Residential Status

EXORDIUM OF CHAPTER
Tax liability of an assessee varies with his residence or residential status in India for any particular
financial year. Tests of residence as specified in Section 6 are based on his territorial connection with
India in previous year and are different in case of different assessable units, e.g., Individual, Hindu
Undivided Family, Firm or Company. Based on this an assessee may be resident (also called resident
and ordinarily resident), resident but not ordinarily resident or non-resident.
DETERMINATION OF RESIDENCE
General Rules
(a) Residence (not citizenship) will determine total income – Income tax is chargeable on
total income of previous year. According to Section 5, total Income will be assessed based on
residential status of assessee in previous year. It is not relevant whether assessee is citizen of
India or not. The first inquiry in every case should, therefore, be about his residential status.
Based on residential status, a person may be classified as follows:

Residential Status
[Section 6]

Firm/AOP/Local
Individual/HUF Authority/Company etc.

Resident Deemed Non-Resident

[Section 6(1)] Resident [Section Resident Non-Resident
& 6(6)] [Section 6(1A)] 2(30)]

Resident and Resident but

Ordinarily Not Ordinarily
Resident Resident
[Section 6(1)] [Section 6(6)]

Test for determination of residential status, as laid down in Section 6, are concerned with
a person’s territorial connection with India.
(b) Residence with reference to previous year – Determination of residential status of any
person for any assessment year is based on conditions relating to his residence in relevant
2.2 Income Tax Law & Practice

previous year. Conditions of residence in the assessment year are not relevant. Residential
status shall be determined with reference to each year. Depending on conditions of his residence,
an assessee may have a different residential status in different years.
(c) If a person is resident for one source, he will be resident for all source of his
income [Section 6(5)] – If an assessee is resident in any year as regards any one source of
income, he will be resident in that year. As regards all other sources of his income he will not
have different residential status for different sources of his income in same year.
For example, Mr. X is ordinarily resident in India. Mr. X earns ` 50,000 incomes from
foreign company and ` 70,000 rent from a property, then both incomes of Mr. X will be
taxable by treating him ordinarily resident.
RESIDENTIAL STATUS OF INDIVIDUAL [SECTION 6 (1) AND 6(6)]
1. Resident

A. Resident (Ordinarily Resident) [Section 6(1)];

Rules as to Ordinarily Residence
For determination of ordinarily residential status of an individual assessee, there are two sets of
conditions. Section 6(1) prescribes two basic conditions and Section 6(6), two additional conditions.
An individual will become an ordinarily resident if he satisfies any one of the first set of condition and
both second set of additional condition.
First Set – Basic Conditions [Section 6(1)]: An individual is said to be resident in India in any
previous year if he satisfies either or both of the following basic conditions:
(a) He is in India for a period of 182 days or more during the relevant previous year, or
To be resident, an individual must stay in India for a total of 182 days or more in the previous
year. (A day means a total day of 24 hours beginning at mid-night.) Even if he has not
stayed at one place for two consecutive nights, he will satisfy the condition if total period of
his stay in India during the previous year is 182 days or more.
Stay in India need not be voluntary; it may be against a person’s will. Stay in India for 182
days or more, need not be at one stretch. In case of an Individual who is frequently travelling
abroad, his total stay in India will be counted by adding the number of days (also hours, in case
of broken days of stay) for which he is in India in the previous year.
(b) He is in India for a period of 60 days or more during the relevant previous year and for 365
days or more during 4 years immediately preceding the relevant previous year.
Explanation – An individual will be resident if he satisfies both tests in second basic condition.
If an individual’s residential status is to be determined for the previous year 2020-21, then four
year immediately preceding the previous year will be 2020-21, 2019-20, 2018-19, 2017-18.
During these four years, the total period of his stay in India should amount to 365 days or
more. But it is not necessary that he should be in India for a certain period in each of the four
years.
Exception – In the following cases second condition is not taken into consideration.
(a) Relief to Indian citizen leaving India as member of the crew of an Indian ship,
or for purposes of employment went abroad: If an Indian citizen –
Residential Status 2.3

(i) Lives in India in the previous year as a member of the crew of an Indian ship,
or
(ii) For purposes of employment went abroad, then he will have to stay in India for 182
days (not 60 days) to satisfy the part (b) of the condition.
(b) Relief to Indian citizen or person of Indian origin living abroad and coming on a
visit to India in previous year: If an Indian citizen, or person of Indian origin, who is
living abroad, comes on a visit to India during the previous year, then he will have to stay
in India for 182 days (not 60 days) to satisfy the part (b) of the condition.
A person will be of Indian origin if he himself, or either of his parents, or any of his
grandparents, was born in undivided India.
However, in case of such person having total income, other than the income from
foreign sources [i.e., income which accrues or arises outside India (except income from
a business controlled from or profession set up in India) and which is not deemed to
accrue or arise in India], exceeding ` 15 lakh during the previous year will be treated as
resident in India if –
(i) The period of his stay during the relevant previous year amounts to 182 days or
more, or
(ii) He has been in India during the 4 years immediately preceding the previous year for
a total period of 365 days or more and has been in India for at least 120 days in the
previous year. [Inserted by the Finance Act, 2020, w.e.f. 1-4-2021].
Second Set – Additional Conditions [Section 6(6)]: An individual who is resident in India in any
previous year shall be ordinarily resident, if he satisfies both of the following additional conditions:
(i) He should be resident in India for at least 2 years out of 10 years immediately preceding the
relevant previous year.
(ii) He should be in India for at least 730 days during 7 years immediately preceding the relevant
previous year.
Important Points
(1) The place and purpose of stay is immaterial.
(2) It is not necessary that the stay should be continuous.
(3) In the absence of exact data, the day of arrival as well as day of departure shall be included
for determining the period of stay in India.
B. Resident but Not Ordinarily Resident [Section 6(6)]:
Rules as to Not Ordinarily Residence
For determination of residential but not ordinarily status of an individual assessee, Section 6(6) prescribes
following conditions. An individual will become a not ordinarily resident if he satisfies any one of the
following conditions:
(i) If such individual has been non-resident in India in any 9 out of the 10 previous years preceding
the relevant previous year, or
(ii) If such individual has during the 7 previous years preceding the relevant previous year been in
India for a period of 729 days or less, or
(iii) If such individual is an Indian Citizen or a person of Indian origin whose total income
other than income from foreign sources (other than income derived from a business
controlled in or profession set up in India) exceeds ` 15 lakhs during the previous year
2.4 Income Tax Law & Practice

and who has been in India for a period of 120 days or more but less than 182 days
during that previous year. [Inserted by the Finance Act, 2020, w.e.f. 1-4-2020] or
(iv) If such individual is an Indian citizen who is deemed to be resident in India under Section
6(1A). [Inserted by the Finance Act, 2020, w.e.f. 1-4-2020] Note: It may be noted that a
deemed resident will always be a resident but not ordinarily resident.
2. Deemed Resident [Section 6(1A)]
An individual, being an Indian citizen, having total income, other than the income from foreign sources
[i.e., income which accrues or arises outside India (except income from a business controlled from
or profession set up in India) and which is not deemed to accrue or arise in India], exceeding ` 15
lakh during the previous year would be deemed to be resident in India in that previous year, if he is not
liable to pay tax in any other country or territory by reason of his domicile or residence or any other
criteria of similar nature. [Inserted by the Finance Act, 2020, w.e.f. 1-4-2021].
Explanation 1A: However, this provision will not apply in case of an individual who is a resident of
India in the previous year as per Section 6(1).
3. Non-Resident [Section 2(30)]
Non-resident” means a person who is not a “resident” in India. The definition of a Non-resident
Indian is also significant for any person, who is either a citizen of India, or a person of Indian origin
and who is not resident in India.
Rules at a Glance
Resident (Ordinarily Resident) Resident but Not Ordinarily Non-Resident
[Section 6(1)] Resident [Section 6(6)]
He is in India for a period of 182 If such individual has been non- If he fails to satisfy any of the
days or more during the relevant resident in India in any 9 out of the basic condition given in Section
previous year. 10 previous years preceding the 6(1)(a) or 6(1)(b).
OR relevant previous year.
He is in India for a period of 60 OR
days or more during the relevant If such individual has during the 7
previous year and for 365 days or previous years preceding the
more during 4 years immediately relevant previous year been in India
preceding the relevant previous for a period of 729 days or less.
year. OR
AND If such individual is an Indian Citizen
He is resident in India for at least 2 or a person of Indian origin whose
years out of 10 years immediately total income other than income from
preceding the relevant year. foreign sources (other than income
derived from a business controlled in
AND or profession set up in India) exceeds
His stay in India is for 730 days or ` 15 lakhs during the previous year
more during 7 years immediately and who has been in India for a period
preceding the relevant year. of 120 days or more but less than 182
days during that previous year.
OR
If such individual is an Indian citizen
who is deemed to be resident in
India under Section 6(1A).
Residential Status 2.5

