CA Aashish Ramchand

In this article I have discussed the various provisions regarding determination of the residential status of an assessee with the help of the following questions –

What is the relevance of a residential status?

There are two types of taxpayers – resident in India and non-resident in India. Indian income is taxable in India whether the person earning the income is a resident or a non-resident. Conversely, foreign income of person is taxable in India only if such person is a resident in India. Foreign income of a non-resident is not taxable in India.

Can a person be a resident in India and abroad?

It is not necessary that a person who is a resident in India cannot be a resident in any other for the same assessment year. A person may be a resident in two (or more) countries at the same time. It is therefore, not necessary that a person who is a resident in India will not be a resident in any other county for the same assessment year.

How to determine residential status of an individual? [Sec 6]

An individual may be a) resident and ordinarily resident in India (b) resident but not an ordinarily resident in India or (c) non-resident in India

To find out whether an individual is “resident and ordinarily resident” in India, the following conditions have to be satisfied:-

Basic conditions that need to be satisfied to check if an Individual is a resident in India are as follows:-

1)      The person must be India in the previous year for a period of 182 days or more

2)      The person is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year.

In the two special cases given below, residential status of an Individual shall be determined only on the basis of basic condition (1)

Special case one- It covers an Indian citizen who leaves India during the previous year for the purpose of employment outside India or an Indian citizen who leaves Indian during the previous year as a member of a crew of an Indian ship. For this purpose, the requirement is not leaving India for the purpose of employment outside India but leaving India for the purpose of employment, period (employment may be in India or outside India). To put it differently the individual need not be an unemployed person. He may be employed in India and leave India during the previous year on a foreign assignment of his employer company. Alternatively he may be an unemployed person who goes outside India to take employment outside India.

Special case two- It covers an Indian citizen or a person of Indian origin who comes on a visit to India during the previous year. A person is deemed to be of Indian origin if he or either of his parents or any of his grand-parents were born in undivided India. It may be noted that grand-parents include both maternal and paternal grand-parents.

In these two special cases, an individual will be a resident in India only if he is in India during the relevant previous year for at least 182 days.

Additional conditions that need to be satisfied to check if a resident individual is ordinarily resident in India

1)      He has been a resident in India in at least 2 out of 10 previous years immediately preceding the relevant previous year

2)      He has been in India for a period of 730 days or more during the 7 years immediately preceding the relevant previous year.

In brief it can be said that an Individual becomes resident and ordinarily resident in India if he satisfies at least one of the basic conditions to become a resident and both the additional conditions

How do you determine if an individual is a resident but not ordinarily resident? [Sec. 6(1), (6) (a)]

An individual who satisfies at least one of the basic conditions i.e. but does not satisfy either of the two additional conditions. Please refer to the basic conditions and the additional conditions mentioned in the earlier questions.

How do you determine if an individual is a non-resident?

An individual is a non-resident in India if he satisfies none of the basic conditions. In case of non-resident, additional conditions are not relevant.

How to find out the residential status of a Hindu Undivided Family [Sec. 6(2)]

A Hindu undivided family is said to be a resident in India if the control and management of its affairs is wholly or partly situated in India. A Hindu undivided family is a non-resident in India if the control and management of its affairs is wholly situated out of India. In order to determine whether a Hindu Undivided Family is a resident or a non-resident, the residential status of the karta of the family during the previous year is not relevant. Residential status of the karta during the preceding years is considered for determining whether a resident family is ordinarily resident.

In the above explanation “control and management” means de facto control and management and not merely the right to control or manage. Control and management is situated at a place where the head, the seat and the directing powers are situated. The mere fact that the family has a house in India, where some of its members reside or the karta is in India in the previous year, does not constitute that place as the seat of control and management of the affairs of the family unless the decisions concerning the affairs of the family are taken at that place. Although, it is the karta who normally has control and management of the affairs of a Hindu Undivided Family yet any other coparcener can control and manage the affairs. Therefore, the mere fact of absence of the karta does not make the family non-resident.

How do you determine if a resident Hindu Undivided Family is ordinarily resident in India?

A resident Hindu Undivided Family is an ordinarily resident in India if the karta or the manager of the family (including the successive kartas) satisfies the following two additional conditions laid down:-

1)      Karta has been a resident in India in at least 2 out of the 10 previous years immediately preceding the relevant previous year.

2)       The karta has been present in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year.

If the karta or the manager of a resident Hindu Undivided Family does not satisfy the two additional conditions, the family is treated as resident but not ordinarily resident in India.

How to determine the residential status of a firm or association of persons [Sec. 6(2)]

A partnership firm and an association of persons are said to be resident in India if the control and management of their affairs are wholly or partly situated within India during the relevant previous year. They are however, treated as non-resident in India if the control and management of their affairs are situated wholly outside India. A firm or an association of persons cannot be ordinarily or not ordinarily resident. The residential status of the partners/ members of the firms/ association are not relevant in determining the status of the firm/ association. While in the case of a firm, control and management is vested in partners, in case of an association of persons it is vested in the principal officer. Control and management means de facto control and management and not merely the right to control or manage. Control and management is usually situated at a place where the head, the seat and the directing power are situated.

How to find out the residential status of a company [Sec 6(3)]

An Indian company is always resident in India. A foreign company is resident in India only if during the previous year, control and management of its affairs is situated wholly in India. Conversely, a foreign company is treated as non-resident if during the previous year, control and management of its affairs is either is wholly or partly situated out of India.  A company can never be ordinarily or not ordinarily resident in India. In case of a foreign company even the slightest control and management is exercised from outside India, it would be treated as a non-resident. The term “control and management” refers to the “head and the brain” which directs the affairs of policy, finance, disposal of profits and vital things concerning the management of the company. Usually the control and management of a company’s affairs is situated at the place where meetings of its board of directors are held. In case of a subsidiary company managed by its local board of directors, it is difficult to establish that control and management of its affairs vests at the place where the parent company resides.

(Author is CA by profession & Co-Founder of  Make My Returns (www.makemyreturns.com) & can be reached at connect@makemyreturns.com)

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5 responses to “How to know residential status of Individual, HUF, Firm & Company under Income Tax Act”

  1. Rishab Jindal says:

    It very difficult to determine or understand residetial status of the company.
    Resident- if wholly managed from india
    Please reply….

  2. Amar Nath Jha says:

    Thank you sir for the explanation of the residential status which really helped me to know the basics of Income Tax.

  3. Rahul says:

    what if a person goes out of India for employment and even after coming back his total days stay in india is more tan 182 days (say 200 days) . so he goes abroad for holiday just to make sure his total stay in india is below 182 days. Will he still be NR as he was out for employment and stay in india is less than 182 days. Kindly help.

  4. CA hariom nagar says:

    its mentioned very simply

  5. Nandita nandi says:

    Thank you Mr. Aashish Ramchand for your this valuable piece of information, It has unfolded lot of queries I was having in my mind regarding residential status of a company and cleared my confusions regarding it.

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