RESIDENTIAL STATUS AND TAX INCIDENCE

RESIDENTIAL STATUS ( Sec 6)

Basic conditions Sec 6(1)

(a) Presence of at least 182 days in India during the previous year
(b) Presence of at least 60 days during the previous year and 365 days during 4 years immediately
preceding the relevant previous year

Additional conditions Sec 6(6)

(i) Resident in India at least 2 out of 10 years immediately preceding the relevant previous year [ must
satisfy at least one of the basic conditions]
(ii) Presence of at least 730 days in India during 7 years immediately preceding the relevant previous year

Residential status of an individual

(1) Resident and ordinary resident :

(1) At least one of the basic conditions is satisfied and
(2) Both additional conditions are satisfied
(2) Resident but not ordinarily resident:
(a) At least one of the basic conditions is satisfied and
(b) One or both additional conditions are not satisfied
(3) Non Resident :
(a) Both basic conditions are not satisfied
(b) Additional conditions are irrelevant

Exceptions

Under the following cases only the basic condition “Presence of at least 182 days in India during the previous
year” should be considered for deciding the residential status

1. Indian Citizen who comes on a visit to India during relevant PY; or-who is a crew member of an Indian
Ship; or-who goes abroad for employment purposes.
2. Person of Indian Origin (who himself or his parents or his grandparents were
born in undivided India) who comes on a visit to India during relevant PY
3. Even an individual satisfies none of the two basic conditions , he is deemed to be the resident
but ordinarily resident .( Applicable from the AY 2021-22)
First exception- if he/she satisfies the following three conditions
(a) He is an Indian citizen
(b) His total income (other than the income from foreign sources) exceeds Rs.
1500000 during the relevant previous year
(c) He is not liable to tax any other country or territory by reason of his domicile or
residence or any other criteria of similar nature.
Second exception - if he/she satisfies the following four conditions
(a) He is an Indian citizen or a person of Indian origin
(b) His total income (other than the income from foreign sources) exceeds Rs.
1500000 during the relevant previous year
(c) He come to India on a visit during the relevant previous year
(d) He is in India for 120 days or more but less than 182 days during the relevant
previous year and 365 days or more during four years immediately preceding the
relevant previous year
2. Residential Status of other persons (except Company): HUF, Firm, AOP/BOI, Local Authority, AJP
Determining Factor Control and Management of the affairs of the business (from where major
decisions relating to business are taken).
Resident If Control and Management of the affairs of the business is wholly or partly in
India.
Non-Resident If Control and Management of the affairs of the business is wholly outside India.
ROR in case of HUF If Karta of Resident HUF satisfies both the additional conditions as applicable in
case of an Individual.

3. Residential status of Company

Indian Company Always resident in India
Foreign Company Residential status of a foreign company depends upon place of effective
management “POEM”.
Resident POEM of the business is situated wholly in India.
Non-Resident POEM of the business is situated wholly or partly outside India.

From Assessment Year 2018-19 a foreign company will be resident in India if its Place Of Effective Management
(POEM) during the previous year is in India. For this purpose, the Place Of Effective Management
means a place where Key management and commercial decisions that are necessary for the conduct
of the business of an entity as a whole are, in sbstance are made

SCOPE OF TOTAL INCOME [SECTION 5]

Section 5 provides the scope of the total income of the assessee because the incidence of
tax on any person depends upon his residential status. The scope of total income of an
assessee depends upon the following three important considerations:

(i) the residential status of the assessee.

(ii) the place of accrual or receipt of income, whether actual or deemed and
(iii) the point of time at which the income had accrued to or was received by or on
behalf of the assessee. Tax incidence vis-a-vis residential status of all assesses is indicated
in the following table.

Where tax incidence arises in case of Resident or Resident but Non-Resident

Resident & not Ordinarily
Ordinarily Resident Resident (only
Individual or
HUF)

Income received in India (Whether accrued in TAXABLE TAXABLE TAXABLE

or outside India)

Income deemed to be received in India TAXABLE TAXABLE TAXABLE

(Whether accrued in or outside Inia)

Income accruing or arising in India (Whether TAXABLE TAXABLE TAXABLE

received in India or outside India)

Income deemed to accrue or arise in India TAXABLE TAXABLE TAXABLE

(Whether received in India or outside India)

Income received and accrued outside India TAXABLE TAXABLE NOT TAXABLE
from a business controlled or a profession set
up in India
Income received and accrued outside India TAXABLE NOT TAXABLE NOT TAXABLE
from a business controlled from outside India
or a profession set up outside India
Income earned and received outside India NOT TAXABLE NOT TAXABLE NOT TAXABLE
but later on remitted to India (whether tax
incidence arises at the time of remittance)
Dividend from an Indian Company OR Mutual EXEMPT U/S 10(34) and 10(35)
Fund specified under Section 10(23D)
Subject to Section 115BBDA
Agricultural Income in India EXEMPT U/S 10(1)

Long term capital gain (on securities on which EXEMPT U/S 10(38) upto 1 lakh
Securities transaction tax is paid)
Past untaxed profits (of earlier years) NOT TAXABLE
Remittances (Second receipt) to India NOT TAXABLE
Gifts from relative (on any occasion) or Gift on NOT TAXABLE
marriage from any person

Note : Income is accrued or arise at a place where source of Income is situated. For example, for salary
income, source is situated at the place where services are rendered.