Residential taxability of an individual

Residential status and taxability of an individual

The residential status under Income Tax law plays a vital role while considering taxation of certain incomes of an Individual. It is not related to citizenship of a country.

The residential status of a person is required to be determined for each assessment year in order to ascertain the scope of his total income. The residential status of a taxpayer is worked out on the basis of tenure of his physical stay in India during the Financial Year.

For tax purpose all tax payers are classified into two broad categories based on their period for which they were physically present in the country:
1. Resident
2. Non-resident(NR)

Residents are further classified into:
1. Resident and ordinarily resident (ROR)
2. Resident but not ordinarily resident (NOR)

An individual is said to be Resident in India in any previous year, if he satisfies any one the following conditions:
a) He has been in India for a period or periods amounting in all to a minimum of 182 days during the previous yearor
b) He has been in India for a total of 365 days or more during the 4 years immediately preceding the previous year and for at least 60 days during the previous year.

If any individual satisfies any of the one conditions mentioned above, he is a Resident of India. If none of the above mentioned criteria is fulfilled by an individual then he is categorized as Non-resident.

*The 60-day period mentioned above (in point b) will be substituted for 182 days in case of the following persons:-

  • A citizen of India who leaves the country as a crew member of an Indian ship or for the purposes of employment outside India.
  • A Citizen of India or Person of Indian Origin who visits India in any previous year.

A resident individual will be treated as ROR in India during the year if he satisfies both the following conditions:
a) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant financial year.
b) His stay in India is for 730 days or more during 7 years immediately preceding the relevant financial year.

A resident individual who does not satisfy any of the aforesaid conditions or satisfies only one of the aforesaid conditions will be treated as NOR.

Key points to consider while ascertaining residential status of an individual

  • Receipt of Income: If an amount is 1st received outside India and then subsequently remitted to India, it will be considered as Income received outside India just remittance of such income would not make it an income received in India.
  • Citizenship of a country and residential status: Residential status of an Individual is not nexus to his citizenship. An Indian citizen may be a resident of India or not. On other hand a person may not be citizen of India /foreign citizen but resident of India.
  • Calculation of period of stay: In calculation of period of stay for purpose of determining residential status, it is not compulsory that person had a continuous stay. Total number of days of stay in India during that financial year are to be considered.
  • Residential status for a particular year: Every year the residential status of the taxpayer is to be determined by applying the provisions of the Income-tax Law laid in this regard. So, it may happen that in one year the individual would be a resident and ordinarily resident and in the next year he may become non-resident or resident but not ordinarily resident and again in the next year his status may change or may remain same.

The following table highlights the tax incidence as per residential status:

Nature of income ROR NOR NR
Income which accrues or arises in India Taxable Taxable Taxable
Income which is deemed to accrue or arise in India Taxable Taxable Taxable
Income accrue or arise outside India but received in India Taxable Taxable Taxable
Income which is deemed to be received in India Taxable Taxable Taxable
Income accruing outside India from a business controlled from India or from a profession set up in India Taxable Taxable Not taxable
Income other than above (i.e., income which has no relation with India) Taxable Not taxable Not taxable

For assistance in determination of your residential status and computation of tax liability based on it, please contact AJSH & Co LLP. You can click here and reach our taxation experts for further queries.