Residential Status of an Individual- Q & A

Residential Status of an Individual under Income Tax Act, 1961

One of the most basic yet very important topic in direct taxation is determining the residential status of the assessee. This concept will act as a foundation for Calculating Taxable income and calculation of tax thereon. In this article let us discuss the provisions of ‘Residential Status of an Individual’

Q 1) What is determining of residential status?

In simple words, determining of residential status is concluding whether the assessee is a resident or a non-resident as per the provisions of The Income Tax Act, 1961.

Q 2) Why is residential status is important?

Determining residential is very important because of these following reasons:-

• Certain categories of income are taxable only in case of Residents. Example: – Income accrued and received outside India is taxable only in hands of Residents and not in the hands of non-resident.
• Certain deductions/exemptions/rebates/benefits are available only to a resident. Example- Rebate under Section 87A is available only to a resident individual. Another example- In case of Individuals of the age 60 or above, the higher slab benefit of Rs. 3,00,000 is available to a resident individual only.

Q 3) How to determine residential status of an Individual?

An individual will be a Resident for a previous year if he fulfills any one of the following Two conditions (Basic Conditions): –

1^st Basic Condition: – He has stayed in India for a period of 182 days or more during that previous year, whether continuously or not.

OR

2^nd Basic Condition: -He has stayed in India for a period of 60 days or more in that previous year, whether continuously or not and he was in India for a period of 365 days during the four previous years immediately preceding that previous year, whether continuously or not.

Note: -In case a person has stayed in India for part of a day, his stay in India shall be calculated on hourly basis (i.e.) if the sum of hours stayed in India spread across many days is 24, then such stay shall be counted as 1 day. However, in absence of any data, both the day of leaving India and arriving in India shall be considered as stay in India.

Q 4) Is there any special case when 2^nd basic condition does not apply?

Yes. 2^nd Basic condition referred above shall not apply to following individuals: –

1. An Indian citizen, who leaves India in a previous year as a member of crew of Indian Ship or for the purpose of employment outside India.

2. An Indian citizen or a person of Indian Origin, who comes to India in a previous year on a visit (i.e.) not for permanent stay in India.

In simple words, the above two category of persons will be Resident only if they satisfy the 1^st basic condition (i.e.) period of stay in India is 182 days or more. The option to satisfy any of the two conditions doesn’t apply to them.

Note 1: –Visit can be of any personal reason or business trip but it should not be with the intention of permanent stay in India.

Note 2: – A person is deemed to be of Indian origin if he, either of his parents or any of his grandparents (maternal or paternal), was born in Undivided India.

Note 3: – A person already employed in India is posted by his employer outside India; he shall still be covered in special case (a)

Q 5) What is resident and ordinarily resident?

An Individual is said to be a ‘Resident and ordinarily Resident’ for a previous year if he fulfills both the following conditions (Additional Conditions): –

1^st additional condition: – He has been a Resident for two or more previous years out of the ten previous years immediately preceding that previous year.

AND

2^nd additional condition: – He has stayed in India for a period of 730 days or more during the seven previous years immediately preceding that previous year.

Note: – These conditions need to be checked for an assessment year only when the individual is a Resident in that assessment year. So, in order become a ‘Resident and ordinarily Resident’, the Individual must first be a resident and therefore a Non- Resident cannot be a ‘Resident and ordinarily Resident’.

Q 6) How to determine period of stay in India of an Indian citizen who is a crew member of a ship?

Important recent amendment- (Notification No.70/2015 dated 17.8.2015, inserted Rule 126 in the Income-tax Rules)

In case of foreign bound ships where the destination of the voyage is outside India, in case of an individual, being a citizen of India and a member of the crew of a ship, the period or periods of stay in India shall, in respect of an eligible voyage, not include the period Commencing from the date entered into the Continuous Discharge Certificate in respect of joining the ship by the said individual and ending on the date entered into the Continuous Discharge Certificate in respect of signing off by that individual from the ship.

Continuous discharge certificate- This term has the meaning assigned to it in the Merchant Shipping (Continuous Discharge Certificate-cum Seafarer’s Identity Document) Rules, 2001 made under the Merchant Shipping Act, 1958.

Eligible voyage- A voyage undertaken by a ship engaged in the carriage of passengers or freight in international traffic where –

• for the voyage having originated from any port in India, has as its destination any port outside India; and
• for the voyage having originated from any port outside India, has as its destination any port in India.