Residential Status – Am I Resident or Non-Resident?

Being an Indian citizen but living in foreign, do I need to pay my taxes in India?

Or being a foreign citizen but earning income from India, when am I liable to pay taxes in India?

Non-understanding of correct residential status creates a high buzz for persons residing outside India or the persons visiting foreign for most of the year. They remain confuse whether taxes are to be paid in India and quantum of such taxes, provisions if income is earned in India or outside India etc. As the saying goes in Income Tax:

“An Indian Citizen may not be resident Indian, but A Foreign Citizen may be resident Indian.”

So by today’s blog, we wish to make you understand the concept of residential status and how it affects tax levy.

Residential status constitutes of two main categories – Resident or Non – resident.

1. Who is Resident in India?

Upon fulfilling “ANY ONE” of the following two conditions (known as basic conditions), the person is said to be resident in India for the concerned Financial Year. The conditions are:

(a) If he is in India during the relevant previous year for a period amounting in all or in aggregate to 182 days or more.

OR

(b) If he was in India for a period or periods amounting in all to 365 days or more during the four years preceding the relevant previous year

AND

he was in India for a period or periods amounting in all to 60* days or more in that relevant previous year.

Exceptional case

The condition (b) mentioned above (60 days & 365 days) doesn’t apply in case of

1. An Indian citizen who has left India for the purpose of employment in foreign, or

2. An Indian Citizen or person of Indian origin who comes to visit India.

Thus in these cases, if person stays in India for a period of 182 days or more in the concerned F.Y., he is said to be Resident in India.

2. Who is Non-Resident (NR) in India?

If “NONE” of the above mentioned conditions is fulfilled, then person is to be Non-resident in India.

3. Difference between Ordinarily Resident (OR) and Not-Ordinarily Resident (NOR)

After deciding if a person is resident in India, next comes the question of deciding whether he is an Ordinarily Resident or Not-Ordinarily Resident.

4. Conditions to be fulfilled to become Resident and Ordinarily Resident

After fulfilling one of the above two tests for normal residential status, an individual becomes resident of India. Further to become, an ordinary resident of India an individual has to in addition to above test has to fulfill both the following two conditions:

1. He has been resident of India in at least 2 previous years out of 10 previous years immediately prior to the previous year in question.

AND

2. He has stayed in India for at least 730 days in 7 previous years immediately prior to the previous year in question.

5. Conditions to be fulfilled to become Resident but Not Ordinarily Resident

After fulfilling one of the above two tests for normal residential status, an individual becomes resident of India. Further to become, Resident but NOT ordinary resident (‘RNOR’) an individual has to in addition to above test fulfill ANY the following two conditions:

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 proceeding the relevant previous year.

6. How income is taxed according to different residential status?

Particulars	Levy of Tax (Yes/ No)
	Ordinarily Resident	Not-Ordinarily Resident	Non-Resident
Income received or deemed to be received in India	Yes	Yes	Yes
Income accrued or deemed to be accrued in India	Yes	Yes	Yes
Income accruing outside India	Yes	No	No

Mark a note of these points:

1. Income received outside India, but subsequently remitted to India doesn’t amount to receiving of income in India. 1^st receipt is important for consideration;

2. While counting period of stay, continuous stay or stay at a particular location in India doesn’t matter;

3. Person of Indian origin means a person who himself, either of his parents or either of his grandparents (both paternal and maternal) were born in Undivided India.

4. While computing the period of stay in India, both the day of entering in India and the day of leaving India shall be counted in period of stay in India.

7. Practical examples to understand the concept better:

Case 1: Bill Gates, owner of Microsoft comes to India for 100 days every year. What shall be his residential status for A.Y. 2020-21 (F.Y. 2019-20)?

Solution: Bill Gates’s residential status shall be determined in 2 steps:

Step 1: Total stay of Bill Gates in last 4 years preceding 2019-20 (Concerned F.Y.) is 400 days (i.e. 100 * 4) and his stay in F.Y. 2019-20 is 100 days. Therefore, since he has satisfied 2^nd condition of the basic conditions, he is a resident in India.

Step 2: His total stay in India in last 7 years preceding F.Y. 2019-20 is 700 days (i.e. 100 * 7), he satisfies the  2^nd condition of the additional conditions, hence he is Not-Ordinarily Resident (NOR) in India.

Thus, for AY 2020-21, Bill Gates shall be resident but Not Ordinarily Resident (NOR).

Case 2: Sachin, an Indian citizen, leaves India on 22^nd September 2019 for the first time, to work as an employee of a company in America. What shall be his residential status for A.Y. 2020-21 (F.Y. 2019-20)?

Solution:  During the F.Y. 2019-20, Sachin was in India for 175 days i.e. 30 (April) + 31 (May) + 30 (June) + 31 (July) + 31 (August) + 22 (September)  . Since he is leaving India for purpose of employment, hence 2^nd condition of basic condition shall not be applicable for him. He doesn’t fulfil the 1^st condition of basic conditions also. Hence he shall be Non-Resident in India for F.Y. 2019-20.

If you still find difficulties in determining residential status or have problems related to tax levy in any of the residential status, feel free to reach us. We are working hard so that you can live a tax-tensions-free life.

(Republished with Amendments)