by The residential status of a person is required to be determined for each assessment year in order to determine the scope of total income. The basis of determination of residential status in respect of each person is laid down under the provisions of section 6 which are analyzed hereinafter.
Table of Contents
Residential status of an Individual under Income Tax Act, 1961
Residential status of an individual for income tax purposes depends on the physical stay of the individual in India. Based on the period of stay in India in a given financial year, an individual may be classified as:
- Resident
- Not ordinarily resident (NOR)
- Non-resident (NR).
Tests of residence under the act
A. An individual is a resident in India if he stays in India for:
- At least 182 days during a financial year
- At least 60 days during a financial year and 365 days or more during the 4 years preceding that fiscal year.
Exceptions to the above:
- The 60-day period mentioned above will be substituted for 182 days in case of the following persons:-
- A citizen of India who leaves the country as a crew member of an Indian ship or for the purposes of employment outside India
- A Citizen of India or PIO who visits India in any previous year.
B. An individual is a NOR in India if:
- He is an NR in India in 9 of 10 financial years preceding the relevant fiscal year
- His stay in the 7 years preceding the relevant financial year is in the aggregate 729 days or less.
C. An individual is an NR in India if:
- He does not satisfy any of the two conditions mentioned in A above.
Non-Resident Indian (NRI)
An NRI is defined as a citizen of India or a PIO who is not a resident.
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Person of Indian Origin (PIO)
A person shall be deemed to be of Indian origin if he or either of his parents or grandparents were born in an undivided India.
Residential Status of HUF – Sec 6(2)
A HUF is said to be resident in India when during that year control and management is situated wholly or partly in India. In other words, it will be non-resident in India if no part of the control and management of affairs is situated in India.
Control and management lie at the place where a decision regarding the affairs of the HUF is taken.
A resident HUF is said to be resident and ordinarily resident in India if the Karta of the HUF satisfies both the following conditions:
i. He has been resident in India for at least 2 out of 10 previous years immediately preceding the relevant previous year
And
ii. He has been in India for 730 days or more during 7 previous years immediately preceding the relevant previous year.
If the Karta of HUF does not satisfy any or both of the above conditions, then HUF shall be resident but not ordinarily resident in India.
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Residential Status of Firms, AOP, BOI, etc – Sec 6(2), 6(4)
A Firm, AOP, BOI, etc are said to be resident in India when during that year control and management is situated wholly or partly in India. In other words, it will be non-resident in India if no part of the control and management of affairs is situated in India.
Control and management lie at the place where a decision regarding the affairs of the firms etc are taken.
Residential Status of Companies – Sec 6(3)
Indian Company is always resident in India
Foreign Company is resident in India if control and management of its affairs are situated wholly in India during relevant previous year i.e. if all the board meetings of the foreign company are held in India, then it shall be resident, otherwise non-resident.
The relation between residential status and the incidence of tax [Section 5]
Under the Act, the incidence of tax on a taxpayer depends on his residential status and also on the place and time of accrual of receipt of income:
Indian Income and foreign income
Indian Income: Any of the following three is an Indian income:
i) If income is received (or deemed to be received) in India during the previous year and at the same time it accrues (or arises or is deemed to accrue or arise) in India during the previous year;
ii) If income is received (or deemed to be received) in India during the previous year but it accrues (or arises) outside India during the previous year;
iii) If income is received outside India during the previous year but it accrues (or arises or is deemed to accrue or arise) in India during the previous year;
Foreign income: If the following conditions are satisfied, then such income is foreign income:
i) Income is not received (or not deemed to be received) in India; and
ii) Income does not accrue or arise (or does not deemed to accrue or arise) in India.
The provisions of residential status are tabulated as below:
| Whether income is received (or deemed to be received) in India during the relevant years | Whether income accrues (or arises is deemed to accrue or arise) in India during the relevant years. | Status of Income |
| Yes | Yes | Indian Income |
| Yes | No | Indian Income |
| No | Yes | Indian Income |
| No | No | Foreign Income |
Incidence of tax for different taxpayers is as follows:
Incidence of tax in India for Individuals and Hindu Undivided Family (HUF):
| Resident and ordinarily resident | Resident but not ordinarily resident | Non-resident | |
| Indian Income | Taxable | Taxable | Taxable |
| Foreign Income | |||
| – If it is business income and business is controlled wholly or partly in from India | Taxable | Taxable | Not taxable |
| – If it is income from a profession which is set up in India | Taxable | Taxable | Not taxable |
| – If it is business income and business is controlled from outside India | Taxable | Not taxable | Not taxable |
| – If it is income from a profession which is set up outside India | Taxable | Not taxable | Not taxable |
| – Any other foreign income (like salary, rent, interest, etc.) | Taxable | Not taxable | Not taxable |
Any other taxpayer (like company, firm, co-operative society, an association of persons, a body of individuals, etc):
| Resident | Non-resident | |
| Indian Income | Taxable | Taxable |
| Foreign Income | Taxable | Not taxable |
Conclusion:
Indian Income: Indian income is always taxable in India irrespective of the residential status of the taxpayer;
Foreign Income: Foreign income is taxable in the hands of resident in case of a firm, co-operative society, an association of persons, a body of individuals or resident and ordinarily resident in case of individuals and HUFs in India. Foreign income is not taxable in the hands of non-resident in India.
In the hands of resident but ordinarily resident taxpayer, foreign income is taxable only if it is
– business income and business is controlled wholly or partly in from India; and
– income from a profession which is set up in India