Illustration 1: Mr. R after staying in India for 20 years went to Russia on 28th December 2017. He came back to
India on 10th August 2020. Determine his residential status for the assessment year 2021-22.
Solution: Mr. R is a resident in India for the assessment year 2021-22 as he was in India for a period of 234 days
during the previous year 2020-21.
Moreover, he was resident in India for more than 2 years out of 10 years and has stayed in India for more
than 730 days during 7 years preceding the previous year 2020-21. Thus, he is an ordinarily resident in India for
assessment year 2021-22.
Illustration 2: Shri M, an Indian citizen went out to Japan first time on 15.8.2020. During the previous year 2020-
21 he did not came back. Determine the residential status of Shri M for the assessment year 2021-22.
Solution: During the previous year 2020-21 Shri M was in India 137 days (1.4.2020 to 15.8.2020 = April 30 + May
31 + June 30 + July 31 + Aug. 15). So, he does not satisfies the first condition. The second condition is not
applicable in this case. Therefore, he is non-resident in India.
Illustration 3: Mr. A left India for the first time on 28th Sept., 2020 and came back on 31st March 2021. Determine
his residential status in India for the assessment year 2021-22.
Solution: Mr. A was in India (during the previous year 2020-21) for a period of 182 days. He satisfies basic
condition of 182 days or more stay in India. Thus, he is a resident in India.
In the perspective of whether he is ordinarily or not ordinarily resident, he left India for the first time during
the previous year. So, he was resident in all 10 years immediately preceding the previous year and his stay was
for more than 730 days during 7 years immediately preceding the previous year. So, he satisfies both the
additional conditions. Thus, Mr. A is resident and ordinarily resident in India for the assessment year 2021-22.
Illustration 4: An Indian origin person Mr. X settled in Afghanistan. On 5th June, 2020 he came to India to attend
a family function. He left India on 10th September, 2020. Find out his residential status for the assessment year
2021-22.
Solution: Mr. X does not cover the basic condition of 182 days stay in India. So, he is non-resident in India for
the assessment year 2021-22.
Illustration 5: Mr. Fernando Alonso, a Canadian person, come to India every year and stays in India for 4
months (January-April) every year since Jan 2013. Determine his residential status for the assessment year
2021-22.
Solution: Mr. Fernando Alonso was in India for 120 days during the previous year 2020-21 and for 481 days
during 4 years immediately preceding the previous year. Thus, he is resident in India.
To see whether he is ordinarily or not ordinarily resident, look for additional conditions:
(a) Mr. Fernando Alonso satisfies both the additional conditions, i.e., at least two times resident in 10
years immediately preceding the previous year 2020-21.
2019-20 121 days
2018-19 120 days
2017-18 120 days
2016-17 120 days
2015-16 121 days
2014-15 120 days
2013-14 120 days
2012-13 120 days
(b) He lives more than 730 stays during seven years immediately preceding the previous year 2020-21.
Thus, he is resident and ordinarily resident in India for the assessment year 2021-22.
Illustration 6: Mr. Ram came to India from U.S.A. for the first time on 2.10.2019. He returned to his home country
after staying in India 28.09.2020. Will he be resident in India for the assessment year 2020-21 and 2021-22?
2.6 Income Tax Law & Practice

Solution: Mr. Ram’s total stay in India from 2.10.2019 to 28.09.2020 is 362 days at a stretch, but he is non-
resident. For this, we have to determine the stay in India for each previous year separately. He can enjoy the
benefit of being a non-resident even through his stay may be much more than 182 days provided it falls in two
different previous years.
A.Y. 2020-21: During the previous year 2019-20, he is in India from 02-10-2019 to 31-03-2020, i.e., for 181
days. He does not satisfy any condition of category A. So, he is a non-resident.
A.Y. 2021-22: During the previous year 2020-21, he is in India from 1.4.2020 to 28.9.2020, i.e., for
181 days. He does not satisfy the second condition also. So, he is a non-resident.
Illustration 7: X was born in Dist. of Lahore situated in Pakistan in 1946. He went to Germany in 1975, he came
to visit India on 2nd Sept., 2020 and returns on 28 Feb., 2021. Determine his residential status for the assessment
year 2021-22.
Solution: During the previous year X stays in India for 180 days (2.9.2020 to 28.02.2021 = Sept. 29 +
Oct. 31 + Nov. 30 + Dec. 31 + Jan. 31 + Feb. 28). Second condition is not applicable in his case. He was born in
undivided India and a person of Indian origin. He is non-resident in India.
Illustration 8: Mr. Clinton comes to India for first time during the previous years 2016-17, 2017-18,
2018-19 and 2019-20, he was in India for 146 days, 82 days, 193 days, and 151 days, respectively. Further during the
previous year 2020-21 he was in India for 94 days. Determine his residential status for the assessment year 2021-22.
Solution: Mr. Clinton stay in India during previous year 2020-21 = 94 days.
Stay in four preceding previous years –
146 days + 82 days + 193 days + 151 days = 572 days
Mr. Clinton satisfies the second basic condition. So, he is resident in India.
Now, whether he is ordinarily resident in India he should satisfy both the additional conditions:
Condition No. (1) – Resident in at-least 2 previous years out of 10 previous years immediately preceding
the previous year 2020-21.
Previous year 2019-20 stay in India 151 days
421 days stay in 4 years preceding the previous year. So, he is resident in India.
Condition No. (2) – He should be in India at-least 730 days in 07 preceding previous years immediately
preceding the previous year 2020-21.
His stay in India in past 07 years is 572 days. So, he does not satisfy the second additional condition.
Hence, he is resident but not-ordinarily resident in India.
Illustration 9: Mr. Agarwal is a citizen of India, left India on 20.10.2018 for employment abroad. Earlier to this
date, he was in India. During 2019-20 and 2020-21 he came to India for 168 days and 185 days, respectively.
Determine his residential status for the assessment year 2021-22.
Solution: As per Section 6(1) he is covered in the special category and he will be considered if he stays in India
for 182 days or more.
During the previous year 2020-21, Mr. Agarwal was in India for 185 days, hence, satisfy basic condition.
Mr. Agarwal also satisfy both additional conditions.
He lives as a resident in India for 2 years out of 10 years immediately preceding the previous year 2020-21
and he was also in India for 730 days or more during 7 years immediately preceding the previous year 2020-21,
hence he is ordinarily resident in India.

