Residential Status of Individual for Income Tax

Ascertainment of income tax of a person depends on his residential status for the Previous Year. The residential status determined by the number of days of the stay of the person in India. 

It is important to decide the residential status of the person for the assessment of the income tax liability. Some of the income is taxed only on the ordinary resident. At the same time, there are some exemptions also based on the residential status of the person.

Residential Status as a Distinct Term

As per the Income Tax Act, the residential status holds a much clear meaning. It fundamentally focuses on the charge of income of a person. We need to understand the term clearly.

Residential Status and citizenship
It is important to understand that the term Citizenship and Residential status are different.
For example, when we ascertain the tax liability, a citizen of India may not be Resident in India.

Residential Status is not Permanent
We ascertain the residential status of an individual for a Previous Year, depends on the number of days of the stay in India. A particular individual may be resident for one Previous Year, and maybe non-resident for the other Previous Year.

Different Status from Country to Country
The residential status of a person does not base on a particular country. If a person is a resident as per the tax purpose in India. The same person may have the same status for other countries also.

Source of income and resident status
An individual can have only one residential status for all the sources of income for a particular Previous Year. He can not be resident for one source of income and non-resident fo the other sources of income.

Residential Status of an Individual

Determining the residential status of an individual is dealing with section Sec 6(1) of the Income Tax Act. To understand the concept clearly, we need to familiar with four terms. They are

(1) Resident
(2) Non -Resident
(3) Resident and Ordinarily Resident
(4) Resident but not Ordinarily Resident

See the picture given below

Residential Status

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Resident in India

An individual is said to be resident in India if the person satisfying that

(1) He is staying in India for 182 days or more during the relevant Previous Year[Sec 6 (1)(a)]; or

(2) He stayed in India for 60 days or more during the Previous Year and 365 days or more during four Previous Years immediately preceding the relevant Previous Year. [Sec(6)(1)(c)]


If an individual is satisfying ANY OF THE condition is termed as Resident in India.

A person is considering as residing in India in case he stays in the territorial water of India. Territorial water includes 12 nautical miles from the baseline on the coast of India.

The person can stay any of the parts of India to satisfy the above conditions, and this stay does not require to be continuous.

Non-Resident in India

A person is termed as Non-resident in India for the previous year if he doesn’t satisfy Sec6(1).

There are situations where we need to consider only the first condition( i ), of Sec 6 (1) c

There are some cases where the assessees are treated as Resident if they satisfy the stay of 182 days in India for the relevant Previous Year .

1. Suppose Mr Binoy leaves India to the USA for his employment purpose there. To consider him as Resident in India, he needs to stay at least 182 days or more in India during the Previous Year.

However, we need to keep in mind that the person leaves India in respect of the employment in India, like attending a conference or business meeting etc., will not be considered as leaving for employment abroad.

2. Suppose Mr A, a citizen of India leaves India as a member of the crew of an Indian ship during the previous year.

3. There are some people considered as Persons of Indian Origin.
A person is considered as a Person of Indian Origin if he or either of his parents or grandparents were born in undivided India.

Usually, they are foreign citizens resides outside India. Occasionally these persons visit India during the previous year. As per the Income Tax Act, they will be residents only if they stay a minimum of 182 days in the relevant previous year.

The same rule is applicable to Indian citizens resides outside India.

A Resident is again divided into two categories for the ease of charging income tax.

(1) Resident and Ordinarily Resident in India
(2) Resident but Not Ordinarily Resident in India.

Resident and Ordinarily Resident in India

A person is said to be the Resident and Ordinarily Resident in India if he fulfils at least one of the basic conditions and both the additional conditions given below.

The additional conditions are given below.

(1) An individual has been resident in India at least 2 out of 10 immediately preceding relevant previous years.And
 
(2) He has resided in India for a period of 730 days or more during the previous years immediately preceding the relevant previous year.

Resident but Not Ordinarily Resident

A resident satisfies the basic condition and not satisfying both the additional conditions, then he is a Resident but Not Ordinarily Resident in India.

Residential status and Tax incidents

As per section 5, of the Income Tax Act, there are some provisions for the tax incidents regards to the residential status.

Income accrued and received outside India, in the previous year is taxable in the hand of Resident and Ordinarily Resident only.

Income accrued and received outside India from a business or profession set up outside India is taxable only in the hand of Resident and Ordinarily Resident

Income accrued and received outside India from a business or profession set up in India is taxable in the hand of Resident and Ordinarily Resident and Resident but Not Ordinarily Resident

Income accrued or deemed to be accrued in India but received outside India is taxable in the hand of Resident and Ordinarily Resident, Resident but Not Ordinarily Resident and Non-resident.

Income accrued outside India but received or deemed to be received India is taxable in the hand of Resident and Ordinarily Resident, Resident but Not Ordinarily Resident and Non-Resident.

Income accrued or deemed to be accrued or received or deemed to be received in India is also taxable in the hand of Resident and Ordinary Resident, Resident but Not Ordinarily Resident and Non-Resident.

So now we can decide the residential status of an individual. After this, we can find the taxable income of the individuals as per the slab provided for the period except for Short term capital gains and long term capital gains.

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