Residential Status for the purpose of Income Tax

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Income Tax is levied based on the residential status of the person. Hence determination of residential status of individual is very important for income tax purpose.

 

The residential status of an individual divided into following categories:

 

Nri Status
Categories of Residential Status

The following types of income are taxable in the hands of taxpayers:

 

 
 
Resident and ordinary resident
Not ordinary resident
Income received or deemed to be received in India, whether same earned in India or elsewhere
 
Yes 
 Yes
  Yes
Income which accrue or arise or is deemed to accrue or arise in India during the previous year, whether same received in India or elsewhere
 
 Yes
Yes
 Yes
Income which accrue or arise outside India and received outside India; from a business controlled in India
 
 Yes
 Yes
No
Income which accrue or arise outside India and received outside India; from any source
 
 Yes
No
No
 

Resident (Ordinary Resident) [Section 6(1)] 

Section 6(1) prescribes in two tests to determine the residential status of an individual. An individual who fulfills any one of the following two tests is called Resident under the provisions of this Act. These tests are:

(a)  If he is in India during previous year for a period of 182 days or more. OR

(b)  If he was in India for a period of 365 days or more during the four years preceding previous year AND he was in India for a period of 60 days or more in previous year.

After fulfilling one of the above two tests, an individual becomes resident of India but to become an ordinary resident of India an individual has to fulfill both the following two conditions:

(1) He has been resident of India (fulfilling at least one test given above) in at least 2 previous years out of 10 previous years immediately prior to the previous year in question. AND

(2) He has stayed in India for at least 730 days in 7 previous years immediately preceding the previous year.
 

Points for clarification:

  • Citizenship of a country and residential status are separate concepts.
  • For determination of residential status, it is not necessary that the stay should be for a continuous period.
  • Once an amount is received by an individual then its remittance or transmission to any other place and it would not be a taxable.
  • Important for the individual to see whether receipt of the income that has taken place and remittance for them.

For example, a person who is abroad sends money to their own account and therefore this would not be the situation of an income as this is the own money of the individual that is just being transferred.

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