RESIDENTIAL STATUS OF HUF, FIRM AND AOP [SECTION 6(2) AND 6(6)(B)]
1. HUF
A Hindu undivided family may be (a) resident, (b) resident but not ordinarily resident, or (c) non-
resident. But a firm or any other association of persons will be a resident or non-resident. But a firm
or any other association of persons will be either a resident or non-resident.
Residential Status 2.7

A. Hindu Undivided Family (HUF) Resident and Ordinarily Resident [Section 6(2)]
There is one basic condition and one additional condition for determining residential status of
HUF.
Basic Condition [Section 6(2)] If control and management of its affair is wholly or
partially situated in India, the HUF is resident. If it is wholly outside India, the HUF will be
non-resident. The place of control and management means the place where the heads and
brain of HUF business (i.e., Karta) resides, and where decisions concerning HUF affairs
(relevant to tax purposes) are taken, such as, expansion or contraction of business, raising of
finance, appointment and removal of staff, etc.
The place of control and management means the place where the heads and brain of HUF
business (i.e., Karta) resides, and where decisions concerning HUF affairs (relevant to tax
purposes) are taken, such as, expansion or contraction of business, raising of finance, appointment
and removal of staff, etc. The Karta should have de facto authority to make decision not just on
paper.
If every decision concerning HUF affairs has been taken by Karta in India, the HUF will
be resident. If Karta is outside the India throughout the previous year, and has not taken a
single decision concerning HUF in India, then control and management will be wholly outside
India and the HUF will be non-resident. If Karta is in India during the previous year, it does
not means that control and management is also in India. What is necessary is that he should
make decision concerning HUF in India, even a single decision by him in India will be enough
that would mean control and management is partially in India. This means an HUF may have
two places of residence. (Re Sarupchand, 131 ITR 245).
It is for HUF to prove that control and management is wholly outside India. In Subhaya
Chettiar v. CIT (19 ITR 168 SC), the HUF has business in Sri Lanka and Karta lived there
with his family that was domiciled there. In the previous year, Karta stayed in Madras for three
months in connection with HUF properties located in Tamil Nadu. The HUF was treated resident
in India because the Karta could not prove that its control and management was wholly
outside India.
Additional Conditions [Section 6(6)(b)]: A HUF family whose manager or Karta is resident
in India in any previous year shall be ordinarily resident, if he satisfies both of the following
additional conditions:
(i) He should be resident in India for at least 2 years out of 10 years immediately preceding
the relevant previous year.
(ii) He should be in India for at least 730 days during 7 years immediately preceding the
relevant previous year.
B. Resident but Not Ordinarily Resident [Section6 (6)(b)]: Rules as to Not Ordinarily
Residence
For determination of residential but not ordinarily status of a HUF, Section 6(6)(b) prescribes
following conditions. An HUF will become a not ordinarily resident if he satisfies any one of
the following conditions.
(i) If Hindu undivided family whose manager has been non-resident in India in any 9 out of
the 10 previous years preceding the relevant previous year, or
(ii) If Hindu undivided family whose manager has during the 7 previous years preceding the
relevant previous year been in India for a period of 729 days or less, or
2.8 Income Tax Law & Practice

Resident (Ordinarily Resident)
[Section 6(1)]
If control and management of its
affair is wholly or partially situated
in India.
AND
Manager or Karta is resident in
India for at least 2 years out of 10
years immediately preceding the
relevant year.
AND
His stay in India is for 730 days or
more during 7 years immediately
preceding therelevant year.
Rules at a Glance
Resident but Not Ordinarily Non-Resident
Resident [Section 6(6)(b)]
If such individual has been non- If he fails to satisfy any of the
resident in India in any 9 out of the basic condition given in Section
10 previous years preceding the 6(2).
relevant previous year.
OR
If such individual has during the 7
previous years preceding the
relevant previous year been in India
for a period of 729 days or less.

Illustration 10: Determine the residential status of R & Sons, an HUF for the assessment year 2021-22, if its
business is being managed wholly from London during the previous year 2020-21.
Solution: During the previous year 2020-21, the whole business of R & Sons, an HUF being controlled from
London, i.e., outside of India. So, it will be treated as non-resident in India for the assessment year 2021-22.
Illustration 11: Mr. S.N. Mittal is a resident in India for the assessment year 2021-22. He is a Resident in India
in 4 years out of 10 years immediately preceding the previous year 2020-21 and his stay in India is for more than
730 days during 7 years immediately preceding the previous year 2020-21. S.N. Mittal is Karta of an HUF (Mittal
& Sons) with its head office at Germany. The affairs of the family are partially controlled from India and partially
from Germany. Determine the residential status of the HUF for the Assessment year 2021-22.
Solution: During the previous year 2020-21, the affairs of Mittal & Sons, the HUF are managed partially from
India. So, it will be resident in India. A resident HUF is ordinarily resident if its Karta satisfy both the additional
conditions as given below:
(a) Karta has been resident in India for at least 2 years out of 10 years immediately preceding the
relevant previous year, and
(b) He has been in India for a period of at least 730 days during 7 years immediately preceding the
relevant previous year.
Mr. S.N. Mittal, the Karta satisfies both the additional conditions. Thus, Mittals & Sons, the HUF is
resident and ordinarily resident in India for the assessment year 2021-22.
Illustration 12: During the previous year 2020-21, M & Sons, an HUF managed partially from India and partially
from Japan. Its Karta M is resident but not-ordinarily resident in India for the assessment year 2020-21.
Determine the residential status of HUF for the assessment year 2021-22.
Solution: During the previous year 2020-21 the affairs of M & Sons, the HUF are managed partially from India.
So, it will be resident in India. A resident HUF is ordinarily resident if its Karta satisfies both the additional
conditions as given below:
(i) Karta has been resident in India at least 2 years out of 10 years immediately preceding the relevant
previous year, and
(ii) He has been in India for a period of at least 730 days during 7 years immediately preceding the
relevant previous year.
So, it is given in the question that M, the Karta is a resident but not ordinarily resident in India for the
assessment year 2021-22. However, he does not satisfies both the additional conditions. So, M & Sons, the
HUF is resident but not ordinarily resident in India for the assessment year 2021-22.
Residential Status 2.9

2. Firm and Other Association of Persons [Section 6(2)]

A firm or AOP can either be “resident” or “non-resident”. It cannot be resident but “not ordinary
resident”.
(a) Resident if place of control and management is wholly or partially in India – A firm or
other association of person is resident in India in any year if control and management of its
affairs is wholly or partially situated in India in that year. It will be non-resident if the control
and management of affairs is situated wholly outside India during that year.
(b) Test of “control and management” – The test is where control and management of affairs
of the firm is situated, not where individual having authority to control and manage have put up
residence. Control and management does not necessarily mean that carrying on of a business
or any income-earning activity. Therefore, the place where business or other such activities
are carried on, may not be the place of control and management (Erin v. CIT, 34 ITR ISC).
Place of residence of partner is also immaterial. Mere proof of power or capacity to control
and manage is also not enough. There should be proof of de facto control and management to
hold that the firm is indeed a resident as regards its affairs outside India.
Rules at a Glance
Place of Control and Management Residential Status
Control and management wholly or partially in India Resident
Control and management wholly outside India Non-resident
Illustration 13: In a partnership firm, there are three partners namely A, B, & C. A & B reside in India while C
lives in London. The firm is wholly controlled by C. During the previous year Mr. C stayed for
6 months in India. Determine the residential status of firm for the assessment year 2021-22.
Solution: A partnership firm is said to be resident in India if control and management is partially situated in
India. It can be safely assumed that during stay of 6 months in India, Mr. C must had taken some decision
relating to firm. Hence, the firm is resident.

RESIDENTIAL STATUS OF COMPANY [SECTION 6(3)]

When a Company is Resident
A company is said to be resident in India in any previous year, if –
(a) It is an Indian company; or
(b) Its place of effective management, in that year, is in India.
Explanation – Place of effective management means a place where key management and commercial
decision that are necessary for the conduct of the business of and entity as a whole are, in
substance made.
Rules at a Glance
Place of Effective Management Residential Status
Indian company Resident
Foreign company, place of effective Resident
management wholly in India
Foreign company, place of effective Non-resident
management wholly outside India
2.10 Income Tax Law & Practice

Illustration 14: R Ltd. is an Indian company with 45% of its shareholders being foreign citizens. Its whole
business control is from Malaysia. Determine its residential status for the assessment year 2021-22.
Solution: An Indian company is always resident in India irrespective of the nationality or residential status of
its shareholders. R Ltd. is an Indian company. So, it will be resident in India for the assessment year 2021-22.
Illustration 15: A Russian company is incorporated with 60% of its shareholders being Indian. The Indian
shareholders are resident in India. Its whole control is from Russia. Determine its residential status for the
assessment year 2021-22.
Solution: Russian company’s whole control is from outside India. So, this Company is non-resident in India for
the assessment year 2021-22. The residential status and nationality doesn’t matter.
Illustration 16: X Ltd., an American company, which is non-resident in India earned the following incomes by
way of fee for technical services. Advice about the taxability of such income in the hands of X Ltd. in India:
(i) M Ltd., a non-resident company paid ` 60,00,000 for acquiring a know-how to be used in India for
carrying on certain manufacturing business.
(ii) N Ltd., an Indian company, paid ` 40,00,000 for the know-how to be used in India.
(iii) O Ltd., an Indian company paid ` 20,00,000 for know-how acquired in America to be used in Japan.
(iv) Government of India paid ` 15,00,000 under an agreement, to be used for a project in India.
Solution:
(i) Taxable.
(ii) Taxable.
(iii) Non-taxable.
(iv) Taxable.

