ITR
Residential Status under Income Tax Act in India
Residential status is one of the important factor based on which a person’s taxability is decided as per Income tax Act in India. The residential status of a person in India depends on his period of stay in India. Residential status of different types of persons viz an individual, a firm, a company etc may be differently each Financial Year.
Residential status is determining each and every financial year for levy of income tax at the time of filing Income Tax return. In other words this is the based factor on the basis of which a person’s taxability is decided.
For all purpose of income tax in India, taxpayers are classified into three broad categories on the basis of their residential status viz.
1. A Resident (Ordinary resident)
2. A Resident but not ordinary resident
3. A Non- resident
1. Resident
The residential status of a person must be ascertained with reference to each financial year. A person who is Ordinary resident in one year may become non-resident or resident but not ordinary resident in another year or vice versa
If any person satisfy any one of the following two condition for the relevant financial year, he is called to be Resident in India for that financial year :
· He has been in India during the relevant financial year for a total period of 182 days or more
· He has been in India for 60 days or more in the relevant financial year and has been in India for 365 days or more during the immediately 4 preceding years.
Exception
Exception to above rule, In the following case a person will be called resident only if he has been stay in India for a total period of 182 days or more, if an Indian citizen, who leaves India during relevant financial year as a member of the crew of an Indian ship or for the purpose of employment outside India. However, as per recent amendment period of 182 days is reduced to 120 days or more from financial year 2020-21, for such person whose total Income (Income accruing in India) exceeds Rs. 15 lakh.
In other words, If the total income of person (other than Income from foreign source) is more than Rs.15 lakh and he stay in India for period 120 days or more in relevant financial year, is called Resident in India.
Resident Ordinary Resident
A person is to be called as Resident Ordinary Resident, who satisfies any one condition of resident and also satisfies both the following conditions:
· He is a resident in any 2 out of the last 10 years immediately previous years and
· His total stay in India for 730 days or more in 7 immediately previous years
Resident Not Ordinary Resident
A person fails to satisfy any condition of ROR, he would be Resident not ordinary Resident (RNOR).
Deemed Resident
The latest Finance Act has introduces the provision of “Deemed Residency” from FY 2020-21. As per this provision, Indian citizen shall be deemed to be Resident of India, If
1. His total income, other than income from foreign sources, exceeds Rs 15 lakhs during the FY; and
2. 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.
The residential status of an Indian citizen who is deemed Resident of India shall be ‘Resident Not Ordinarily Resident (RNOR).
2. Non-Resident
If a person does not satisfy any one conditions mentioned above, he is Non-resident.
3. Taxability and Scope of Income
Resident Ordinary Resident: An ordinary resident is taxable in India on his Global Income i.e. Indian Income as well as foreign Income.
Resident Not Ordinary Resident: Not Ordinary resident is taxable in India on his Indian income and income from outside India is taxable in India only if it is derived from a business controlled in or a profession set up in India.
Non Resident: Non Resident’s tax liability in India is restricted to the income they earn in India. They need not pay any tax in India on income earn outside India.
4. Residential Status of HUF, Firm & Company
If the control and management of its affairs situated wholly or partly in India, the residential status of HUF and Firm would be called as resident.
A company would be resident in India if it is an Indian Company and its place of effective management is in India for the relevant financial Year.
If HUF, Firm & Company would not satisfy the above condition, they will be called as Non-resident.