For India’s globally active founders and HNIs, tax residency has quietly become one of the most litigated and involved question in recent years. The recent Bangalore ITAT ruling in the Binny Bansal case brings this issue into sharp focus, signaling a tougher and more forensic approach by Indian tax authorities towards residency claims of individuals with significant economic footprints in India.

Heart of dispute

Binny Bansal resigned from his role as Chairman and Group CEO of Flipkart with effect from November 13, 2018. Further, he left India for the purpose of taking up employment as CEO of X to 10X technologies Pte Ltd and commenced working in Singapore with effect from February 22, 2019.

He returned to India on September 1, 2019 and on September 4, 2019, he resigned from X to 10X Technologies Pte Limited, Singapore, while in India. On September 10, 2019, he left India to take up employment in Singapore and on September 12, 2019 his employment commenced with Three State Capital Advisers Pte Limited, Singapore. He continued to be employed in that company.

During FY20, he sold shares of Flipkart Private Limited, a Singapore Company and claimed that the capital gains on sale of such shares are not taxable in India pursuant to Article 13(5) of India – Singapore tax treaty.

He stayed in India for more than 365 days during the last preceding four years and for 141 days in the FY20 and therefore was required to prove his residential status as an Indian non-resident as per provisions of section 6(1)(c) of the Income Tax Act, 1961 (“the Act”).

The matter went to DRP, Bengaluru and ITAT Bengaluru, both authorities ruled in favour of the taxman.

Key lessons from the ITAT ruling

With respect to Section 6(1)(c) of the Act, the ITAT held the following:

1. Explanation 1(a) provides extension from staying 60 days in a year to 182 days in a year to attain non-resident status where an Indian citizen leaves India for the purposes of employment – In the facts of the case, the assessee had left for the employment in FY19 and not FY20. Hence, the extension of 182 days is not available in FY20.
2. Taking up new employment in FY20 will still not attract the relaxation under Explanation 1(a) since the assessee was already employed with the Singapore company when he visited India and thus was in full employment when he came to India. Further, this contradicts the other stance taken by the assessee that he left India for the purposes of employment in FY19.
3. Explanation 1(b) provides benefit to a person “who being outside India”, comes on a visit to India, the extension from 60 days to 182 days will be available to attain non-resident status. The ITAT held that “person, who being outside India” has to be interpreted as a person who was non-resident in the preceding financial year. In the instant case, the assessee is an Indian tax resident for FY19 and hence he cannot claim benefit of this explanation also.
4. Considering the above, ITAT held that the assessee is an Indian tax resident for FY20. Accordingly, it becomes imperative to analyse the residency basis Article 4(2) of the India-SGP treaty commonly referred as tie breaker test.

Tie Breaker test

The ITAT considered the peculiar facts and analysed the tie breaker test as follows:

1. The assessee had an owned home in India and was living in a rented apartment in Singapore. ITAT held that the distinction cannot be made with respect to more permanence such as own house property in India compared to a rented premises.
2. Out of 141 days stay in India in FY20, the assessee represented that he was stranded in India for 38 days due to COVID pandemic. The ITAT interestingly observed that for the issue of permanent residence during the difficult times in the Covid pandemic, any person would prefer to stay in place of permanent residence and at a place where he manages his or her affairs better and with their loved ones. Based on the above, ITAT ruled that the assessee has a permanent home in both countries
3. With respect to the center of vital interest, it was the submission of the assessee that his personal and economic relations are closer to Singapore than India.
4. Assessee submitted that he does not have any independent family members in India and his nuclear family consisting of his spouse and his two children are residing in Singapore along with the assessee for the whole of the FY20. The assessee's family has continued to reside with him in Singapore till date and therefore the assessee's personal relations are closer to Singapore than India. Further, his parents are independent and were always living in Punjab.
5. With respect to economic interest, the assessee stated that his principal bank accounts and credit cards are in Singapore and his visit to India were very short and principally for business purposes. The taxman however stated that significant assets are held by the assessee in India and the Singapore employment caters to Indian clients only.
6. Assessee argued that individuals who become non-residents face restrictions under the Foreign Exchange Management Act 1999 in repatriating Indian funds overseas. Thus, the investments made in India are not by any means an indicator of the center of economic relations since there are regulatory restrictions on repatriation of funds overseas.
7. The assessee also submitted that majority of the investments made in India by the assessee are passive portfolio investments such as investment in alternative investment funds, mutual funds, portfolio investments in start-ups etc.
8. ITAT appreciated the fact that the assessee moved to Singapore with his family and his family also shifted to Singapore. However, the wide variety of investments that the assessee has made while in India such as alternative investment funds, unlisted companies equity shares, listed equity shares and mutual funds do not exist in Singapore.
9. With respect to the habitual abode, it is apparent that he stayed in India for 141 days in India and balance days in other countries. This is the first year that assessee went out of India for employment purposes, but he kept on visiting India for almost 141 days. Thus, the assessee worked only for the part of the year in Singapore and also lived in India for part of the year.
10. In view of the above, ITAT held that the assessee is an Indian resident according to Tie breaker test also.

Concluding remarks

The ruling offers important guidance:

• Residency planning must be forward-looking, particularly in years involving capital gains or liquidity events. Founders often assume that stepping down from operational roles or relocating overseas ends Indian tax exposure. The ruling suggests otherwise.
• Documentation must align with conduct; inconsistencies between claimed residency and actual economic behaviour can prove lethal in litigation
• Treaty positions should be evaluated conservatively, with a clear understanding that domestic residency findings often determine the outcome.

The case also highlights the risks of assuming that partial migration or phased relocation is sufficient to break Indian tax residence. It will be interesting to see how jurisprudence evolves on this aspect where this matter is further appealed to the High Court. Until then, it is important for people to review their assumptions about their residential status and have a closer look at the potential areas of exposure, especially in years where any treaty benefit have been or are to be claimed.