RESIDENTIAL STATUS OF ANY OTHER PERSON [SECTION 6(4)]

When any other Person is Resident
Every other person(trust, club, local authority, etc.) is said to be resident in India in any previous year
in every case, except where during that year the control and management of his affairs is situated
wholly outside India.
Illustration 17: X Y Z Club is in India, whose director Mr. X belongs to England. The club is controlled fully
by Mr. X in the previous year, Mr. X did not come for a single day to India. Determine the residential status of
club for the assessment year 2021-22.
Solution: X Y Z club is non-resident. No part of the control and management was in India.

DETERMINATION OF TAX INCIDENCE

Tax Incidence of Resident/Not Ordinarily Resident/Non-resident
Section 5 specifies incomes that will be taxed in the hands of any person depending on his residential
status. Residential status is determined for assessment year, based on the circumstances of his
residence in the previous year to which the income relates. This is explained below:
(i) Tax incidence in case of resident [Section 5(1)]
A resident and ordinarily resident is liable in respect of the following income:
(a) All income received or is deemed to be received in India in relevant previous year by or on
behalf of such person; or
(b) All income accrues or arises or is deemed to accrue or arise to him in India during the relevant
previous year; or
Residential Status 2.11

(c) All income accrues or arises to him outside India during the relevant previous year:
(ii) Tax incidence in case of resident but not ordinarily resident [Section 5(1)] (only
applicable to Individual and HUF only)
(a) All income which is received or is deemed to be received in India in relevant previous year by
or on behalf of such person; or
(b) All income accrues or arises or is deemed to accrue or arise to him in India during the relevant
previous year; or
(c) All income which accrues or arises to him outside India during the relevant previous year if it
is derived from a business controlled in or a profession set up in India.
(iii) Tax incidence in case of non-resident [Section 5(2)]
(a) All income which is received or is deemed to be received in India in relevant previous year by
or on behalf such person; or
(b) All income which accrues or arises or is deemed to accrue or arise to him in India during
relevant previous year.
Classification of Income
Indian Income or Foreign Income
S. Income Accrual or Arising or Income Received or Deemed Types of Income
No. Deemed to be Accrual or Arising to be Received
1. India India Indian Income
2. India Outside India Indian Income
3. Outside India India Indian Income
4. Outside India Outside India Foreign Income

Rules at a Glance regarding Tax incidence of

Resident/Not Ordinarily Resident/Non-Resident
Sl. Particulars of Income Ordinarily Resident but not- Non-Resident
No. Resident Ordinarily Resident
1. Income received in India in previous year, Taxable Taxable Taxable
whether it accrues in India or abroad
2. Income deemed to be received in India in previous Taxable Taxable Taxable
year, whether it accrues in India or abroad
3. Income that accrues or arises in India in previous Taxable Taxable Taxable
year, whether it is received in India or abroad
4. Income that is deemed to accrue or arises in Taxable Taxable Taxable
India in previous year, whether it is received in
India or abroad
5. Income that accrues or arises or received outside Taxable Taxable Tax free
India in previous year, from a business controlled
or from a profession set up in India
6. Income that accrues or arises or received outside Taxable Tax free Tax free
India in previous year, from a business controlled,
or from a profession set up outside India
7. Income accruing or arising outside India in any past Tax free Tax free Tax free
previous year brought to India in previous year
2.12 Income Tax Law & Practice

Illustration 18: Mr. X earns the following income during financial year 2020-21:
Particulars Amount (`)
(a) Profit earned from a business in Japan which is controlled
in India, half of the profit being received in India 100,000
(b) Interest from an Indian company received in Canada 60,000
(c) Income from agriculture in Dubai and remitted to India 75,000
(d) Pension from former employer in India received in U.K. 1,00,000
(e) Income from property in Canada received there 2,00,000
(f) Previous income brought to India from U.K. 20,000

Compute his income for the assessment year 2021-22, if he is –

(i) Resident and ordinarily resident in India
(ii) Not ordinarily resident in India
(iii) Non-resident in India
Solution:
Computation of Total Income of Mr. X for the Assessment Year 2021-22
S. Particulars O.R. N.O.R. N.R.
No. Amount (`) Amount (`) Amount (`)
1. Income deemed to arise/accrue in India
(a) Interest from an Indian Company 60,000 60,000 60,000
(b) Pension from former employer in India 1,00,000 1,00,000 1,00,000
2. Income received in India
50% of profit of business in Japan 50,000 50,000 50,000
3. Income earned and received outside
India, from a business controlled from India
50% of profit in India 50,000 50,000 –
4. Income earned and received outside
India other than (3)
(a) Income from property in Canada 2,00,000 – –
(b) Income from agriculture in Dubai 75,000 – –
Total Income 5,35,000 2,60,000 2,10,000
Note: Previous foreign income is not to be included because it is not the income of the previous year
2020-21.
Illustration 19: Mr. V.K. went out of India for the first time on 25th January, 2017. He came back on 31st March,
2020. On 17 August, 2020. He went to New Zealand and came back on 5th February, 2021. Determine his total
income for the assessment year 2021-22 from the following particulars:
Income Amount (`)
(i) Profit from a business in Dubai, controlled from India 1,00,000
(ii) Income from house property in Dubai, deposited there in a Bank 3,00,000
(iii) Previous untaxed profit brought to India 50,000
(iv) Salary received in Japan for services rendered in that country 4,00,000
(v) Dividends from a foreign company 1,50,000
(vi) Share of profit from Indian partnership firm 70,000
(vii) Income from agricultural land situated in India 90,000
Solution: First, we have to determine the residential status of Mr. V.K. for the assessment year
2021-22. He was in India 194 days during the previous year 2020-21 (April 30 + May 31 + June 30 + July 31 + Aug.
Residential Status 2.13

17 + Feb. 24 + March 31). So, he is resident in India. He was resident in India in more than
2 years out of 10 years and stay is in India for more than 730 days during 7 years. So he is a resident and
ordinarily resident in India for the assessment year 2021-22.
Computation of Total Income of Mr. V.K. for the Assessment Year 2021-22
Particulars Amount (`)
(i) Profit from a business in Dubai 1,00,000
(ii) Income from house property in Dubai 3,00,000
(iii) Previous untaxed profit brought to India Not-taxable
(iv) Salary received in Japan for service 4,00,000
(v) Dividend from a foreign company 1,50,000
(vi) Share of profit from Indian partnership firm Exempt
(vii) Income from agricultural land situated in India Exempt
Total Income 9,50,000
Illustration 20: The following particulars is the income of Mr. P for the previous year 2020-21:
Particulars Amount (`)
(i) Gifts received from his parents 50,000
(ii) Income from agricultural land in France 3,00,000
(iii) Profit from business in USA received in India 5,00,000
(iv) Profits for the year 2017-18 of a business
in London remitted to India during the previous year (Not taxed earlier) 85,000
(v) Income from house property in Pakistan received in India 1,50,000
(vi) Profit of business in Australia, controlled in India
(60% profits/remitted in India) 1,00,000
(vii) Income from profession in India but received in Dubai 2,00,000
From the above particulars ascertain the taxable income of Mr. P considering (i) Resident
(ii) Not-ordinarily resident, and (iii) Non-resident.
Solution:
Taxable Income of Mr. P for the Previous Year 2020-21

Particulars Resident Not ordinarily Non-resident

Resident (`) (`)
(a) Income received in India wherever accrues
(i) Profit from business in USA received in India 5,00,000 5,00,000 5,00,000
(ii) Income from house property in Pakistan
received in India 1,50,000 1,50,000 1,50,000
(b) Income accrued in India wherever received
(i) Income from profession in India but received
in Dubai 2,00,000 2,00,000 2,00,000
(c) Income accrued and received outside India
(i) Income from agricultural land in France 3,00,000 – –
(ii) Profit of business in Australia, controlled
from India 1,00,000 1,00,000 –
Total Income 12,50,000 9,50,000 8,50,000
Note: (i) Gifts received from his parents are capital receipts and are not regarded as income.
(ii) Profits for the year 2017-18 are not the income of previous year. So, it will not be included in the
income for Assessment Year 2021-22.
2.14 Income Tax Law & Practice

