Determining Residential Status as per Income Tax Act in India

Income of any person in India is taxable based on his Residential Status during any Previous Year (PY)

Section 6 of the Income tax Act, 1961 (as amended) helps to determine the Residential Status of the Person in India.

INDIVIDUAL

The Residential Status of the Individual taxable person has been classified as:

1. Resident and Ordinary Resident

2. Resident but Not ordinary Resident

3. Non-Resident

If Any 1 of the below 2 Conditions are fulfilled, the person will be classified as Resident:

Condition 1:  Stay in India => 182 days during the PY;

OR

Condition 2:  Stay in India = > 60 days* during PY,

AND

Stay in India  = > 365 days in immediate 4 years preceding the PY.

If Any of the above 2 conditions are not fulfilled, the person will be classified as “ Non Resident”

However There are *Exceptions to the Condition 2 which are as below,

Exception 1: The period of 60 days specified therein to be considered as 182 days with respect to following person:

• Indian citizen being Employed outside India,
• India citizen being a crew member of an Indian Ship;

Exception 2: The period of 60 days specified therein to be considered as 120 days, with respect to the following person:

• Person of Indian Origin satisfying all the following conditions:

1. Having Total Income excluding Foreign sources, of more than 15 Lakhs rupees in India,

2. Period of Stay in India should be more than 120 days but less than 182 days.

A Person is said to be of Indian Origin, if he/parents/grandparents was born in undivided India.

Once the above “Condition 1” and “ Condition 2” are satisfied, then Individual will have to satisfy following “Additional Conditions” in order to be classified as “ Resident and Ordinary Resident ”

Additional Conditions:

1. Resident in India in 2 PY’s out of immediate preceding 10 PY’s;

AND

2. Stay in India => 730 days during immediate preceding 7 PY’s.

Non satisfaction of the Additional Conditions, will make the Individual classified as “ Resident but Not ordinary Resident ”

The Finance Act, 2020 has made amendments to Section 6 of the Income Tax Act, by insertion of sub clause (1A) and identified the Person Deemed to be Resident in India and classified them as “Resident but not Ordinary Resident”

Now Who is Person Deemed to be Resident in India ?,

the answer is as below:

The Person Deemed to be Resident in India will be fulfilling all of the following conditions:

• Is Indian Citizen or a Person of Indian Origin,
• Having Total Income excluding Foreign sources, of more than 15 Lakhs rupees in India,
• Does not satisfy ‘Condition 1’ or ‘Condition 2’, mentioned above, for becoming Resident.

Now, lets have a look at other category of persons.

HUF / AOP / Firm

The residential status of the HUF / AOP / Firm is determined based on place from where the “Control and Management” of affairs is kept.

Further only in case of Resident HUF, Additional Conditions needs to be checked for classifying it as “ Resident and Ordinary Resident ”. For such situations, the Manager / Karta of the HUF has to satisfy the “Additional Conditions” specified below:

Additional Conditions:

1. Resident in India in 2 PY’s out of immediate preceding 10 PY’s;

AND

2. Stay in India => 730 days during immediate preceding 7 PY’s.

Non satisfaction of the Additional Conditions by the Manager/Karta, will make the HUF classified as “ Resident but Not ordinary Resident ”.

COMPANY

Indian Company is always treated as Resident as per Income Tax Act.

For Other than Indian Companies the residential status is determined based on Place of Effective Management, which is explained in table below:

“Place of Effective Management” means a place where key management and commercial decisions that are necessary for the conduct of business of an entity as a whole are, in substance made.

OTHERS

The Residential status of every other category of person not specified above is determined based on the Country in which its Control and Management of its affairs is situated.

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