Determination of residential status is equally as important as the calculation of income tax liabilities. Even before the calculation of income tax an individual taxpayer has to first determine his residential status as per the income tax act 1961. Section 6 of the income tax act specifically deals with residential status. It prescribed the way of calculating of residential status of the individual and the person other than the individual.
To find out whether an individual is a Resident or Non-resident in India, one must follow any one of the two basic conditions which are set out below:
a) He is in India in that year for a period or periods amounting in all to 182 (one hundred and eighty-two) days or more; or
b) He had within the 4 (four) years preceding that year been in India for a period or periods amounting in all to 365 (three hundred and sixty-five days) or more, is in India for a period or periods amounting in all to 60 (sixty days) or more in that year.
If anyone’s condition is satisfied by the individual, he will be a person of resident in India.
The period of 60 days as specified in clause b shall be substituted by 182 days where, individual being a citizen of India, who leaves India in any previous year as a member of the crew of an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or for the purposes of employment outside India,
Non-resident – An individual is a non-resident individual if he satisfies none of the basic conditions laid down above.
Resident and ordinarily resident (ROR) and Resident and not ordinarily resident (RNOR)-
On following any one of the basic conditions given above, two additional conditions have to be fulfilled to be a person of Resident and ordinarily resident (ROR) or resident and not ordinarily resident (RNOR).
Resident and not ordinarily resident-
A person is said to be “not ordinarily resident” in India in any previous year if such person is—
- an individual who has been a non-resident in India in 9 out of the 10 previous years preceding that year,
or
- has during the7 previous years preceding that year been in India for a period of, or periods amounting in all to, 729 days or less;
or
- a citizen of India, or a person of Indian origin, having total income, other than the income from foreign sources, exceeding 15 lakh rupees during the previous year, who has been in India for a period or periods amounting in all to 120 days or more but less than 182 days;
or
- an individual, being a citizen of India, having total income, other than the income from foreign sources, exceeding Rs. 15,00,000 during the previous year shall be deemed to be resident in India in that previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.
Points to be noted:
- Income from foreign sources- For calculation in ceiling limit of Rs. 15,00,000, an individual has to ignore income from foreign sources. Foreign source income means any income which accrues or arises outside India. Deeming provision should be applied i.e. income deemed to accrue or arise in India shall be included in the computation of the ceiling limit of Rs.15,00,000.
- Person of India origin- means a person if he, or his parents or any of his grandparents, was born in undivided India.
- Only the taxable income has to be taken for computing Rs.15,00,000. Any non-taxable or exempted income should not be included even it is earned in India.
Rule of residence in brief
| Resident and ordinarily resident in India | He must satisfy at least one of the basic conditions and satisfy the two additional conditions. |
| Resident but not ordinarily resident in India | He must satisfy at least one of the basic conditions and satisfy one or none of the additional conditions. |
| Non-resident resident in India | He satisfies none of the basic conditions |
Relevant case laws-
- Employee, an Indian citizen commenced employment with British Gas India Pvt. Ltd., he was deputed to British Gas, UK for two years and accordingly was in India for less than 182 days in that financial year – Revenue contended that as he was in India for more than 60 days, he was resident as per S. 6(1)(c) – AAR observed that a careful reading of explanation (a) would show that the requirement of the explanation is not leaving India for employment but it is leaving India for the purposes of employment outside India. For the purpose of the explanation an individual need not be an unemployed person who leaves India for employment outside India. Therefore, the fact that Mr. Gupta was already an employee at the time of leaving India is hardly material or relevant. For all these reasons, it held that
The salary paid by the applicant to Mr. Manish Gupta shall not be taxable in India, if the same has been offered for tax in the U.K. in pursuance of the Double Taxation Avoidance Agreement.
The applicant shall not deduct tax at source from salary paid to Mr. Nipun Pradhan and Mr. Manish Gupta in India, provided it is satisfied from the details and particulars furnished under Section 191(2) that taxes have been paid on such payments in the U.K. (British Gas India Pvt. Ltd. (2006) 157 Taxman 225 / 287 ITR 462 / 206 CTR 385 (AAR)) - For purpose of Explanation (a) to section 6(1)(c), “employment” includes self-employment like business or profession taken up by assessee abroad. (A. Y. 1989-90) CIT v. O. Abdul Razak (2011) 337 ITR 267 / 198 Taxman 1 / 241 CTR 485 / 56 DTR 133 (Ker.) (High Court)
- The assessee was outside India for a period of more than 182 days, he had become a non-resident and, therefore, salary income received by assessee outside India from a foreign employer for services rendered outside India could not be brought to tax in India. (AY. 2011-12 ) (Ashish Bhardwaj. v. ITO (2021) 190 ITD 867 (SMC) (Delhi) (Trib.))
