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January 2024

Residential Status of Individuals – Interplay With Tax Treaty

By Mahesh G. Nayak, Chartered Accountant
Reading Time 28 mins

INTRODUCTION

This article is the second part of a series of articles on Income-tax and FEMA issues related to NRIs. The first article in the series focused on various issues related to the residence of individuals under the Income-tax Act, 1961 ('the Act'). In this article, the author seeks to analyse some of the key issues related to the determination of the residential status of an individual under a tax treaty ('DTAA'). Some of the issues covered in this article would be an interplay of tax residency under the tax treaty with the Act, the applicability of the treaty conditions to not ordinarily residents, tie breaker rule under tax treaty in case of dual residency, the role of tax residency certificate and split residency.

BACKGROUND

Article 1 of a DTAA typically provides the scope to whom it applies. For example, Article 1 of the India — Singapore DTAA provides as follows,

“This Agreement shall apply to persons who are residents of one or both of the Contracting States.”

Therefore, in order to apply the provisions of the DTAA, one needs to be a resident of at least one of the Contracting States which are party to the relevant DTAA. If one

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