FEMA residency: the day-counter that decides which Indian bank account you can keep

Assuming you have been outside India for a few years and you are now planning the move back, there is a residency test most people have never heard of that quietly decides which Indian bank account you are allowed to keep on the day you land. It is the FEMA test, and it is not the same as the income-tax test.

Most returnees know about Section 6 of the Income-tax Act and the day-count that drives RNOR. Far fewer know that the Foreign Exchange Management Act, 1999 has its own definition of "person resident in India" in Section 2(v), and that this is the test the bank actually applies to your NRE, NRO, FCNR(B), and RFC accounts. The two definitions look superficially similar. They are not.

1. Two statutes, two questions

The Income-tax Act asks: in this financial year, what should India be allowed to tax? FEMA asks: today, which foreign-exchange facilities are you legally allowed to use?

Statute                  Question                          Period it looks at
Income-tax Act §6        Tax residency for the FY          Current FY presence (with prior-year lookback in §6(6))
FEMA §2(v)               Foreign-exchange residency        Preceding FY day-count + intent

The Income-tax Act §6 leans primarily on your physical presence in the current financial year, with §6(6) reaching back across prior years to decide whether a Resident is further classified as Ordinarily Resident or Not Ordinarily Resident. FEMA §2(v) does the opposite: it looks back at the preceding financial year and overlays an intent test. Because the two statutes ask different questions over different windows, they routinely give different answers in the year of return. A returnee who lands in, say, August can easily be a Non-Resident or RNOR under the Income-tax Act for that FY, while becoming a person resident in India under FEMA on the day they land with intent to stay. The bank cares about the second answer. The CA cares about the first.

2. What FEMA actually says

Section 2(v) of FEMA defines a "person resident in India" using a two-part test. The first part is a day-count: a person who resided in India for more than 182 days during the preceding financial year. The second part — and this is the part that surprises people — is a set of intent-based carve-outs. A person who has gone out of India, or who stays outside India, for the purpose of employment, business or vocation, or for any other purpose indicating an intention to stay outside India for an uncertain period, is treated as a person resident outside India regardless of day-count. The mirror is also true: a person who has come to or stays in India for one of those purposes is a person resident in India.

In practice this means residency under FEMA can flip on the day you land with a one-way ticket and an Indian job offer, even though you have spent fewer than 182 days in India in the preceding FY. Conversely, a short Indian visit while you remain employed abroad does not make you a FEMA resident, even if your day-count creeps up.

The application of §2(v) to your specific facts — length of stay abroad, purpose of return, family situation, employment status — is a CA call. The day-counter is the easy part.

3. Why the bank cares

NRE, NRO, and FCNR(B) accounts are FEMA constructs governed by the RBI Master Direction on Deposits and Accounts of Persons Resident Outside India. They are designed for non-residents under FEMA. Once your FEMA status flips to resident, the eligibility basis for those accounts falls away.

Account     FEMA holder eligibility       RBI treatment on change of status to resident
NRE SB/FD   Person resident outside India  Redesignate as resident rupee a/c (or transfer to RFC, if eligible)
NRO SB/FD   Non-resident (broad sense)     May be redesignated as resident a/c
FCNR(B) FD  Person resident outside India  May continue till maturity at contracted rate; on maturity, RFC (if eligible) or resident rupee
RFC         Returning Indian resident      Newly opened post-return (eligibility per RBI Master Direction)

The high-level picture is set by the RBI Master Direction and reinforced in RBI's NRI account FAQs. The exact day on which to redesignate, the paperwork the bank wants, and how accrued NRE / FCNR(B) interest is treated through the changeover are operational details to settle with your relationship manager. The legal trigger, though, is the FEMA status flip, not the income-tax status flip.

4. Where returnees go wrong

A few patterns show up repeatedly. None of them are advice; they are flags worth taking to your CA and your relationship manager.

• Treating the income-tax day-count as the FEMA day-count. The two are different windows and different tests.
• Leaving an NRE fixed deposit to run untouched after becoming a FEMA resident, on the assumption that tax-free interest continues. The FEMA basis for the NRE account is gone the moment you are a FEMA resident; the favourable interest treatment is tied to the account, not to you.
• Opening an RFC account before the FEMA status has actually flipped, or skipping it entirely and converting all foreign balances to rupees on day one.
• Assuming "I am still RNOR for tax" means "I am still NRI for the bank." The bank does not run the §6(6) test.

5. What a day-counter is for

A day-counter is a mechanical tool. It takes the dates you were physically in and out of India and runs both the Income-tax Act and the FEMA arithmetic side by side, so the two answers are visible together. It does not decide your case. It surfaces the inputs in a form a CA can act on.

What it should give you is a clean printout: here is your FEMA preceding-FY day-count, here is your current-FY Income-tax day-count, here is where the two diverge, and here is the question to take to your CA. The decisions — when to redesignate, when to open the RFC, when to break a deposit — sit with your CA and banker.

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A note on what this is. This article is one returnee's working notes, not personalised advice. Numbers age. Rules change. The only person who can sign off on your specific case is a qualified cross-border chartered accountant looking at your full facts. Use this as a checklist of questions to take to that conversation, not as the answer.

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Sources:

• Foreign Exchange Management Act, 1999 — Section 2(v) (India Code)
• RBI Master Direction — Deposits and Accounts (FED Master Direction No. 14/2015-16, as amended) (rbi.org.in)
• Income-tax Act, 1961 — Sections 5, 6, 6(6) (India Code)