In India, the taxability of an individual depends on the residential status for any particular year. The residential status of an individual taxpayer is different from the citizenship status in the country. The ixncome tax act provides different tax treatments for income tax payable, tax exemptions, tax deductions and Income tax return depending on the residential status.
Types of Residential Status for Taxation
For the purpose of income tax in India, the income tax laws in India classifies taxable persons as:
- A resident
- A resident not ordinarily resident (RNOR)
- A non-resident (NR)
How to determine residential status of an Individual?
An individual taxpayer will be considered as a resident if he/ she fulfill any ONE of the following conditions:
| Basic condition 1 | Basic condition 2 |
| If Period of Stay in India is more than 182 days | If Period of Stay in India is less than 182 days |
| If stay in India is more than or equal to 182 days he/she is considered as Resident of India. | If he satisfies both the conditions then Resident of India, If period of stay is more than or equal to 60 days but less than 182 days if period of stay in the immediately preceding 4 PY is 365 days or more. |
Deemed Resident
In case of Indian citizen, having total income exceeding 15 lakhs during the previous year (other than income from foreign sources) and is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature then he is deemed to be Resident in India in that previous year. He shall be treated as Resident but Not ordinarily resident.
Exceptions to general conditions:
For the following cases the condition of “stay in India for more than or equal to 182 days” condition is applicable for determining the residential status.
- Being an Indian Citizen who leaves India during the relevant PY for the purpose of employment (includes self-employment) outside India.
- Being an Indian Citizen who leaves India during the PY as a member of crew of Indian Ship.
- Being an Indian Citizen who comes on a visit to India during the year
- Being a Person of Indian Origin who comes on a visit to India during the year.
Note:
For the below case the person is a resident of India if the stay in India is 120 days:
- If an Indian Citizen or a person of Indian Origin visiting India has total income other than income from Foreign sources exceeding 15 lakhs, then such person becomes Resident if period of stay in India during the PY is 120 days.
Explanation 2 to Section 6 (1):
This provides relaxation in determining Period of Stay to Indian Sea-Farers working in Foreign bound ship.
Applicability
- Assessee should be Individual.
- Assessee should be an Indian Citizen.
- Assessee should be a member of crew of Foreign bound ship.
Determination of Period of Stay
Following period shall be excluded in computing the Period of Stay in India.
- Period starting from the date of joining the ship on voyage.
- Ending with the date of signing off from the ship.
Both dates will be available in Continuous discharge certificate of the Sea-Farer.
Who is an Ordinarily Resident and not ordinarily resident? (ROR/NOR)?
In order to be classified as Ordinarily Resident, the following two conditions must be satisfied cumulatively.
- If out of the 10 preceding PY the individual is Resident for at least any 2 preceding PY then the condition is satisfied.
- If in the 7 preceding PY the aggregate period of stay is 730 Days or more, then the condition is satisfied.
If the above two conditions are satisfied, then the Individual is Resident-Ordinarily Resident. If not, then the Individual is Resident-Not Ordinarily Resident.
How to determine residential status of a Hindu Undivided Family (HUF)?
Determination of whether an HUF is a Resident or not depends on where the control/management is situated.
Who is an Ordinarily Resident and not ordinarily resident? (ROR/NOR)?
In order for a Resident to be classified as Ordinarily Resident, the following two conditions must be satisfied cumulatively.
- If out of the 10 preceding PY the Karta is Resident for at least any 2 preceding PY then the condition is satisfied.
- If in the 7 preceding PY the aggregate period of stay for Karta is 730 Days or more, then the condition is satisfied.
If the above two conditions are satisfied, then the HUF is Resident-Ordinarily Resident. If not, then the HUF is Resident-Not Ordinarily Resident.
How to determine residential status of a Firm/AOP/BOI?
Determination of whether an HUF is a Resident or not depends on where the control/management is situated.
How to determine residential status of a Company?
What is Place of Effective Management?
It is the place where key management and commercial decisions to the conduct of the business of the company as a whole are effectively taken. Place where routine day to day operational decisions are taken is not relevant.
Key Points:
- Residential Status is not static. It needs to be verified every PY.
- A citizen of India may not be a resident of India and a foreign citizen may be a resident of India for the purpose of taxation.
- Purpose of Stay in India is not relevant for determining the residential status.
- Period of Stay in India need not be continuous.
- The day on which the persons enters India as well as the day on which he leaves India is considered as the stay of Individual in India.
- If an Individual/HUF/Firm/AOP/BOI/Company is resident for one source, then they are deemed to be Resident for all other sources.
Taxability based on Residential status
Resident: For a resident of India, his global income i.e. income earned in India as well as income earned outside India is TAXABLE in India.
NR and RNOR: The tax liability in India for NR and RNOR is restricted only to the income earned in India. They need not pay any tax in India on their foreign income.
Note:
In case of double taxation of income where the same income is getting taxed in India as well as abroad, the taxpayers may resort to the DTAA and foreign tax credit rules as specified under the income tax act.
Refer article: Foreign tax credit @www.pkcindia.com
Author
Aravind D