Illustration 21: From the following particulars, compute the total income of Mr. S.K. for the assessment year
2021-22 if he is:
(i) Resident and ordinarily resident
(ii) Resident but not-ordinarily resident
(iii) Non-resident in India
Particulars Amount (`)
(i) Technical fees received in Singapore
for technical services provided for a project 80,000
(ii) Income from house property in Japan
(40% received in India) 1,00,000
(iii) Profit from sale of land in India 2,00,000
(iv) Pension received in Spain for services rendered in India 75,000
(v) Salary received in India for services rendered in Hong Kong 3,00,000
(vi) Dividends received from a foreign Co. 1,00,000
(vii) Income from business in U.K. controlled from India 3,00,000
Solution:
Computation of Total income of Mr. S.K. for the Assessment Year 2021-22
Particulars Resident Resident but Non-
and Ordinarily Not Ordinarily resident
Resdent (`) Resident (`) (`)
1. Income deemed to be received accrue/arise in India
(a) Income from house property in Japan
(40% Indian) 40,000 40,000 40,000
(b) Profit on Sale of land in India 2,00,000 2,00,000 2,00,000
(c) Pension received in Spain
for services rendered in India 75,000 75,000 75,000
(d) Salary received in India 3,00,000 3,00,000 3,00,000
2. Income earned and received outside India from
a business controlled from India
(a) Income from business in U.K.
controlled from India 3,00,000 3,00,000 –
3. Income earned and received outside India other than (02)
(a) Income from house property in Japan
(60% Foreign) 60,000 – –
(b) Technical fees received in Singapore for
technical services 80,000 – –
(c) Dividends received from a foreign Co. 1,00,000 – –
Total Income 11,55,000 9,15,000 6,15,000

CHARGE ON ‘DEEMED RECEIPT’ BASIS (Section 7)

The following incomes shall be deemed to be received in the previous year :
Annual increase in previous year (by way of employer’s contribution or interest or interest on
provident fund investment) to the credit balance of provident fund account of any employees
participating in a recognized provident fund. However, the amount of increase will be taxable in his
hands only if it exceeds the limit specified in rule 6 of Part A of the Fourth Schedule.
Residential Status 2.15

These limits are as follows:

(a) Contribution made by employer to the recognized provident fund of an employee in excess of
12% of the salary of employees.
(b) Interest credited to recognized provident fund of an employee in excess of 9.5% p.a.
(c) Taxable balance from unrecognized fund to recognized provident fund.
(d) Contribution made by the Central Government or any other employer in the previous year, to the
account of an employee under a pension scheme referred to in Section 80CCD.

CHARGE ON ‘DEEMED ACCRUAL’ BASIS (SECTION 9)

Charge on “deemed accrual” is the income that actually accrues outside India but which is deemed
to accrue in India. The categories of income which are deemed to accrue or arise in India are:
1. Income from connection in India [Sec. 9(1)(i)]-All income accruing or arising, whether
directly or indirectly:
I. Income accrual or arising, through or from any business connection in India.
II. Income accruing or arising, through or from any property in India.
III. Income accruing or arising, through or from any asset or source of income in India.
IV. Income accruing or arising through the transfer of a capital asset situated in India.
I. Income from business connection in India
Any income which arises, directly or indirectly, from any activity or a business connection
in India, is deemed to be earned in India.
Business connection may be in several forms – e.g., a branch office in India or an agent
or an organization of a non-resident in India.
Meaning of Business Connection [Explanation 2 to Section 9(1)(i)]: Business
connection shall include any business activity carried out through a person who, acting
on be-half of the non-resident:
(a) has and habitually exercises in India, an authority to conclude contracts on behalf of
the non-resident or habitually concludes contracts or habitually plays the principal
role leading to conclusion of contracts by that non-resident and the contracts are:
• in the name of the non-resident; or
• for the transfer of the ownership of, or for the granting of the right to use,
property owned by that non-resident or that non-resident has the right to use; or
• for the provision of services by the non-resident; or
(b) has no such authority, but he maintains in India habitually a stock of goods or
merchandise from which he regularly delivers goods or merchandise on behalf of
the non-resident; or
(c) habitually secures orders in India mainly for the non-resident.
However, business connection shall not include any business activity carried out
through a broker, general commission agent or any other agent having an independent
status and acting in the ordinary course of his business. However, where broker,
general commission agent or any other agent, who mainly or wholly works on behalf
of a non-resident or other non-resident(s) under the same management, he shall not
be deemed to be a broker, general commission agent or an agent of an independent
status.
2.16 Income Tax Law & Practice

[Explanation 3 to Section 9(1)(i)]: Where a business is carried on in India

through a person referred to in Explanation 2, clause (a) or clause (b) or clause (c),
only so much of income as is attributable to the operations carried out in India shall
be deemed to accrue or arise in India.
Exceptions: In the case of a non-resident, the following shall not, however, be
treated as business connection in India [Explanation 1 to Section 9(1)(i)]:
(i) In the case of a business, in respect of which all the operations are not
carried out in India [Explanation 1(a) to Section 9(1)(i)]: In the case of a
business, other than the business having business connection in India on account
of significant economic presence, of which all the operations are not carried out
in India, the income of the business deemed under this clause to accrue or arise
in India shall be only such part of the income as is reasonably attributable to the
operations carried out in India. Therefore, it follows that such part of income
which cannot be reasonably attributed to the operations in India, is not deemed
to accrue or arise in India.
Meaning of significant economic presence Explanation 2A [Inserted
by the Finance Act, 2020, w.e.f. 1-4-2022] .The significant economic presence
of a non-resident in India shall constitute “business connection” in India and
“significant economic presence” shall mean:
(a) transaction in respect of any goods, services or property carried out by a
non-resident in India including provision of download of data or software
in India, if the aggregate of payments arising from such transaction or
transactions during the previous year exceeds such amount as may be
prescribed; or
(b) systematic and continuous soliciting of business activities or engaging in
interaction with such number of users as may be prescribed in India.
However, the transactions or activities shall constitute significant
economic presence in India, whether or not:
• The agreement for such transactions or activities is entered in India; or
• The non-resident has a residence or place of business in India; or
• The non-resident renders services in India.
Only so much of income as is attributable to the transactions or
activities referred above shall be deemed to accrue or arise in India.
Income attributable to the operations carried out in India, includes
[Explanation 3A to Section 9(1)(i)] [Inserted by the Act No. 12 of
2020, w.e.f. 1-4-2021]: Income attributable to the operations carried out
in India, as referred to in Explanation 1, shall include income from –
• Such advertisement which targets a customer who resides in India or
a customer who accesses the advertisement through internet protocol
address located in India.
• Sale of data collected from a person who resides in India or from a
person who uses internet protocol address located in India; and
• Sale of goods or services using data collected from a person who resides in
India or from a person who uses internet protocol address located in
India.
Residential Status 2.17

