The residential status of a person must be derived with reference to each previous year.
He is Resident if any of the following 2 conditions are satisfied:
a. He has been in India for a total period of 182 days or more during the previous year.
b. He has been in India for a total of 365 days or more during the 4 years immediately preceding the previous year and has been in India for at least 60 days during the previous year.
1) In clause (b), a person being citizen of India or a person of Indian origin being outside India comes for a visit to India or leaves India as a member of the crew of Indian ship in previous year then 60 days needs to be replaced with 120 days.
2) Further, Clause (b) is only restricted to Indian Citizen or a person of Indian origin whose total income other than income earned from foreign sources exceeds 15 lakhs during the previous year.
3) Further according to the 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.
The above 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.
4) Also the Finance act has introduced 2 more conditions to categorize a person as Resident but not ordinarily resident (RBNOR) which are:
a) An 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 and who has been in India for a period of 120 days or more but less than 182 days; OR
b) An Indian Citizen who is deemed to be resident in India as per new clause (1A) in section 6.
We shall understand the above concept with an Example
In such a case, he will be treated as a resident individual for income tax purposes. While this may ring alarm bells for many NRIs, but in a relief they will be treated as “Resident but Not Ordinarily Resident (RNOR)”. This would be a relief as their foreign income (i.e., income accrued outside India) shall not be taxable in India.
In case of NRIs who are residing in UAE, Saudi and certain countries (which do not levy personal income tax) and have taxable Indian income of more than Rs. 15 lakhs, a question arises whether they can be treated as “liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature”.
In the context of the Double Tax Avoidance Agreement with the UAE, the Indian judicial and advance ruling authorities have taken a view that ” liable to tax” need not be equated with “payment of tax”. As per Indian UAE Tax Treaty and the Protocol, a person who stays in UAE for more than 182 days in a year is eligible to get a ” tax residency certificate” and is treated as tax resident. In view of the above and the clarification issued above, such persons would not get covered by the above deemed resident criteria.
All the above amendments would be effective from the financial year beginning April 1, 2020.