Have we ever thought as to why is determining Residential status given so much of importance? It is because only on the basis of the residential status is the taxable income and tax liability of an entity is calculated and arrived at.
Further depending upon the various persons and entity the definition of Residential status is defined and determined in different ways. However the term Residential status is not synonym of citizenship. An Indian citizen can very much be a Non- resident depending upon his stay in India whereas a Foreign citizen can become a Resident individual in India based on the number of days of his stay in India.
What are the different types of Residential status as defined under Income Tax Act 1962.
Income Tax Act 1962 has defined 3 different types of residential status for taxable persons which are broadly classified as:-
- Resident
- Resident but Ordinary Resident
- Non resident
1) Resident Individual
As per Income Tax Act 1961 amended in 2020
An individual is said to be resident in India during relevant previous year if he
1. Is in India in that year for a period of 182 days or more
2. During 4 preceding years, is in India for a period of 365 days or more and is in India for a period of 60 days or more during that year.
Exceptions
1. In case of an Individual being a citizen of India who leaves India as a member of crew of an Indian Ship OR for the purpose of employment outside India OR being a citizen of India or a person of Indian origin, who being outside India comes on a visit to India in relevant previous year the period of 60 days above in (b) will be substituted for 182 days.
2. In case of an individual being a citizen of India or a person of Indian origin having total income other than income from foreign resources exceeding Rs 15 lacs during the previous year the period of 60 days above in (b) will be substituted for 120 days.
Deemed Resident w.e.f 1-4-2021
As per clause (1A) an Individual being a citizen of India having total Income , other than Income from Foreign sources exceeding Rs 15 lakhs during the previous year shall be Deemed to be resident in India in that previous year if he is not liable to tax in any other country or territory by reason of his domicile or residence .
2) A HUF, Partnership firm or AOP is said to be Resident in India during the relevant previous year if the control and management of its affairs is situated wholly or partially in India.
3) A company is said to be Resident in India during relevant previous year if
a) It is an Indian Company and
b) Effective management is in India in that year.
4) If a person is said to be Resident in India in respect of relevant previous year and in respect of any particular source of income, he is deemed to be resident in India in the previous year in respect of all his other sources of Income.
Resident and ordinary Resident
An individual is said to be a Resident and ordinary resident during relevant previous year if
- He is a resident in India for at least 2 out of 10 previous preceding years AND
- Has been in India for a period amounting to 730 days during 7 years preceding that year
Resident and Not ordinary Resident
An individual is said to be a Resident and Not ordinary resident during relevant previous year if
- He is a non-resident in India during 9 out of 10 previous preceding years OR
- Has been in India for a period amounting to 729 days or less during 7 years preceding that year OR
- e.f 1st April 2021, citizen of India or a Person of Indian origin having total income other than Income from Foreign Resources exceeding Rs 15 lacs during the previous year having
- stayed in India for a period or periods amounting to 120 days or more but less than 182 days as per clause (b) of exceptions OR
- e.f 1st April 2021, citizen of India who is deemed to be resident in India under clause (1A)
An HUF is said to be Resident and Not ordinary resident during relevant previous year if
- Manager of HUF is a non-resident in India during 9 out of 10 previous years OR
- Manager of HUF Has been in India for a period amounting to 729 days or less during 7 years
Preceding that year.
Non Resident
Any individual who is not satisfying any of the basic conditions for being Resident will be treated as Non Resident for that previous year.
Taxability
Resident and ROR: A Person who is treated as Resident for a previous year will be taxable on his global income i.e. income earned in India and income earned outside India.
RNOR & Non Resident: RNOR & NR are taxable on the income received, accrued or arising in India. Income earned by them outside India is excluded from the taxable income while computing tax liability in India.
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