Hello readers, Today I discuss very interesting and confusing topic after amendment in Finance Bill 2020– Residential Status- Resident & Non-Resident Indian in very simplified manner..

Now first question comes in our mind why it is important to determine residential status-

Residential status is important as on basis of which we determine our total taxable income for previous year. Also if a person is resident he has to pay tax on Global Income i.e Income received or accrued in India and aslo Income received outside India but in case of non-resident he has to pay tax only on Income received in India.

‘’A person’’ can be either resident or non-resident.

‘’A person ‘’ means –

  • An individual
  • HUF
  • A Company
  • A Firm
  • An association of persons or body of Individuals
  • Local authority
  • Every artificial judicial person

Section 6 – Residential status of Individual

First of all find out whether individual is resident in India or not-

Basic conditions to be fulfilled to be resident of India-

1. He is in India for period amounting to 182 days or more.

2. He is in India for 60 days or more in previous year and 365 days or more during 4 previous years proceeding to that year.

Exceptions- (a) – For Indian citizen going abroad on a job or as a member of crew of an Indian ship condition of 60 days will be replaced with 182 days.

Amendment made in Finance Act 2020-

Explanation 1 clause (b) –

A person being a citizen of India, or a person of Indian origin who, being outside India comes on a visit to India in any previous year, then in his case 60 days in above provision needs to be read as 120 days.

A person shall be deemed to be of Indian origin if he or either of his parents or any of his grandparents was born in India or undivided India.

What it means if a person citizen of India or person of Indian origin visits India and stay in India for 119 days he will be non-resident.

Further the application of explanation 1 clause (b) is restricted only to that Indian citizen or a person of Indian origin whose total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year.

Analysis- Above application can be restrcited only when Total Income i.e Income received in India plus Income from business established outside India but controlled from India or Income from profession outside India but set up in India exceeds Rs 15 lakhs during previous year. So what would be case if Total Income does not exceed Rs 15 lakhs then 120 days will be replaced with 182 days.

Now next step comes to decide Resident and ordinarily resident and Resident but not ordinarily resident.

Resident but not ordinarily resident- if he can prove that-

1. He was a non-resident in India for 9 previous years out of 10 previous years preceding the relevant previous year.

OR

2. He was in India for a period or periods aggregating in all to 729 days or less during seven previous years preceding the relevant previous year.

Resident and ordinarily resident- If a person is resident in India but in addition he satisfies both additional conditions i.e resident in india for more than 1 year out of 10 previous years preceding the relevant previous year and also he was in India for 730 days or more during seven years preceding the relevant previous year.

According to new clause (1A) in section 6, an India citizen shall be deemed to be the resident if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.

Further the application of new clause (1A) in section 6 is restricted only to that Indian citizen or a person of Indian origin whose total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year.

Analysis- If a person not liable to tax in any other country and he visits India and his total Income other than Income from foreign sources exceeds Rs 15 lacs then even if he visits India for 1 day he will be deemed resident i.e Resident but not ordinarily resident.

Now only Individuals & HUF can be resident and ordinarily resident & Resident but not ordinarily resident. In all other cases i.e company, firm, AOP, BOI etc can be resident or non-resident.

Now at last-A person is said to be non-resident if none of basis conditions stated above satisfied by him.

I have discussed basic provisions today as we are in last month of previous year so must be familiar with basic conditions to proceed further.

Have a nice day…

Queries/doubts related to above mailed at [email protected]

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