January 12: ITAT Rejects Binny Bansal’s Non-Resident Tax Status
On January 12, the Binny Bansal tax ruling from the Bengaluru bench of the Income Tax Appellate Tribunal (ITAT) held him resident in FY20, denying treaty relief on Flipkart share-sale gains. The decision tightens focus on India-Singapore DTAA use and tax residency rules for founders, HNIs, and cross-border investors. We explain the ITAT Bengaluru order, outline residency tie-breakers, and list practical steps Indian investors should consider before a relocation or exit to avoid costly surprises and disputes.
ITAT Bengaluru Order: What Changed For Bansal
The tribunal found Binny Bansal resident in FY20, so capital gains from his Flipkart share sale were taxable in India. Because residency was established in India, treaty benefits were not available. This marks a clear signal that residency claims will face close scrutiny. For case background and key observations, see reporting in Times of India source.
While specific counts were case-based, the order weighed day presence, personal and economic ties, and overall conduct. The bench assessed where key interests lay in FY20, consistent with treaty tie-breakers and domestic rules. The takeaway is simple: calendar planning alone is not enough. Substance around home, work, and family anchors can outweigh travel diaries when authorities evaluate residency.
India-Singapore DTAA And Residency Tests Explained
The India-Singapore DTAA allocates taxing rights based on residency and source, subject to limitation-of-benefits tests. If a taxpayer is resident in India, India can tax gains from Indian shares, and treaty relief may not apply. The Binny Bansal tax ruling underscores that residency comes first. See coverage in Economic Times source.
When dual residency is claimed, tie-breakers consider permanent home, centre of vital interests, habitual abode, and nationality, then mutual agreement. Authorities look for consistent facts, not form. Lease agreements, family location, board roles, and where key decisions happen can tilt outcomes. The Binny Bansal tax ruling shows that weak documentation of overseas substance risks denial of treaty protection.
Why This Matters For Founders, HNIs, And Investors
Tax on Indian equity gains depends on holding period and residency. If resident in India, domestic rules apply fully, and treaty relief is limited. For unlisted shares, classification into long-term or short-term can materially change tax outgo. The Binny Bansal tax ruling reminds investors that residency status at the time of exit is often the decisive factor.
India’s day-count thresholds matter. A 182-day test applies generally. From FY20, a 120-day trigger may apply to certain visiting Indian citizens with higher Indian income, often leading to resident-but-not-ordinarily-resident outcomes. Add the 365-day look-back across four years, and mid-year moves get complicated. Build buffers, avoid cutting it close, and document where key personal and economic ties truly lie.
Practical Steps Before You Exit Or Relocate
Maintain day-count logs, boarding passes, rental contracts, school records for dependents, local director roles, and work calendars. Capture where decisions and negotiations occur. Align bank accounts, healthcare, and clubs with the intended country of residence. In disputes, contemporaneous records carry weight. The Binny Bansal tax ruling shows that substance beats intent when authorities review facts.
Run multi-year tax models for exit scenarios under both resident and non-resident cases. Test treaty tie-breakers, LOB clauses, and surcharge impacts. Consider obtaining professional opinions or advance rulings where available. Update employment contracts, vesting schedules, and board minutes before a sale. The Binny Bansal tax ruling highlights that planning late can be costly, especially for large liquidity events.
Final Thoughts
The Binny Bansal tax ruling is a wake-up call for Indian founders, HNIs, and cross-border investors. Residency decides tax outcomes, and authorities will prioritise real ties over travel calendars. Before an exit, build clear overseas substance, keep detailed records, and allow ample timing buffers against the 120/182-day thresholds. Run models for both resident and non-resident cases and assess treaty tie-breakers early. If facts are mixed, seek written advice or advance clarity. Most important, align family location, housing, work roles, and decision-making with the intended residence. Proactive steps today reduce audit risk, protect cash flows, and keep focus on the deal, not a future dispute.
FAQs
What did the ITAT decide in Binny Bansal’s case?
The Bengaluru bench held him resident in FY20. As a result, India could tax the Flipkart share-sale gains, and treaty benefits were denied. The case signals tighter scrutiny of residency claims, with authorities weighing day count plus real personal and economic ties, rather than relying only on travel calendars or declarations.
How do India’s tax residency rules work?
Residency generally depends on days spent in India, plus a look-back across prior years. From FY20, certain visiting Indian citizens with higher Indian income face a 120-day trigger. Authorities also review where permanent home, family, and key interests lie. Clear documents and consistent behaviour are essential during assessments.
Does the India-Singapore DTAA remove India’s right to tax share gains?
Not automatically. The treaty first requires establishing residency. If an individual is resident in India for the relevant year, India can tax gains from Indian shares, subject to specific provisions and limitation-of-benefits tests. The Binny Bansal tax ruling shows that weak residency claims can block access to treaty relief.
What should founders moving abroad do before an exit?
Plan at least a year in advance. Build overseas substance with housing, family relocation, bank accounts, and decision-making records. Track day counts with buffers, test treaty tie-breakers, and model tax outcomes under both residency cases. Formalise roles and agreements before any sale, and consider professional opinions or advance rulings.
Disclaimer:
The content shared by Meyka AI PTY LTD is solely for research and informational purposes. Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice.
