Smith, currently in Ireland to visit his girlfriend pop star Morgan Deane, reportedly asked to stay on in India instead of facing the music with the rest of the side when it returned home last week.
Cricket South Africa CEO Gerald Majola said Smith's request had been sanctioned by the manager of the side.
Teammate Faf du Plessis unwittingly sparked media interest in Smith's absence when he said on a radio station after returning home that the outgoing skipper had stayed on in India to meet requirements which would exempt him from paying income tax back home.
South African residents, who are out of the country for at least 183 days of a tax year with 60 of them being consecutive days, gain exemption from paying tax here.
By not returning last week and then staying in India again to play in the IPL, Smith would have met these requirements.
Smith's agent, Craig Livingstone, told the weekly ''City Press'' that Smith was well within his rights to take advantage of these tax laws.
"Like any person who spends time outside the country, (Smith) becomes eligible for those tax benefits. Businessmen and other sportsmen are entitled to them, so why shouldn't Graeme be?" Livingstone said.
Livingstone said Smith would have stayed on in India if South Africa had qualified for the World Cup and would then have gone to Ireland before coming back to play in the IPL which starts on Friday.
"In any case, he is no longer the captain," Livingstone concluded.