The basis of charging income
tax is the taxable income of every person. To determine taxable income, it is
essential to find out residential status of the person and scope of total
income. There are two types of taxpayers from residential point of view – Resident
in India and Non-resident in India. Indian income is taxable in India whether
the person earning income is resident or non resident. Conversely, foreign
income of a person is taxable in India only if such person is resident in
India. Foreign income of a non-resident is not taxable in India. Therefore, the
tax liability of a person is dependent upon the residential status of a person.
RESIDENTIAL STATUS AND TAX
LIABILITY (SECTION 6)
According to the residential
status, the assessee can either be;
Resident in India, or
Non-resident in India
However, a resident individual
and a resident HUF can further be classified as:
Resident and Ordinarily resident in India (ROR) or
Resident but not Ordinarily
resident in India (RNOR).
It must be noted that only an
individual or a HUF can be resident, not ordinarily resident or non resident in
India. All other assesses can be either resident or non-resident in India but
cannot be not ordinarily resident in the matter of their residential status for
all purposes of income tax. Section 6 of the Income-tax Act prescribes the
conditions to be fulfilled by various taxpayers to determine their residential
status.
RESIDENTIAL STATUS OF AN INDIVIDUAL:
An individual first needs to
satisfy basics condition in order to become resident in India. If a resident
individual satisfies additional conditions, he becomes resident and ordinarily
resident (ROR), otherwise he is resident but not ordinarily resident (RNOR).
BASIC CONDITIONS FOR AN
INDIVIDUAL TO BE RESIDENT
Under Section 6(1) of the
Income-tax Act, an individual is said to be resident in India in any previous
year if he:
1. he
has been in India for at least 182 days during the previous year; or,
2. he has been in India for at
least sixty days (60 days) during the previous year and for at least three
hundred and sixty-five days (365 days) during the four years immediately
preceding the previous year.
Exceptions to above conditions
In the following two cases,
second condition is not applicable, i.e., if condition (1) is satisfied then an
individual is resident otherwise he will be non-resident:
i. the
individual is a citizen of India, who leaves India in any previous year as a
member of the crew of an Indian ship, or for the purpose of employment outside
India, or
ii. the individual is a
citizen of India or person of Indian origin engaged outside India (whether for
rendering service outside or not) and who comes on a visit to India in the any
previous year.
Therefore, in the above two exceptional cases, only the basic
condition 1 needs to be checked. If it is satisfied, then the individual is
treated as a resident, otherwise he will be treated as non resident.
NON-RESIDENT
If an individual does not satisfy
any of the above two basic conditions then, he will be treated as non-resident.
It must be noted that the
fulfilment of any one of the above conditions 1 or 2 will make an individual
resident in India since both these conditions are alternative and not
cumulative in their application
ADDITIONAL CONDITIONS FOR AN
INDIVIDUAL TO BE RESIDENT AND ORDINARY RESIDENT (ROR)
An individual may become a
resident and ordinarily resident in India if he satisfies both the following
conditions given u/s 6(1) besides satisfying any one of the above mentioned
conditions:
1. he
is a resident in atleast any two out of the ten previous years immediately
preceding the relevant previous year, and
2. he has been in India for
730 days or more during the seven previous years immediately preceding the
relevant previous year.
RESIDENT AND NOT ORDINARY
RESIDENT (RNOR)
If
a resident individual is not able to satisfy both the additional conditions,
then he will be resident but not ordinary resident (RNOR).
Important Points to be considered while determining Residential
Status:
The residential status of the
assessee should be determined for each year separately. This is because a
person resident in one year may become non-resident or not ordinarily resident
in another year and vice versa.
1. The
residential status of an individual for tax purposes does not depend upon his
citizenship, nationality and place of birth or domicile. This is because for
tax purposes, an individual may be resident in more than one country in respect
of the same year.
2. The
period of stay required in each of the conditions need not necessarily be
continuous nor is the purpose of stay is insignificant in determining the
residential status.
3. It
is not required that the stay should be at the usual place of residence,
business or employment of the individual. The stay may be anywhere in India and
for any length of time at each place.
4.
India means territory of India, its territorial waters, continental shelf,
Exclusive Economic Zone (upto 200 nautical miles) and airspace above its
territory and territorial waters.
5. Where the exact arrival and
departure time is not available then the day he comes to India and the day he
leaves India is counted as stay in India.
