Residential Status

Ms. BHAWNA THAKRAN

Relevance of Residential Status

• Tax liability depends upon the residential status of a person

• Example: An Indian citizen generates some income outside India. To know

whether his income is taxable in India, or not, one has to determine his
“residential status”
While deciding the residential status, following norms should be
kept in mind…

• Different taxable entities

o an individual;

o a Hindu undivided family;

o a firm or an association of persons;

o a joint stock company; and

o every other person

While deciding the residential status, following norms should be
kept in mind… (contd.)

• Different residential status

An assessee is either (a) resident in India, or (b) non-resident in India.

However, if an individual or HUF is resident, they will be either:

a) Resident and ordinarily resident in India; or

b) Resident and not ordinarily resident in India.

All other category of persons shall either be resident or non resident in India.
 Category Individual/Hindu Undivided Family Firm, AOP, BOI, joint
stock company and
every other person
Category 1 Resident in India
Ordinarily
Resident
Resident in India

Not-ordinarily
Resident

Category 2 Non-Resident in India Non-Resident in India

 Residential status of an assessee is to be determined in
respect of each previous year as it may vary from previous
year to previous year

A person may be resident in two (or more) countries at the

same time
Determination of Residential Status of an Individual
Basic Conditions to determine as to when an individual is resident in India

If an individual satisfies atleast one of the following basic conditions, he is said

to be resident in India in previous year

Basic condition (a): He is in India in the previous year for a period of 182 days
or more.

Basic condition (b): He is in India for a period of 60 days or more during the
previous year and 365 days or more during 4 years immediately preceding the
previous year
Exceptions
1) In case of an individual, who is a citizen of India and who leaves India in
any previous year for the purpose of employment outside India, or as a
member of a crew of an Indian ship, shall be called resident only when he
satisfies basic condition (a) mentioned above.

2) In case of an individual, who is a citizen of India, or is a person of Indian

origin, who, being outside India, comes on a visit to India in any previous
year, shall be called resident only when he satisfies basic condition (a).
A person is said to be of India origin if he, or either of his parents or any of his grandparents
was born in undivided India i.e. before India was partitioned.
Important explanations

 Relevant PY means the PY for which residential status is being determined

 In computing the period of stay, it is not necessary that the stay should be for
a continuous period

 It is not necessary that the stay should be only at one place

 In computing the period of stay, the day individual enters India and the day
he leaves India should both be considered

 Place and purpose of stay in India is immaterial. Presence in territorial waters

of India would also be regarded as presence in India
Determination of Residential Status of an Individual (Contd.)
Additional Conditions to further determine whether an individual resident and
ordinarily resident in India (ROR) or resident but not ordinarily resident in India
(RNOR)

Additional condition (a): He has been resident in India for at least 2 out of 10
previous years immediately preceding the relevant previous year

Additional condition (b): He has been in India for 730 days or more, during 7
previous years immediately preceding the relevant previous year

If both the conditions are satisfied, an individual is said to be ROR

If any or both the conditions are not satisfied, an individual is said to be RNOR
Example: X was born in Chennai in 1993. Later on he migrated to Canada in June 2010
and took the citizenship of that country with effect from December 26, 2018. His parents
were born in Bengal in 1960 but his grandparents were born in India in 1946. He comes to
India during 2019-20 for a visit of 150 days. During earlier 4 years (i.e., April 1, 2015 to
March 31, 2019) he was in India for 400 days. Find out the residential status of X for
assessment year 2020-21.

Solution: Special case 2

He cannot satisfy basic condition (a). Basic condition (b) in not relevant in his case.
Consequently, he is non resident in India for assessment year 2020-21
Residential Status of Hindu Undivided Family (HUF)
• HUF is said to be resident in India in any previous year if the control and
management of its affairs are wholly or partly situated in India

• HUF is said to be non-resident in India if during the previous year, the control
and management of its affairs is situated wholly outside India

Control and management refers to the decisions taken regarding affairs of the
HUF. Control and management lies at the place where decisions regarding the
affairs of the HUF are taken.
Residential Status of Hindu Undivided Family (HUF)
Once HUF is a resident in India, it is further determined whether it is ROR or
RNOR

If Karta satisfies both of the following conditions, resident HUF is treated as ROR.

