Section 2 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Almost every restriction in the Act turns on one question: is the person resident in India or resident outside India? Clauses (u), (v) and (w) of section 2 answer it. This article takes those three clauses only, not the whole of section 2, and explains how the test works for individuals, companies, offices and branches. If you need the test applied to a real case, our FEMA advisory team does this regularly.
"Person" is defined widely to include individuals, Hindu undivided families, companies, firms, associations, artificial juridical persons and any agency, office or branch owned or controlled by such a person. A person is resident in India if residing in India for more than one hundred and eighty-two days during the preceding financial year, subject to two exclusions based on intention and purpose, or if a body corporate registered or incorporated in India. Anyone who is not resident in India is resident outside India. This is not the income-tax test.
About this article
This article is based on the consolidated text of the Act consulted (amendments shown up to Act 50 of 2019). Later amendments should be checked. For the other terms in the section, see our post on key definitions under FEMA, section 2. Clauses (u), (v) and (w) are printed without any amending footnote in the copy consulted.
Who is a "person" (section 2(u))
Section 2(u) says "person" includes:
- an individual;
- a Hindu undivided family;
- a company;
- a firm;
- an association of persons or a body of individuals, whether incorporated or not;
- every artificial juridical person not falling within the preceding sub-clauses; and
- any agency, office or branch owned or controlled by such person.
The list uses "includes", so it is not closed in form, but sub-clause (vi) already sweeps in any artificial juridical person that is not one of the earlier kinds. Sub-clause (vii) matters in practice: a branch or office is treated as a person in its own right when it is owned or controlled by a person in the list.
Who is a "person resident in India" (section 2(v))
Section 2(v) gives four limbs. A person resident in India means:
| Limb | Text of the Act, in plain words | Who it catches |
|---|---|---|
| (i) | A person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year, but not a person within exclusion (A) or (B) | Individuals, mainly |
| (ii) | Any person or body corporate registered or incorporated in India | Companies and other bodies corporate |
| (iii) | An office, branch or agency in India owned or controlled by a person resident outside India | The Indian arm of a foreign person |
| (iv) | An office, branch or agency outside India owned or controlled by a person resident in India | The overseas arm of a resident |
Limb (i): the days test and its two exclusions
The days test looks at the preceding financial year, not the current one. A person who resided in India for more than one hundred and eighty-two days in that year is resident, unless one of the two exclusions applies.
Exclusion (A) removes a person who has gone out of India or who stays outside India, in either case:
- (a) for or on taking up employment outside India;
- (b) for carrying on outside India a business or vocation outside India; or
- (c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period.
Exclusion (B) removes a person who has come to or stays in India, in either case, otherwise than:
- (a) for or on taking up employment in India;
- (b) for carrying on in India a business or vocation in India; or
- (c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period.
In other words, the 182-day figure is not the whole test. The Act pairs the days with the reason for the stay. A person who goes abroad to take a job, run a business or stay for an uncertain period is outside the net of limb (i), and a person who comes to India for a purpose that does not indicate staying for an uncertain period, and who is not here for employment or business, is likewise outside it. The Act does not give a numerical rule beyond the 182 days, and nothing in the clause is explained by examples; how a particular case is judged depends on its facts, and the rules and regulations should be read for the practical side.
Example. Ananya, an engineer, moves abroad in March to take up a job with an overseas employer. Her stay outside India is "for or on taking up employment outside India", which is exclusion (A)(a). She is therefore outside limb (i), even if she spent more than 182 days in India in the earlier financial year before leaving. On the other hand, Rohit lives in India throughout the preceding year and has not gone abroad for any of the purposes in exclusion (A). He resides in India for more than 182 days and is resident.
Limbs (ii) to (iv): bodies, offices and branches
Limb (ii) does not use a days count at all. A person or body corporate registered or incorporated in India is resident in India. An Indian-incorporated company is therefore always a person resident in India, whatever the nationality of its shareholders. Limbs (iii) and (iv) look at offices, branches and agencies and decide their residence by reference to who owns or controls them:
- A branch in India of a foreign person is resident in India under limb (iii).
- A branch abroad of an Indian resident is resident in India under limb (iv), which is why section 1(3) can apply the Act to overseas branches. See our explainer on short title, extent and application.
Person resident outside India (section 2(w))
Section 2(w) is a one-line residual definition: a person resident outside India is a person who is not resident in India. There is no separate test. If limbs (i) to (iv) do not apply to the person, the person is resident outside India. This is the category in which the Act's rules on payments to and from non-residents, on holdings in India by non-residents and on offices of non-residents operate. For the practical rules on NRI status, see our guide on how to determine NRI residential status.
This is not the income-tax test
The Act's definition is its own. It uses the preceding financial year, the 182-day figure and the intention-based exclusions printed above. The income-tax law has its own rules for residential status, based on different periods and conditions, and the two tests can lead to different answers for the same person in the same year. A person can be resident under one law and non-resident under the other. Do not carry a conclusion from one law over to the other. For tax questions, see our income-tax guides, including our NRI taxation guide.
Why the classification matters
Classification as resident or non-resident decides which rules apply. Section 3 deals with payments to and from persons resident outside India, section 4 speaks of persons resident in India holding foreign exchange, foreign security and immovable property outside India, and section 6(4) and (5) deal with assets acquired when a person was resident on the other side of the line. Our later articles explain each of those provisions.
Need help with a residential-status question?
Residence under the Act decides which rules apply to a remittance, an account or an investment, and a wrong call can lead to a contravention. If you want a second opinion on how limbs (i) to (iv) apply to your case, our FEMA advisory team can work through the facts with you. We also help companies with overseas branches and individuals who are changing country.
Key takeaways
- "Person" includes individuals, HUFs, companies, firms, associations, artificial juridical persons and agencies, offices or branches owned or controlled by them (section 2(u)).
- Under section 2(v)(i), residing in India for more than one hundred and eighty-two days during the preceding financial year makes a person resident, subject to exclusions (A) and (B) which look at purpose and intention.
- Persons or bodies corporate registered or incorporated in India are resident in India (section 2(v)(ii)).
- Offices, branches and agencies are classified by who owns or controls them (section 2(v)(iii) and (iv)).
- A person resident outside India is simply a person who is not resident in India (section 2(w)).
- The Act's test is not the income-tax test, so check each law separately.
Read next
- How to determine NRI residential status
- Key Definitions Under FEMA: Section 2
- Section 2: foreign exchange, foreign security, currency and security defined
- Section 1: short title, extent, application and commencement
Disclaimer: Based on a consolidated text of the Foreign Exchange Management Act, 1999 showing amendments up to Act 50 of 2019, as consulted on 2 October 2026. Limits, forms, timelines and procedures are set by rules, regulations and Reserve Bank directions made under the Act; they change from time to time and are not covered here. Later amendments should be checked. This article is general information, not legal advice; check the official text before acting.