Individual Residential Status and Tax Incidence

Taxation of individuals in India is primarily based on the number of days they have been in India during the relevant previous year & the preceding previous years. An exercise to determine if an individual is a resident in India or no is to be undertaken every year.
In India, following are the types of residential status for individuals:

  • Resident & Ordinary Resident (ROR);
  • Resident & Not Ordinarily Resident (RNOR);
  • Non – Resident (NR)
  • 1.6 of the Income Tax Act 1961 (‘ITA’) lays down provisions relating to the residential status of an individual.

Under s. 6(1) of the ITA, an individual is said to be a resident in India when any one of the following two conditions are satisfied:

  • He is in India for a period of 182 days or more in the previous year; or
  • He is in India for a period of 60 days or more during the previous year & 365 days or more during the 4 years in the immediately preceding previous year.

If, none of the above two conditions are met, an individual shall qualify as a Non – Resident for the previous year.

The ITA is liberal on the provisions for a Person of Indian Origin (PIO) (i.e a foreign citizen who held an Indian passport at anytime or whose parents/grandparents/great grandparents were citizens of India) or an Indian citizen who leaves India for employment abroad.

  • For an Indian Citizen who leaves India for employment abroad during the previous year, the period of ’60 days’ referred to in clause b above is substituted by 182 days;
  • For an Indian citizen or a PIO having taxable income in India is less than INR 15 lakhs (i.e INR 1.5 million), the period of ’60 days’ referred to in clause b above is substituted by 182 days.

Here, it is pertinent to note that w.e.f AY 2021 – 2022, for an Indian citizen or a PIO having taxable income in India exceeding INR 15 lakhs (i.e INR 1.5 million),  the period of ‘60 days’ referred to in clause ‘b’ above is substituted by 120 days. Thus, for an Indian Citizen/PIO having taxable income of more than 15 lakhs if his stay in India during the previous year exceeds 120 days & 365 days in the preceding previous four years, he qualifies as a resident.

  • 6(6) of the ITA prescribes two additional conditions under which need to be satisfied for an individual to qualify as a ‘resident & ordinarily resident’
  • He has been a resident in India in at least 2 out of 10 previous years immediately preceding the relevant previous year;
  • He has been in India for a period of 730 days or more during the 7 years immediately preceding the relevant previous year

Therefore, an individual is said to be a ROR when one of the conditions specified by s. 6(1) of the ITA are satisfied & both of the conditions specified in s. 6(6) of the ITA are satisfied.

Illustration

Scenario I

Mr. X is a person of Indian origin. His income in India during the Financial Year (‘FY’) 2021 – 2022 & FY 2020 – 2021 is less than INR 15 lakhs (or INR 1.5 million). His number of days of stay in India for the period from FY 2012 – 2013 to FY 2021 – 2022 is as under:

Financial Year

Number of Days of Stay in India

2021 – 2022

167

2020 – 2021

131

2019 – 2020

139

2018 – 2019

141

2017 – 2018

164

2016 – 2017

168

2015 – 2016

174

2014 – 2015

162

2013 – 2014

139

2012 – 2013

143

AnalysisMr. X residential status for the period from FY 2017 – 2018 to FY 2021 – 2022 is as under:

Scenario II

Mr. A (a foreign national, not being a person of Indian origin) comes to India for the first time for employment during FY 2018 – 2019. His period of stay in India is as under :

Financial Year

Number of Days of Stay in India

2021 – 2022

202

2020 – 2021

189

2019 – 2020

301

2018 – 2019

186

Analysis : Mr. A’s residential status for the period from FY 2018 – 2019 to FY 2021 – 2022 is as under: 

Residential Status & Tax thereon

To determine the tax implications on residential status, it is first essential to understand the type of income which will be taxable in India i.e Indian Income or Foreign Income.

Indian Income:

  • Income received in India or accrued in India during the previous year;
  • Income received in India but accrued outside India during the previous year;
  • Income received outside India but accrued in India during the previous year. 

Foreign Income: Income not received (or deemed to be received) or accrued (or deemed to accrue) in India during the previous year.

Incidence of Tax

Residential Status

Indian Income

Foreign Income

Resident & Ordinarily Resident

Taxable in India

Taxable in India

Resident but not Ordinarily Resident

Taxable in India

Following foreign income is taxable in India :
– Business income derived from business wholly/partly controlled in India;
–  Income from profession which is set up in India.

Non – Resident

Taxable in India

Taxable in India

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