Dr.

Shannu NARAYAN
PGP – FinTax Batch
Session 2
Residential Status (S.6)
 the tests to be applied to determine the residential
status of all tax payers for purposes of IT.

 An assessee’s residential status must be determined

with reference to the previous year in respect of which
the income is sought to be taxed.
Old Provision on residential status
New provision on residential status
2020-21 onwards
Basic conditions of being a
resident

Satisfy Any of the Basic conditions:

Present in India for 182 days or more

during the PY; OR

Present in India for 60 days or more

during the PY and 365 days or more
during the 4 years immediately
Preceding PY (PPY)
Additional Conditions to
determine ROR or RNOR
Additional Conditions:
1. He is a resident in at least 2 out of 10 previous years preceding
the relevant previous year (PPY) AND
2. His stay in India in the last 7 years preceding the relevant
previous year is 730 days or

ROR – satisfies basic and both additional conditions

RNOR – satisfies basic but not the additional conditions

RNOR – (a) he has been a non-resident in India in nine out of the ten
previous years preceding that year, or
(b) he has during the seven previous years preceding that year been
in India for a period of, or periods amounting in all to, seven hundred
and twenty-nine days (729 days) or less.
Amendment from April 2021
 from 1 April 2021 (i.e. from FY 2020-21, corresponding to AY
2021-22):
 Currently, under section 6 of the ITA, a citizen of India or a
person of Indian origin whose total income (other than
from foreign sources) during the relevant financial year is
more than INR 15 lakhs, qualifies as an Indian tax
resident for such financial year, if such individual:
 Has been in India for a period of more than 365 days during
preceding four financial years; and
 Is in India for more than 120 days during the relevant
financial year.
 Residence of Companies
 All Indian companies are always resident in India
regardless of the place of control and management of its
affairs.

 In the case of a foreign company the place of control and

management of it’s affairs is the basis on which the
company’s residential status is determinable.

 Accordingly a company shall be said to be resident in India

in any previous year, if –
(i) it is an Indian company; or
(ii) its place of effective management (PoEM), in that
year, is in India.
Company is said to be -
Resident - whose place of effective management (PoEM) at
any time in previous year is in India
 Indian company is resident, irrespective of the fact whether
the POEM is in India or not.

Non-Resident
 A company, whose place of effective management (PoEM)
has not been in India at any time in previous year

PoEM means a place where key management and commercial

decisions, necessary for the conduct of the business of an
entity as a whole are, in substance made.
PoEM -
 Having ‘active business outside India’ –
(a) its passive income (aggregate of sale and purchase
transactions between related parties, royalty,
interest, dividend, capital gains) is less than 50% of
its total income; and
(b) number of employees in India, value of assets in
India and payroll expenses relating to Indian
employees is less than 50% of the company’s total
employees, assets and payroll expenses, respectively.
Contd..
 A company having an ‘active business outside India’ is non-
resident as long as majority of its board meetings are held
abroad.

For all other companies, residential status will be determined by

identifying
 (a) persons who are responsible for management decisions and
 (b) place where decisions are actually made.

 Companies with turnover or gross receipts less than INR 500

million will not come under the scrutiny of POEM
 Foreign companies considered residents upon application of the
POEM test will have to pay a 40% tax (as opposed to domestic
companies) on its worldwide income to the Indian authorities
Total Income
 The scope of total income and consequently the liability to
income-tax also depends upon the following facts :
 (a) whether the income accrues or is received in India or outside,
 (b) the exact place and point of time at which the accrual or
receipt of income takes place, and
 (c) the residential status of the assessee.

Total income of an ROR during the accounting year -

 (i) income received or deemed to be received in India;
 (ii) income which accrues or arises or is deemed to accrue or
arise to him in India;
 (iii) income which accrues or arises to him outside India.
“Business Connection”
(i) maintenance of a branch office, factory, agency,
receivership, management or other establishment
(ii) the erection of a factory where the raw products purchased
locally are processed or converted into some form suitable for
export outside India;
(iii) appointing an agent or agents in India for the systematic
and regular purchase of raw materials or other commodities or for
the sale of the non-residents goods, or for any other purpose;
(iv) the formation of a close financial association between a
resident and a non-resident company which may or may not be
related to one another as a holding and subsidiary company;
(v) the formation of a subsidiary company to sell or otherwise
deal with the products of the non-resident parent company;