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Wrong visa, full tax: Indian entrepreneurs abroad risk losing NRI status

Choosing the wrong visa type for your international travels could not only lead to problems with immigration authorities abroad, but also spark scrutiny from India's income tax department. Indian entrepreneurs who spend long periods overseas managing businesses often believe they qualify as Non-Resident Indians (NRIs) and are therefore exempt from paying tax on their global income. But tax authorities can take a different view — especially if the visas used suggest otherwise. 'The tax residency has a major role to play in Indian taxation as it goes to define the scope of total income which would be taxable in India. For an Indian tax resident, their global incomes would be exigible to Indian taxation. However, for non-residents, the scope is curtailed and restricted to incomes with an Indian nexus,' said Amit Gupta, partner at Saraf and Partners. One such example is that of M Mahadevan, founder of the Hot Breads bakery chain. The income tax department decided to tax his global income, arguing he was a resident of India during specific years and not an NRI, as he claimed. A tribunal later upheld the department's decision. Tourist visas didn't help Mahadevan's case The key issue was the kind of visa Mahadevan used. Although he claimed to be conducting business abroad, the tribunal noted that he travelled on tourist visas to countries like Malaysia and Singapore. 'Mahadevan had multiple-entry visas and travelled many times a year from India and also from other countries like the UAE. He claimed to have stayed outside India for 182 days or less in each of the three years and that his travel was purely for business,' said CA and advocate Kinjal Bhuta, secretary, Bombay Chartered Accountants' Society. 'But the tribunal rejected this, based on FRRO data and passport stamps which showed longer stays in India. His visas were for social or tourist purposes, not for employment or business. The tribunal said holding business interests abroad doesn't automatically make overseas visits business-related — especially when the visa itself says 'social visit',' Bhuta added. What the tribunal said about NRI status • Mahadevan travelled frequently, but on tourist visas • He claimed to be overseas for business, but had no employment visa • Immigration records showed he stayed in India longer than permitted under NRI rules • The tribunal accepted FRRO data over Mahadevan's own claims • Global income was therefore considered taxable in India 'The tribunal rejected Mahadevan's NRI claim because he used tourist visas for foreign travel, which don't permit employment or business abroad. This indicated he wasn't genuinely working or residing overseas,' said Sudhir Kaushik, founder and CEO, 'If he had used business or employment visas, it could have potentially supported his claim. But even then, the tribunal focuses on the substance of the stay, not just the visa label,' added Aditya Bhattacharya, partner at King Stubb & Kasiva, Advocates and Attorneys. What could Mahadevan have done differently? Using the right visa matters, but it's not the only thing tax authorities check. 'In this case, a business or work visa would have strengthened his claim that he was abroad for business reasons,' said Gupta. 'But merely having overseas interests isn't enough — the assessee must prove that the visits were indeed for employment purposes and meet the threshold under Section 6 of the Income Tax Act.' Dasgupta explained, 'The tribunal has relied on the kind of visa approvals to assess Mahadevan's true intent. It's possible that a higher court may look at the broader facts, but this ruling puts the burden of documentation squarely on the taxpayer.' What documents do tax authorities check? According to experts, here's what Indian tax officials usually examine to verify a person's NRI status: • Tax residency certificate (TRC) from a foreign country • Form 10F with PAN, nationality, address, and tax ID • Employment contract or appointment letter with dates and overseas location • Salary slips and foreign bank statements • Valid business or work visa or residence permit • Proof of overseas business activity and control • Travel records and passport stamps • Utility bills, lease agreements, or any proof of overseas residence • Local tax filings in the foreign country • Emails and internal records showing control and business decisions Advice for Indian entrepreneurs abroad To avoid similar outcomes, Bhut suggested the following: • Always travel with a valid business or employment visa if the trip is work-related • Maintain strong documentation around employment, income, and location • Avoid prolonged or frequent stays in India that can trigger residency under Section 6 • File local tax returns and obtain a TRC in the host country • Keep detailed records of meetings, decision-making, and control if you run a business from abroad • Ensure global income disclosures are consistent across jurisdictions 'Using appropriate visas can prevent the kind of problems faced in this case,' said Bhuta. 'Often, tourist visas are chosen for convenience. But if the visit is for business, it is best to go through the proper route and maintain consistent records. Substance over form is what matters — you must be able to prove that you were genuinely abroad for work, not just structured that way on paper.'