However, that the provisions contained in this Explanation shall

also apply to the income attributable to the transactions or activities referred
to in Explanation 2A. [Inserted by the Act No. 12 of 2020, w.e.f. 1-4-2022]
(ii) Purchase of goods in India for export [Explanation 1(b) to Section 9(1)(i)]:
In the case of a non-resident, no income shall be deemed to accrue or arise in
India to him through or from operations which are confined to the purchase of
goods in India for the purpose of export.
(iii) Collection of news and views in India for transmission out of India
[Explanation 1(c) to Section 9(1)(i)]: In the case of a non-resident, being a
person engaged in the business of running a news agency or of publishing
newspapers, magazines or journals, no income shall be deemed to accrue or
arise in India to him through or from activities which are confined to the collection
of news and views in India for transmission out of India.
(iv) Shooting of cinematograph films in India [Explanation 1(d) to Section
9(1)(i)]: In the case of a non-resident, no income shall be deemed to accrue or
arise in India through or from operations which are confined to the shooting of
any cinematograph film in India, if such non-resident is :
• an individual, who is not a citizen of India or
• a firm which does not have any partner who is a citizen of India or who is
resident in India; or
• a company which does not have any shareholder who is a citizen of India
or who is resident in India.
(v) Business of mining of diamonds in special zone notified [Explanation
1(e) to Section 9(1)(i)]: In the case of a foreign company engaged in the
business of mining of diamonds, no income shall be deemed to accrue or arise in
India to it through or from the activities which are confined to the display of
uncut and unassorted diamond in any special zone notified by the Central
Government in the Official Gazette in this behalf.
II. Income through or from any property in India – Any income which arises from any
property whether tangible or intangible property and whether movable or immovable
property which is situated in India, is deemed to accrue or arises in India. Accordingly,
income from letting of house property, furniture or machinery situated in India but payable
outside India, will be income deemed to accrue in India.
Example: Mrs. Carlil who lives in U.S.A., has a house property in India which is
given by her on rent. Rent derived by Mrs. Carlil shall be taxable in India because
property is situated in India.
III. Income through or from any asset or source of income in India: Any income which
arises from any assets or source of income would be deemed to accrue or arise in India.
Example: Hire charges or rent paid outside India for the use of the machinery or
buildings situated in India or deposits with an Indian company for which interest is received
outside India etc.
IV. Income through transfer of any capital asset situated in India [Explanation 1(c)
to Section 9(1)(i)] – Capital gains arising from transfer of any capital asset in India will
be deemed to accrue in India, irrespective of the place where the transfer agreement
has been entered into, or where the price is payable.
2.18 Income Tax Law & Practice

Example: Mr. X who is resident of America earns ` 1,00,000 as capital gain from
capital asset situated in India. Capital gain derived by Mr. X shall be taxable in India.
[Explanation 4 to Section 9(1)(i)]: Accordingly, the expression “through” shall
mean and include and shall be deemed to have always meant and include “by means of”,
“in consequence of” or “by reason of”.
[Explanation 5 to Section 9(1)(i)]: An asset or a capital asset being any share or
interest in a company or entity registered or incorporated outside India shall be deemed
to be and shall always be deemed to have been situated in India, if the share or interest
derives, directly or indirectly, its value substantially from the assets located in India.
2. Income from salaries earned in India [Section 9(1)(ii)] – Income chargeable under
“Salaries” will be deemed to accrue in India if it is earned in India. Salary is earned in India if
it relates to present or past service rendered in India. The place of receipt of salary will not be
relevant for this purpose.
Further, any income under the head “Salaries” payable for rest period or leave period
which is preceded and succeeded by services rendered in India, and forms part of the service
contract of employment, shall be regarded as income earned in India.
3. Salary paid by Government to Indian citizen working outside India [Section 9(1)
(iii)] – Salary payable by Government to an Indian citizen working abroad, is deemed to accrue
in India, even if it is payable outside India. Thus, Indian citizens who are Government servants
and working abroad (even if non-resident for tax purposes) are liable to tax in India in respect of
salaries payable to them. However, allowances and perquisites paid or allowed to them while in
service outside India will be exempt under Section 10(7). Salary paid by Government to any non-
Indian citizen working outside India, will not be deemed to accrue in India.
4. Dividend paid outside India [Section 9(1)(iv)] – Income by way of dividend paid by an
Indian company is always deemed to accrue or arise in India even if paid outside India.
5. Income by way of Interest [Section 9(1)(v)] – Interest received in the following cases is
always deemed to accrue in India:
(i) Interest received from the Government of India; or
(ii) Interest received by a person who is a resident in India, except where the interest is
payable in respect of any debt incurred, or money borrowed and used, for the purposes
of a business or profession carried on by such person outside India or for the purposes of
making or earning any income from any source outside India; or
(iii) Interest by a person who is a non-resident in India, where the interest is payable in
respect of a debt incurred, or money borrowed and used, for the purposes of a business
or profession carried on by such person in India.
6. Income by way of Royalty[Section 9(1)(vi)] – Royalty received in the following cases is
always deemed to accrue in India:
(i) Royalty received from the Government of India; or
(ii) Royalty received by a person who is a resident, except where the royalty is payable in
respect of any right, property or information used or services utilized for the purposes of
a business or profession carried on by such person outside India or for the purposes of
making or earning any income from any source outside India; or
(iii) Royalty received by a person who is a non-resident, where the royalty is payable in
respect of any right, property or information used or services utilized for the purposes of
a business or profession carried on by such person in India or for the purposes of making
or earning any income from any source in India.
Residential Status 2.19

7. Income by way of Technical Service [Section 9(1)(vii)] – Technical fees received in the
following cases is always deemed to accrue in India –
(i) Technical fees received from the Government of India, or
(ii) Technical fees received by a person who is a resident, except where the fees are payable
in respect of services utilised in a business or profession carried on by such person
outside India or for the purposes of making or earning any income from any source
outside India, or
(iii) Technical fees received by a person who is a non-resident, where the fees are payable
in respect of services utilised in a business or profession carried on by such person in
India or for the purposes of making or earning any income from any source in India.
8. Payment to Non-resident or to a Foreign Company on or after the 5th day of July,
2019 [Inserted by the Act. No. 23 of 2019, w.e.f. 1-4-2020]: Payment to income arising
outside India, being any sum of money referred to in sub-clause (xviia) of clause (24) of
Section 2, paid on or after the 5th day of July, 2019 by a person resident in India to a non-
resident, not being a company, or to a foreign company.
Explanation: Income of a non-resident shall be deemed to accrue or arise in India under
clause (v) or clause (vi) or clause (vii) of sub-Section (1) and shall be included in the total
income of the non-resident, whether or not –
 (i) the non-resident has a residence or place of business or business connection in India; or
(ii) the non-resident has rendered services in India.
Illustration 22: Z, an agriculture scientist is working in Indian embassy in U.S.A. He is entitled to salary
@ ` 30,000 p.m., foreign allowance @ ` 40,000 p.m. besides a free furnished accommodation (fair rental value
` 2,50,000). State whether part of the remuneration will be taxable in India if Z is a non-resident for tax purpose
and is (a) an Indian citizen, or (b) a foreign national.
Solution:
(a) If Z is an Indian citizen, salary paid to him outside India will be deemed to accrue in India and hence,
taxable. However, any allowance (such as dearness allowance, foreign allowance) or perquisites such as
free accommodation will be exempt under Section 10(7).
(b) If Z is not an Indian citizen, any remuneration paid to him by Government will not be deemed to accrue in
India, as it is not earned in India, and hence not taxable.
Illustration 23: Discuss the assessability of the following items of receipts in the case of resident but not
ordinarily resident:
(i) Remuneration of ` 60,000 due to him for services rendered in Italy was credited to his Bank account in
Singapore and immediately thereafter remitted to India.
(ii) Remuneration of ` 40,000 due to him from an Indian company carrying on business in U.S.A. for services
rendered in U.S.A. and the same having been directly deposited by the Indian company in his bank
account in India.
(iii) A sum equivalent to ` 80,000 was earned form a business in Iran but the profits have been remitted to
India. The assesee used to attend the business only when he was in Iran.
Solution:
(i) As the remuneration was received in Italy for services rendered in Italy and was subsequently remitted
to India, it is a case of income that accrued and was received outside India hence it is not assessable in
India.
(ii) As this remuneration was for the first time received in India, as it was directly deposited in his bank
account in India, it will be assessable on receipt basis.
(iii) In the case of a not ordinarily resident, foreign income is taxable in India if it is derived from a business
controlled from or any profession set up in India. In this case the income of ` 80,000 is not derived from
2.20 Income Tax Law & Practice

a business controlled from India merely because he attends to the business while in Iran, and hence, this
income is not assessable. He has also not received the income in India, as the profits were first received
in Iran, and then remitted to India. Receipt is only when it is received for the first time and not the
subsequent remittance of it. Hence, is not assessable even on receipt basis.

