Section 6 of Income Tax Act, 1961 contains provision relating to Residence in India. The taxability of an assessee is dependent on the Residential status during any Previous Year.
The scope of Total Income taxable under Income Act differs in each category and hence it becomes important for an Individual to know his/her Residential Status in any particular Previous Year.
Income tax Act classifies Individual into 3 categories for the purpose of taxation in any Previous Year which are as follows:
- Resident and Ordinarily Resident (“ROR”)
- Resident and Not Ordinarily Resident (“RNOR”)
Section 6 of Income Tax Act, 1961: An Individual is said to be Resident of India in any Previous Year if, period of physical stay in India is:
- First Criteria – 182 days or more, in that Previous Year, OR,
- Second Criteria – 60 days or more in that Previous Year AND 365 days or more in Preceding 4 years.
If an assessee fails to meet both the above criteria in any Previous Year, then he is considered as Non-Resident for tax purpose in that Previous Year.
Non-Applicability of Second Criteria: (60 Days+365 Days)
The following category of Individual will be classified as Resident of India only if Physical stay in Previous Year is 182 days or more:
- Citizen of India leaving India in any previous year:
- For Employment outside India
- As a crew member of an Indian Ship
- Citizen of India or Person of Indian Origin (Staying outside India) visit India in any Previous Year AND Total Income does not exceed 15 lakhs (Other than Foreign Source)
(Author’s view: This will help above Individuals to visit or stay in India for longer duration either to meet their families or manage their assets etc. without being classified as Residents of India.)
Applicability of Second Criteria with some Modification: (60 Days+365 Days)
The second criteria applicable subject to modifications in the below case:
Modifications: Period of Physical stay in India in any Previous Year is 120 days or more AND 365 days or more in Preceding 4 years.
(Author’s view (Citizen of India or PIO): When “Indian source income” or “Other than foreign source” income does not exceed 15 lakhs, then only physical stay of 182 days or more in the previous year triggers residency (Second criteria not required). However, when such income exceeds 15 lakhs, then in addition to first criteria of 182 days or more, the physical stay of 120 days or more in the previous year and 365 days or more in preceding 4 years also triggers residency)
Deemed Indian Resident: An Individual will be considered as Deemed Resident in the below case:
• Individual being a Citizen of India, AND
• having Total Income in excess 15 lakhs in the Previous Year (Other than foreign Source) AND
• not liable to tax in any other country/territory, by reason of domicile, residence or any similar criteria.
(Author’s view: Now Indian citizen having Indian source income exceeding 15 lakhs, cannot escape taxation. Earlier there would have been possibilities that such Individual were able to structure their stays in different countries in such a manner so as to escape taxation)
Not Ordinarily Resident (NOR)
An Individual is said to be Not Ordinarily Resident in below 4 cases:
- Individual who has been Non-Resident in India for 9 out of 10 preceding years, OR
- Individual has been in India for 729 days or less in preceding 7 years.
(If an assessee does not fall in both the above criteria in any Previous Year, then he is considered as Ordinarily Resident for tax purpose in that Previous Year)
- Citizen of India or Person of Indian Origin, having total income exceeding 15 lakhs (other than foreign source) and stays in India for 120 days or more but less than 182 days.
- Deemed Resident of India.
“Income from foreign sources” means income which accrues or arises outside India except income derived from a business controlled in or a profession set up in India and which is not deemed to accrue or arise in India
“Non-resident Indian (NRI)” means an individual, being a citizen of India or a person of Indian origin who is not a “Resident”.
“Person of Indian Origin (PIO)”: A person shall be deemed to be of Indian origin if :
• he, or
• either of his parents or
• any of his grand-parents, was born in undivided India;
2. HINDU UNDIVIDED FAMILY
A HUF is said to be resident in India in any previous year in Every Case Except where during that year the control and management of its affairs is situated wholly outside India.
Not Ordinarily Resident (NOR)
An HUF is said to be Not Ordinarily Resident if:
- Manager of HUF, has been Non-Resident in India for 9 out of 10 preceding years, OR
- Manager of HUF, has been in India for 729 days or less in preceding 7 years.
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, in that year, is in India.
“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, in substance made.
Every other person is said to be resident in India in any previous year in every case, except where during that year the control and management of his affairs is situated wholly outside India.
If a person is resident in India in a previous year relevant to an assessment year in respect of any source of income, he shall be deemed to be resident in India in the previous year relevant to the assessment year in respect of each of his other sources of income.