Residential status under income tax

Residential Status under Income-Tax Act, 1961
by
Ravi Teja K
1st Year Intern
M/s SBS and Company LLP
ravitejak@sbsandco.com
040-4018 3366 (119)
SBS Hyderabad
29th June, 2019

ravitejak@sbsandco.com www.sbsandco.com 040-40183366(119)2
1. Why to determine Residential Status?
2. Categorization of Residential Status.
3. Rules for determining the Residential Status :
 Section 6(1) - Rule for determining the Residential Status of an Individual
 Section 6(2) - Rule for determining the Residential Status of an HUF, Firm, AOP, BOI
 Section 6(3) - Rule for determining the Residential Status of Company
 Section 6(4) - Rule for determining the Residential Status of any other person
4. Glance on Incidence of Tax
Topics to be covered

 There are three principles adopted internationally to guide taxation
 Citizenship Principle
 Source Principle
 Residence Principle
 In the country like US, income is taxed based on Citizenship and Source based taxation
systems, where as India follows the Residence based and Source based taxation systems.
Why to determine Residential Status?

 Since India follows Residence and Source based taxation system
 Tax Incidence on an assessee depends on his residential status. For instance, whether an income
accrued to an individual outside India, is taxable in India depends upon his residential status of
an individual in India.
 Similarly, whether an income earned by a foreign national in India or outside India is taxable in
India depends on the residential status of the individual, rather than on his citizenship.
 Therefore, the determination of the residential status of a person is very significant in order to
find out his tax liability.
Why to determine Residential Status?

Categorization of Residential Status
Residential Status
For Individuals and
HUF
For Firm, Company and
AOP/BOI
Non – ResidentR-OR Non – ResidentResidentR-NOR

 Section 6(1): This Section applies to Individuals. If an Individual is to qualify as Resident
of India, he has to fulfil at least one of the following two basic conditions:
Residential Status of an Individual
Basic
Condition
Explanation
A He is in India for a period of 182 days or more in the relevant PY
B He is in India for a period of 60 days or more in the relevant PY and
365 days or more during 4 years immediately preceding the relevant
PY

 Exceptions:
 In the following cases, an individual needs to be present in India for a period of 182
days or more in order to become resident in India:
 Indian citizen, who leaves India during the relevant previous year as a member of the crew of
an India ship or for the purpose of employment outside India, or
 Indian citizen or person of Indian origin engaged outside India in an employment or a
business or profession or in any other vocation, who comes on a visit to India in any previous
year.
Indian origin: A person is said to be of Indian origin if either he or any of his
parents or any of his grand parents was born in undivided India.

 Section 6(6): If an Individual is to qualify as an Ordinary Resident of India, he has to
fulfil both of the following two conditions in addition to fulfilling the criteria as provided
in section 6(1)
Additional
Condition
Explanation
A He has been resident in India at least 2 out of 10 previous
years immediately preceding the relevant PY
B He has been in India for a period of 730 days or more during
7 years immediately preceding the relevant PY

 Points to remember:
 The term “stay in India” includes stay in territorial waters of India ( i.e., 12 nautical miles into the
sea from the Indian coastline). Even the stay in a ship or boat moored in the territorial waters of
India would be sufficient to make the individual resident in India.
 It is not necessary that the period of stay must be continuous or active nor is it essential that the
stay should be at single place.
 For the purpose counting the number of days stayed in India, both the date of departure as well
as the date of arrival are considered to be in India.
 The residence of an individual for income-tax purpose has nothing to do with citizenship, place
of birth or domicile. An individual can, therefore, be resident in more countries than one, even
though he can have only one domicile.

 Example: Mr. X, Indian citizen left India first time on November 25, 2017 for
employment outside India. During the calendar year 2018 he did not visit India. He finally
came to India as on 15th January 2019. Determine his residential status for the financial
year 2017-18 and 2018-19.
 Resident for the FY 2017-18 (Both the basic and additional conditions are satisfied)
 Non-Resident for the FY 2018-19 (Since he is an Indian citizen, only basic condition A
is to be checked)

 Section 6(2): Under this section a Hindu Undivided Family is said to be
 Resident in India if control and management of its affairs is wholly or partly situated in India.
 Non-Resident in India if control and management of its affairs is wholly situated outside India
Residential Status of HUF

 Section 6(6)(b): A resident Hindu Undivided Family is an ordinary resident in India if
the karta or manager of the family business satisfies both the following two conditions:
Residential Status of HUF
Condition Explanation
A He has been resident in India in at least 2 out of 10 previous years
immediately preceding the relevant PY
B He has been in India for period of 730 days or more during 7 years
immediately preceding the relevant PY

 Section 6(2): A Partnership firm and an Association of Persons are said to be
 Resident in India if control and management of their affairs are wholly or partly situated within
India during the relevant Previous Year
 However, they are treated as non-resident in India if control and management of their affairs are
situated wholly outside India.
Residential Status of Firms, AOP/BOI

 Section 6(3): A Company is said to be a resident in India in any previous year, if
 It is an Indian Company, or
 Its place of effective management (POEM), in that year, is in India.
 Explanation: For the purpose of this clause “Place of effective management” means a
place where key management and commercial decisions that are necessary for the conduct
of business of an entity as a whole are made.
Residential Status of Company

 Section 6(4): Every other person is said to be
 Resident in India in any previous year if the control and management of his affairs is situated
wholly or partly in India
 Non-resident in any previous year if the control and management of his affairs is situated wholly
outside India
Residential Status of Any other person

Glance on Incidence of tax
Taxation of Income in India
Residents Non-Residents
Global Income Indian Income

Particulars R-OR R-NOR NR
Income received or deemed to be received in India
whether earned in India or elsewhere
Taxed Taxed Taxed
Income accrues or arises or deemed to be accrue or
arise in India, whether received in India or elsewhere
Taxed Taxed Taxed
Income which accrues or arises outside India and
received outside India from a business controlled from
India
Taxed Taxed Not taxed
Income which accrues or arises outside India from any
other source
Taxed Not taxed Not taxed
Income which accrues or arises outside India and
received outside India during the years preceding the
PYs and remitted to India during PY
Not Taxed Not taxed Not taxed
Glance on Incidence of tax

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18
Ravi Teja K
1st Year Intern
M/s SBS and Company LLP
ravitejak@sbsandco.com
040-4018 3366 (119)
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