THEORETICAL QUESTIONS
Long Answer Type Questions
1. Discuss the rule relating to determination of residential
status of an assessee.
2. State the condition which an individual assessee must
fulfill in order to be treated as:
(a) Resident
(b) Resident but not ordinary resident
(c) Non-resident
3. How will you determine the residential status of a
HUF? What is the scope of total income in this case?
[B.Com. (Hons.) Delhi, 2016]
4. How do you determine the residential status of firm?
5. How do you determine the residential status of a
company? Can a company be not ordinary resident in
India? [B.Com. Lucknow, 2018]
6. Mr. X is an Indian Citizen, left India on 22.9.2019 for
the first time to work as an officer for a company in
Germany. Determine the residential status of Mr. R
for the assessment year 2020-21.
[B.Com. (Hons.) Delhi, 2016]
7. Describe the scope of total income in the case of
resident, not ordinarily resident and non-resident.
8. Distinguish between incidence of tax in case of resident
and non-resident.
9. State the types of Income deemed to accrue in India.
Short Answer Type Questions
1. Which incomes, are taxable in case of resident
individual?
2. When a foreign company is treated as resident in India?
3. Who is non-resident individual?
4. Who can be resident but not ordinarily resident under
the Income tax, Act?

OBJECTIVE TYPE QUESTIONS

I. Multiple Choice Questions (MCQs) (c) Both (a) & (b)
(d) Non-resident
Choose the correct answer from the given
alternatives – 5. Income received in India or deemed to be received in
India is taxable in the hands of –
1. Every year the residential status of an employee;
(a) Resident only
(a) Will not change
(b) Not ordinarily residents
(b) May change
(c) Non-resident assessee
(c) Will certainly change
(d) All assessee
(d) None of these
6. On the basis of residence, the assessee are divided into
2. Income which accrue or arise outside India but are
how many categories?
received directly into India are taxable in case of –
(a) Three (b) Four
(a) Non-resident (b) Resident only
(c) One (d) Two
(c) Both ordinarily resident and not ordinarily
resident 7. An Indian who is citizen of India and who comes to India
(d) All the assessee during the previous year must stay for how many days in
India during the previous year to acquire residential status
3. An individual who is resident in any previous year, in
in India?
the next previous year, he shall be –
(a) 182 days (b) 365 days
(a) Resident
(c) 60 days (d) 90 days
(b) Not ordinarily resident
(c) Non-resident Answers
(d) Any one of three
1. (b) 2. (d) 3. (d)
4. Income which accrue outside India from a business
4. (c) 5. (d) 6. (a)
controlled from India is taxable in case of –
7. (a)
(a) Resident only
(b) Not ordinarily resident only
Residential Status 2.21

II. Fill in the blanks with appropriate
Word(s) or Figure(s)
1. Section ______ is related to residential status.
2. A person may earn income from India as well as
_____________.
3. Tax liability to a person is based on ________.
4. The income earned from various sources, for each
source, the residential status shall ____.
5. A firm as association of person is ___________ in
India if control and management of its affairs is wholly
or partially situated in India during the relevant previous
year.
6. Income which accrues or arises outside India from a
business controlled from _____________ is taxable in
case of not ordinarily resident.
7. ‘X’ a foreign national visited India during previous
year 2020-21 for 180 days, earlier to this he never
visited India. ‘X’ in this case shall be _____________.
III. State whether the following statements
are ‘True’ or ‘False’
1. A individual may get income in India as well as outside
India.
2. A non-resident is one who gets income in foreign.
3. Salary payable by the Government to an Indian citizen
who is non-resident in India for services rendered outside
India is taxable in India.
4. Foreign individual assessee may be ordinary resident, not-
ordinarily resident and non-resident.
5. Agricultural income in Nepal is fully taxable in case of
non-resident.
6. Once a person is a resident in a previous year, he shall
be deemed to be resident for subsequent previous year
also.
7. There is no relation of residential status of an individual
to his citizenship.
8. Income from business in England controlled from India
is taxable for Resident and not Ordinarily Resident.

Answers Answers
1. 6 2. Outside the India (1) True (2) False (3) True
3. Residential status 4. Not change (4) True (5) False (6) False
5. Resident 6. India (7) True (8) True
7. Non-resident

PRACTICAL QUESTIONS
Q. 1. Mr. B comes to India for 100 days every year. Determine his residential status for the assessment year 2021-22.
Ans. Resident but not ordinarily resident.
Q. 2. Mr. K an Indian citizen, leaves India on 22.09.2020 for the first time, to work as an officer of a company in Japan.
Find out his residential status for the assessment year 2021-22.
Ans. Non-resident.
Q. 3. Mr. X a Government Employee, went to Germany in 2008. Every year, he visits India for a period of 70 days.
Determine his residential status for assessment year 2021-22.
Ans. Non-resident.
Q. 4. Mr. P was born in U.S.A., his father was born in Burma and his grandfather was born in Lahore (situated in
Pakistan) before partition of India. Mr. P visits India for 175 days during the previous year 2020-21. Will he be a
resident in India?
Ans. Non-resident.
Q. 5. The head office of XY and Sons a HUF family, is situated in Canada; The family is managed by A (since 1987) who
is resident in India in 3 out of 10 immediately preceding previous year 2020-21 and who is present in India for more
than 730 days in 7 years.
Find out the residential status of the family for the assessment year 2021-22, if affairs of the business are:
(a) Wholly controlled from Canada.
(b) Partly controlled from India.
Ans. (a) Non-resident in India.
(b) Ordinarily resident in India.
Q. 6. Indian citizen and businessman Shri R.J. who resides in Delhi, went to Canada for purposes of employment on
25.08.2020 and came back to India on 10.11.2021. He has never been out of India in the past.
(a) Determine residential status of Shri R.J. for the assessment year 2021-22.
2.22 Income Tax Law & Practice

(b) Will your answer be different if he had gone on a leisure trip?

Ans. (a) Non-resident.
(b) Ordinarily resident in India.
Q. 7. Mr. R left India for the first time on 22 September 2020 for taking up a job in Sri Lanka. He did not come back till
31st March 2021. Determine his residential status for the assessment year 2021-22. Will it make any difference if
he had gone for a leisure trip?
Ans. Non-resident, in case of leisure trip Mr. R. would be ordinarily resident in India.
Q. 8. Y, an individual is resident but not ordinarily resident in India for the assessment year 2020-21 (previous year
2019-20). During the previous 2020-21, the affairs of Y (HUF), a Hindu undivided family, are partly managed from
U.K. and partly from Jaipur. Determine the residential status of Y (HUF) for the assessment year 2021-22, assume
Karta does not satisfied both additional conditions.
Ans. Resident but not ordinarily resident in India
Q. 9. Mr. X left India for the first time on 4th July, 2020 and came back an 2nd Jan., 2021. Determine his residential status
for the assessment year 2021-22.
Ans. Ordinarily resident in India.
Q. 10. MN Ltd. is an Indian company. It has 15 shareholders who are foreign citizens and non-resident in India. The
business of the company is fully controlled from outside India. Find out the residential status of MN Ltd. for the
assessment year 2021-22.
Ans. Resident in India.
Q. 11. X Ltd. is a company incorporated in London (turnover more than ` 80 crore). It has 12 shareholders who are Indian
citizens and resident in India. The company has active business outside India and is controlled wholly from outside
India by a team of professionals. What is the residential status of X Ltd. for assessment year 2021-22.
Ans. Non-resident (Residential status of shareholder is irrelevant).
Q. 12. X Ltd. is incorporated in Kenya. It has 25 shareholders (15 are Indian citizens and resident in India). The company
has no active business in Kenya. Gross annual turnover of the company for the previous year 2020-21 is `\ 46
crore mainly from operations conducted from Korea and India. The company is managed by a team of professionals
from India. Find out the residential status of X Ltd. for the assessment year 2021-22.
Ans. Non-resident.
Q. 13. Mr. H is an Indian citizen and a member of the crew of a Singapore based Indian ship engaged in international traffic
departing from Chennai port on 7th June 2020, and came bank to India on 10th December 2020. Determine the
residential status of Mr. H for the assessment year 2021-22.
Ans. Non-resident.
Q. 14. During the previous year 2020-21, A and Sons, a HUF was partly controlled from India by its Karta. A who is
citizen of India but stays outside India. For the purpose of managing the affairs of the HUF, A has been regularly
visiting India. Determine the residential status of the HUF for the assessment year 2021-22, if:
(i) A has been visiting India for 96 days every year for the last 12 years.
(ii) A has been visiting India for 115 days every year for the last 12 years.
(iii) A has been visiting India for the last 12 years. During the immediately preceding 4 previous years he was
in India for 60 days every year and prior to that for 250 days every year.
Ans. (i) HUF is resident but not ordinarily resident in India.
(ii) HUF is resident but not ordinarily resident in India.
(iii) HUF is resident and ordinarily resident in India.
Q. 15. Mrs. R furnishes the following details of her income for the previous year 2020-21:
(i) Income from profession in Myanmar received there. The profession was set up in India
` 22,000.
(ii) Income from agriculture in Bangladesh received and spent there only ` 26,000.
(iii) Income accrued in London but received in India ` 29,000.
(iv) Gift in foreign currency from a relative received in India ` 50,000.
(v) Income accrued in India but received in China ` 24,000.
(vi) Interest in USA Govt. Securities 1/3 of which received in India, ` 30,000.
(vii) Income earned outside India in preceding year but remitted in India during previous year ` 38,000.
(viii) Salary received in India for services rendered in Indonesia ` 38,000.
Residential Status 2.23

