Residential Status:
The provision relating to the Residential Status in India is governed by Section 6 of the Income Tax Act, 1961. The necessity to determine the residential status is significant to determine the total income of taxpayers in India. Generally, taxpayers are classified as Residents or Non-Residents. Residents are taxed on their global income whereas Non-Residents are taxed only on the income sourced or deemed to be sourced from India. The test to determine the residential status has to be applied with respect to each relevant previous year i.e., the status of residence is computed for each year into consideration.
An individual is said to be resident in India if he/she meets either of the following conditions:
i. Stay in India for 182 days or more in that year;
ii. Stay in India for 60 days or more in that year and 365 days or more in 4 years preceding the previous year.
If an individual fulfills any one of the above conditions, he/she becomes a resident in India. Likewise, if none of the conditions are meet, he/she would become a non-resident in India.
Further, in order to provide relaxation, Explanation 1 has been inserted to Section 6(1) of the Income Tax Act, 1961, wherein the above 60 days shall be substituted by 182 days in the following cases-
i. an Individual, being a citizen of India, who leaves for the purpose of employment outside India or as a member of the crew of an India ship;
ii. an Individual, being a citizen of India or a person of Indian origin visits India while being on employment outside India.
Therefore, in the above two cases, an Individual shall become a resident in India only if the period of stay in that year is 182 days or more.
However, in order to constrict these provisions, the government, via Finance Act, 2020 has further reduced the period of stay to 120 days (instead of 182 days) in clause (b) of the explanation, if the total income of that individual (other than from foreign sources) in India is more than 15 Lakhs during the previous year.
Deemed Residency:
Explanation 1A has further inserted to Section 6(1) of the Income Tax Act, 1961, whereby an Individual, being a citizen of India, having a total income (other than from foreign sources) exceeding 15 Lakhs or more during the previous year shall be deemed to be resident in India if such individual is not liable to tax in any other country/territory by reason of his/her domicile or residence.
Further, Residents are again categorized into two sub-parts, viz.,
i. Resident and Ordinary Resident (ROR)
ii. Resident but Not Ordinary Resident (RNOR)
ROR vs RNOR:
Further, a distinction between ROR & RNOR is required since the global income of ROR is taxable in India however, for RNOR, income from sources outside India shall not be taxable unless it is derived from a source in India i.e., business controlled in India, or a profession set up in India. The conditions to comprehend an individual being “RNOR” in India in any previous year are provided under section 6(6) of the Income Tax Act, 1961 are as follows:
i. An individual who has been NR in 9 out of 10 previous years preceding the previous year or has been in India for 7 previous years preceding the previous year for 729 or less in total.
ii. An Individual, being a citizen of India or a person of Indian origin, having a total income (other than from foreign sources) exceeding 15 Lakhs or more, who has been in India for 120 days or more but less than 182 days.
iii. An individual who is deemed to be resident under clause 1A.
Relevant Case Laws:
i. V.K. Ratti vs Commissioner of Income Tax (Punjab-Haryana High Court), Equivalent citations: (2007) 212 CTR P H 552, 2008 299 ITR 295 P H, 14/11/2006
The assessee was employed in Hong Kong from 24th Oct. 1978 to 15th July 1979 under a service agreement dated 24th Oct. 1978 for nine months. The contract was terminated on 15th July 1979 and the assessee came to India for 85 days from July 1979 to October 1979. He then joined service in Jordan from 1st Nov. 1979 to 28th Feb. 1980. The Tribunal rejected the claim of the assessee to be assessed in the status of non-resident by holding that the assessee was not on ‘vacation’ in India since his service had been terminated during his stay in India.
It was held that the relaxation of an extended period of stay had been provided for the individuals who visit India while being on employment outside India during the year. In the present case, the assessee has been in India while not being in any employment outside India and thus, the relaxation provided through Explanation 1 shall not be available and the assessee could not claim to be a non-resident.
ii. The Commissioner of Income Tax vs Sri. O. Abdul Razak (Kerala High Court), ITA.No. 1489 of 2009, Dated: 13/12/2010
The assessee has claimed his residential status as “non-resident” for the assessment years 1989-90 and 1990-91, and for the remaining years as “not ordinarily resident” while filing the return of income. Assessee disclosed that he had gone outside India to start a Business there and not to take up any employment there. Assessing Office, therefore held that the assessee would be covered by the provisions of section 6(1)(c) without giving the benefit of relaxation of an extended period provided through explanation 1 by contemplating that “employment outside India” as mentioned in the explanation does not cover “doing business”.
It was held that the word “employment” used in the explanation has no technical meaning and a view has been taken whereby, going abroad for the purpose of self-employment would also mean going abroad to take up employment. And hence, the claim of revenue was dismissed.
iii. Arvind Singh Chauhan, Gwalior vs ITO (ITAT Agra), I.T.A. No.: 319 and 320/Agr/2013, Dated: 14/02/2014
Assessee, being an individual, is in employment with Executive Ship Management Pte. Ltd., Singapore and in addition, draws pension income from Indian Army and bank interest. The case was selected for scrutiny assessment whereby AO required the assessee to show cause as to why the salary received from Executive Ship Management Pte. Ltd., for services rendered as ship crew, not be brought to tax in India. The notice of the AO was based on the contention that where a person’s status is resident for one of the sources of his income, his status for all the sources of income is to be taken as a resident. Section 6(5) provides that, ” If a person is a resident in India in a previous year relevant to an assessment year in respect of any source of income, he shall be deemed to be resident in India in the previous year relevant to the assessment year in respect of each of his other sources of income”.
It was held that pension income and interest income are taxable in India irrespective of the residential status of an Individual as the same was accrued and received in India. Taxability of non-residents is confined to income accruing or arising in India, income deemed to accrue or arise in India, income received in India, and income deemed to have been received in India. Thus, the claim of AO in assuming that the assessee accepted his residential status as ‘resident’ for the purpose of pension income and interest income, or that the assessee had ‘resident’ status for these incomes was wrong.
iv. Shri Jitendra Virwani, Bangalore vs Deputy Commissioner of Income Tax (ITAT Bangalore), ITA Nos.1211 to 1217/Bang/2019, Date of Pronouncement: 30.07.2021
AO has denied the claim of the assessee being “Non-Resident” on the grounds that the assessee did not intend to stay permanently outside India. The relaxation provided by way of Explanation (b) to section 6(1) was for individuals who visit India while being on employment outside India and not for Individuals who visit abroad. By looking at the facts of the cases, the assessee cannot be said to be a person visiting India. Hence, the contention of AO in assessing the assessee as “Resident” instead of “Non-resident” is correct.
Author Bio
