Test for residence under Tax Liability Based on Residential Status :

The tests for residence as aforesaid should be applied to determine the residential status of the taxpayer in respect of each assessment year because the assessee who is resident in one year may be regarded as non-resident in another and vice versa. The determination of residential status should, in every case, be made with reference to the previous year followed by the foreign collaborator for his sources of income in India. The fact that the taxpayer has been assessed as a resident in an earlier year would not preclude him from claiming the status of a non-resident in the subsequent year if the status for that year is really that of a non-resident.

A person would be “not ordinarily resident” in India in any previous year if such person is an individual who has been non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less.

Thus, this provision has the effect of restricting the benefit of the status of “not ordinarily resident‟ in the case of a non-resident Indian coming back to India or foreign citizens working in India to only a period of 2 years. Hence, a non-resident coming back to India will have to pay tax on their global income after a period of 2 years. Similarly, foreign citizens working in India will be required to pay tax on their global income if they continue to be resident in India beyond a period of 2 years.