Compute the total income of R for the Assessment Year 2021-22 if she is: (a) Ordinarily Resident, (b) Not
ordinarily resident and (c) Non-resident.
Ans. (a) ` 1,69,000
(b) ` 1,23,000
(c) ` 1,01,000
Q. 16. Mr. K furnished the following particulars of his income for the previous year 2020-21:
(i) Income from agriculture in Sri Lanka (received there but later on ` 80,000 remitted to India) ` 2,80,000.
(ii) Dividend paid by an Indian company received in U.S.A. ` 86,000.
(iii) Interest on U.K. development bonds ` 80, 000. (2/5th is received in India).
(iv) Past untaxed profit ` 2,05,000 brought to India during 2020-21.
(v) Pension from Indian company received in Dubai ` 56,000.
(vi) Gift in cash from a relative received in India ` 90,000.
(vii) Profit on sale of building in Mangaluru but received in Dubai ` 2,48,000.
(viii) Profit from business in Patna but controlled from China ` 92,000.
(ix) Income from business in Canada which is controlled from Delhi (` 28,000 received in Delhi) ` 98,000.
Find out Mr. K’s Gross Total Income for the Assessment Year 2021-22 if he is, (a) Resident and ordinarily
resident, (b) Resident but not ordinarily resident, and (c) Non-resident.
Ans. (a) ` 10,30,000
(b) ` 7,02,000
(c) ` 6,32,000
Q. 17. Following are the taxable Income of Mr. X for the assessment year 2021-22:
(i) Income from transfer of a long-term capital asset situated in India ` 70,000.
(ii) Interest on debentures of a company at England which was received in India ` 28,000.
(iii) Interest received from John a non-resident, on the loan provided to him for a business carried on in India
` 25,000.
(iv) Royalty received in Iran from K a resident in India for technical services provided for a business carried in
Iran ` 70,000.
(v) Fees from an Indian Co., carrying on a business at USA from technical services rendered at USA having
been directly deposited by the company in his Bank A/c in India ` 80,000.
(vi) Profit from business in UK. This business is controlled from Mumbai (60% of the profit deposited in a
Bank there and 40% is remitted to India) ` 60,000.
Compute Mr. X, Total Income for the assessment year 2021-22 if he is: (a) Ordinarily Resident and
(b) Non-Resident.
Ans. (a) ` 3,33,000
(b) ` 2,03,000
Q. 18. Following are the particulars of taxable income of Mr. X for the previous year ending on 31st March, 2020:
(i) Income from house property in London ` 60,000 which was deposited in a bank in London. Out of this
` 44,000 were remitted to India.
(ii) Royalty received in India ` 54,000.
(iii) Income from business in Germany ` 45,000 of which ` 25,000 were received in India. The business is
controlled form India.
(iv) Income from investment in Canada ` 30,000.
(v) Interest received from a non-resident ` 15,000 against a loan given to him to run a business in India.
(vi) Royalty received from A, a resident, for technical services given to run a business outside India ` 50,000.
(vii) Income from business in India ` 60,000. This business is controlled from U.K.
(viii) Income from sale of house property in Agra ` 20,000.
Calculate the Total Income of Mr. X for the Assessment Year 2021-22, if he is (a) Ordinarily Resident, (b) Non-
ordinarily resident and, (c) Non-resident in India.
Ans. (a) ` 3,34,000
(b) ` 1,94,000
(c) ` 1,74,000
Q. 19. The following are the Incomes of Mr. X for the previous year 2020-21:
2.24 Income Tax Law & Practice

Amount (`)
(i) Profit from business in Paris deposited in a bank there,
this business is controlled from India. 50,000
(ii) Interest received from a non-resident Mr. R, on the
loan provided to him for a business carried on in India. 15,000
(iii) Share of income from Indian partnership firm 25,000
(iv) Dividend from Indian company. 40,000
(v) Profit from business in Korea received in India. 22,000
(vi) Income from house property in India received in Bangladesh (calculated). 32,000
(vii) Capital gain on sale of agricultural land situated in Mysore (urban area). 18,000
(viii) Interest on debentures of an Indian company received in Dubai. 25,000
(ix) Profit from business in Noida (Controlled by U.K. Head Office). 21,000
(x) Foreign income brought in India. 28,000
Compute Mr. X Total Income for the Assessment Year 2021-22, if he is:
(i) Resident,
(ii) Not Ordinarily Resident, and
(iii) Non-resident
Ans. (a) ` 2,51,000
(b) ` 2,23,000
(c) ` 1,73,000
Hint. Share of income from Indian partnership firm shall be exempt.
Q. 20. Following are the taxable incomes of Mr. X for the previous year 2020-21:
Amount (`)
(i) Profit of a hotel business at Singapore 50,000
(ii) Income from transfer of a long-term capital asset in India 25,000
(iii) Income received from Mr. Philip, a non-resident, on the
loan provided to him for a business carried on in India 15,000
(iv) Income from salary accrued and received in India 50,000
(v) Interest on debentures of a company at England, which was received in India 26,000
(vi) Royalty received in Canada from Mr. Kishore a resident in
India for technical services provided for a business carried on in Canada 30,000
(vii) Fees from an Indian company carrying on business at Dubai for technical
services rendered at Dubai having been directly deposited by the company
in his bank account in India 50,000
(viii) Dividend declared in Kenya but received in India 14,000
Compute Mr. X Total Income for the Assessment Year 2021-22, if he is:
(i) Resident,
(ii) Not Ordinarily Resident, and
(iii) Non-resident
Ans. (i) ` 2,60,000
(ii) ` 1,80,000
(iii) ` 1,80,000
Hint: 1. Dividend declared in Kenya but received in India shall be taxable in all three residential Status.
Q. 21. X has furnished the following details of his income in the previous year, on the basis of which compute his total
income if he is a ordinarily resident, not ordinarily resident, or non-resident:
Amount (`)
(i) Dividend from foreign companies (50% received in India) 70,000
(ii) Interest on debentures in India companies received outside India 30,000
(iii) Salary from Indian Government received in France 60,000
(iv) Income from house property in France 50,000
Ans. Resident ` 2,10,000; NOR and NR ` 1,25,000
Residential Status 2.25

Q. 22. Mr. Devin a citizen of USA furnishes the following particulars of his income relevant for the previous year:
2020-21.
(i) Agriculture Income from USA ` 3,00,000
(ii) Profit on sale of building in Delhi, three-forth receive in USA ` 6,00,000
(iii) Dividend received from foreign company and entire amount received in USA ` 90,000
(iv) Profit from software business in Paris received in Sri Lanka controlled from India ` 3,20,000
(v) Profit on sale of car in USA and amount received in Pune ` 1,20,000
(vi) Interest on deposit with an Indian company ` 2,000
Compute his taxable income if he is: (a) Ordinarily resident, (b) Not-Ordinarily resident, or (c) Non-resident for
the Assessment Year 2021-22.
Ans. (a) ` 14,32,000
(b) ` 10,42,000
(c) ` 7,22,000

For detailed Solution of these Questions you can refer our book “Fundamentals of Income Tax: Problems and Solutions”.