RESIDENTIAL STATUS AND ITS TAX EFFECT
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 the residential status of
the 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.Different Taxable Entity:
1. Individual
2. Hindu Undivided Family
3. A firm or an association of persons
4. a joint stock company
5. every other person
Residential status:
1. Resident and ordinary resident in India
2. Resident but not ordinary resident in India
3. Non-resident in India.
Different residential Status for different Taxable
entity:CategoryIndividual/ Hindu undivided Family
Firm/association of persons, joint stock company and every other
person.
Category 1 Ordinary
resident
Resident
In India
Non-ordinary
resident
Resident in India
Category 2Non resident in IndiaNon resident in India
Residential status is to be determined for each previous year. A
person can be a resident of two countries at once. Whether a person
is a resident or non-resident is a question of fact and its duty of
the assessee to place all relevant fact in front of the assessing
officerResidential status of individual (sec 6):
Basic conditions:
To be an Indian resident a person should satisfy atleast one of
the two conditions as under:
1. He is in India in the previous year for a period of 182 days
or more.
2. He is in India for 60 days or more during the previous year
and 365 days or more during 4 years immediately preceding the
previous year.
Exceptions:
In the following two cases a person will be a resident if he
satisfies only the first condition, the second condition is not
applicable.
1. In case of an Indian citizen who leaves India for the purpose
of employment or as a member of the crew of an Indian ship.
2. In the case of an Indian citizen or a person of Indian origin
who comes on a visit to India in the previous year.
Additional Conditions:
For a resident to be classified as an ordinary resident the
following two additional conditions should be fulfilled. In case
any one of them is not fulfilled then the person will be under the
category of resident but not an ordinary resident.
1. He should be resident in India for at least 2 years out of
the preceding 10 years.
2. He should be in India for at least 730 days out of the
immediately preceding 7 years.
RESIDENT BUT NOT ORDINARILY RESIDENT As per section 6(1), an
individual who satisfies at least one of the basic conditions[Basic
condition (a)He is in India in the previous year for a period of
182days or more. Basic condition (b)He is in India for a period of
60 days or more during the previous year and 365 days or more
during 4 years immediately preceding the previous year] but does
not satisfy the two additional conditions
1.An Indian citizen who leaves India during the previous year
for the purpose of taking employment outside India or an Indian
citizen leaving India during the previous year as a member of the
crew of an Indian ship.
2.An Indian citizen or a person of Indian origin who comes on
visit to India during the previous year (a person is said to be of
Indian origin if either their any of his parents or any of his
grand parents was born in undividedIndia)], is treated as a
resident but not ordinarily resident in India.
Resident and Not Ordinarily Resident u/s 6(6)
Individual who satisfies at least one of the basic conditions
u/s 6 (1) but does not satisfy the additional conditions under u/s
6 (6)Non Resident
Individual who does not satisfy at least one of the basic
conditions u/s 6 (1).Residential Status of a Hindu undivided Family
sec 6(2):
HUF is classified as a resident and non resident according to
its control and management status. Control and management means the
de facto control and management and not just the right to control
and manage.
Place of controlResidential status of HUF
Ordinary resident or not
Control and management is wholly in IndiaResidentNext table
Control and management is wholly outside IndiaNon-resident--
Control and management is partly in India and partly outside
IndiaResident Next table
Condition for being ordinary resident:
Add condition 1 Karta has been resident in India at least 2 out
of 10 previous years immediately preceding the relevant previous
year.
Add condition 2 Karta has been present in India for a period of
730 days or more during the 7 years immediately preceding the
previous year.
If karta or manager of a resident HUF does not satisfy the above
two conditions then it would be treated as resident but not
ordinary resident.
Residential status of firm and association of persons: sec6
(2)Place of controlResidential status
Control and management of the affairs of a firm/association of
persons is-
Wholly in India
Wholly outside India
Partly in India and Partly outside IndiaResident
Non-resident
Resident
Residential status of a company sec 6(3):Place of
controlResidential status
Indian CompanyOther company
Control and management of the affairs of the company is
situated-
Wholly in India
Wholly outside India
Partly in India and Partly outside IndiaResident
Resident
ResidentResident
Non resident
Non resident
The term control and management refers to head and brain that
directs the affair of policy, finance, disposal of profits and
vital things regarding the management of a company.
Residential status of every other person sec 6(4):Place of
controlResidential status
Control and management of his affairs are situated-
Wholly in India
Wholly outside India
Partly in India and Partly outside IndiaResident
Non- resident
Resident
Incidence of Tax for different Taxpayers:Incidence of tax on
taxpayers depends on his residential status and also on the place
and time of accrual and receipt of his income.
Tax incidence on Individual and HUF is as under:
Resident and ordinary resident Resident but not ordinary
residentNon resident
Indian Income
Foreign Income
Business is controlled wholly or party from India
Income from profession set up in India
Business is controlled from outside India
Profession is set up outside India
Any other foreign IncomeTaxable in India
Taxable in India
Taxable in India
Taxable in India
Taxable in India
Taxable in IndiaTaxable in India
Taxable in India
Taxable in India
Not taxable in India
Not taxable in India
Not taxable in IndiaTaxable in India
Not taxable in India
Not taxable in India
Not taxable in India
Not taxable in India
Not taxable in India
Tax incidence on any other taxpayer (company, firm etc) as
under:
Resident in India
Non- resident in India
Indian Income
Foreign incomeTaxable in India
Taxable in IndiaTaxable in India
Not Taxable in India
