employment” with “for employment” outside India. The new wording “for employment” seems more restrictive, potentially excluding those moving for an existing job. However, self-employed individuals may still qualify under the proposed bill.
Chartered Accountant Naveen Wadhwa, Vice President, Research and Advisory Division at Taxmann says: “The phrase “for the purpose of employment” used in the Income Tax Act, 1961 meant a wider scope for a taxpayer to qualify for the non-resident status if he/she went abroad for the purpose of employment. It could have meant job seekers, self-employed professionals, and others who went abroad to get employment or business. Now as per the proposed Income Tax Bill, 2025 this phrase has been replaced by “for employment outside India”. This could potentially mean the scope has been narrowed down to include those taxpayers who are going abroad because of an already secured employment offer. It may happen that these taxpayers may need to show the offer letter or employment documents, etc to satisfy these Indian tax residency requirements.”
“In the past there were numerous litigation cases where the Income Tax Department preferred the narrowed interpretation of the phrase “for the purpose of employment”. However, now to clear this ambiguity the department may have simplified the language and hence wrote for employment purposes.”
Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm: This is unlikely to create a significant impact on the overall scheme of residential status as the intention of the government does not seem to restrict the section to only salaried employees outside India. It might work in a similar way like it used to before where the employment is understood to be as a wider term. There have been high court rulings in the past which says that self-employment is also a type of employment. Even deputation is also an employment. On the other hand, even if this has some implications on the individual staying abroad for other than employment they can take the tax treaty benefit.
The situation for them remains as it is. The basic condition of 182 days or more or 60 days /365 days for an individual to be a resident in India is retained in the New Bill. Overall the provisions related to citizens, person of Indian origin are unchanged as well. The only change is in the explanation which says that a citizen of India who leaves India in previous year “for the purpose of employment outside India shall be considered as resident …….” Under new bill it says “for employment outside India” and seemingly it doesn’t have that significant impact. Other provisions such as deemed residency remain the same.
Gaurav Makhijani (Head of Tax, North India and Gujarat) at Roedl & Partner India: There has been a change in the definition of ‘resident’ in the new Income Tax Bill, specifying that the second condition requiring, a stay of 60 days in a financial year and 365 days over the past four years, will not apply to an Indian citizen leaving India “for the employment.” Under the existing law, the term used is “for the purpose of employment.”
Generally, “for the purpose of employment” has been interpreted broadly, whereas “for the employment” is more restrictive and direct. Courts have previously ruled that an Indian citizen going abroad “for the purpose of employment” includes not just those with pre-existing jobs but also individuals seeking self-employment or starting a business. Per a few tax rulings which relied on the circular issued by the tax department in this regard, the intent behind the existing law was to exclude individuals traveling abroad for purposes such as tourism, medical treatment, or education.
The change in wording in the new Income Tax Bill appears to be more restrictive even though it may be only for improving the language to make it simpler. It would be beneficial if clarification on the intent behind this change is provided, which will help in avoiding unnecessary tax litigation.