If Karta doesn’t satisfies any of the following conditions then resident HUF is
considered as RNOR.

Condition (a): He must be resident in at least 2 out of 10 previous years

immediately preceding the relevant previous year

Condition (b): He must be in India for at least 730 days during 7 years
immediately preceding the relevant previous year
Residential Status of Firm, Association of Persons (AOP), Body of
Individuals (BOI) and of other persons (except companies)

• A firm, AOP, etc. is said to be resident in India if control and management of its
affairs is situated wholly or partly within India during the relevant previous year.

• Treated as non resident, if control and management of its affairs is situated

wholly outside India during the relevant previous year.
Residential Status of a Company
• A company is said to be resident in India in any previous year if it is an Indian
company, or its place of effective management, in that year, is in India.

• A company is said to be a non-resident in India in any previous year if it is not

an Indian company, or its place of effective management, in that year, is not in
India.

“Place of effective management” (POEM) 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 substance made
 Scope of Total Income
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 an assessee;

ii. the place of accrual or receipt of income, whether actual or deemed; and

iii. the point of time at which the income has accrued to or was received by or
on behalf of the assessee.
Resident and ordinarily resident (ROR)
Total income of a resident asessee would consist of:

i. income received or deemed to be received in India during the previous

year;

ii. income which accrues or arises or is deemed to accrue or arise in India

during the previous year; and

iii. income which accrues or arises outside India even if it is not received or
brought into India during the previous year.

A resident and ordinarily resident has to pay tax on the total income accrued or
deemed to accrue, received or deemed to be received in or outside India
Resident but not ordinarily resident (RNOR)
The computation of total income of RNOR is same as in case of ROR except for
the fact that the income accruing or arising to him outside India is not to be
included in his total income.

However, where such income is derived from a business controlled from or

profession set up in India, then it must be included in his total income even
though it accrues or arises outside India.
Non Resident
The total income includes:

i. income received or deemed to be received in India in the previous year;

and

ii. income which accrues r arises or is deemed to accrue or arise in India

during the previous year.
Income Received or Deemed to be Received

 All assessees are liable to tax irrespective of their residential status and the
place of its accrual

 Income is included in the total income on its actual or deemed receipt

 Receipts refers to only the first occasion when recipient gets the money
under his control

 Remittance or transmission of that amount from one place or person to

another does not constitute receipt of income in the hands of subsequent
recipient
 Income deemed to be
received in India

Contribution in Contribution by the Amount transferred

excess of 12% of Central Government from unrecognized
salary to Recognized or other employer PF to recognized PF
Provident Fund or under a pension (being employer’s
Interest credited in scheme referred u/s contribution and
excess of 9.5% p.a. 80CCD interest thereon)
Meaning of income ‘Accruing’ and ‘Arising’

 Accrue refers to the right to receive income, whereas due refers to the right to
enforce payment of the same

 Arising means ‘coming into existence or notice or presenting itself’

 Income which has been taxed on accrual basis cannot be assessed again on
receipt basis
Income deemed to accrue or arise in India
Certain types of income are deemed to accrue or arise in India even though they
may actually accrue or arise outside India
i. Income accruing or arising outside India, directly or indirectly through or
from
• Any business connection in India

• Any property/asset or source of income in India

• Transfer of capital asset situated in India

ii. Salary earned for services rendered in India

iii. Salary payable by Government to Indian citizen for services rendered

outside India

iv. Dividend paid by Indian company outside India

Income deemed to accrue or arise in India (Contd.)
v. Interest, fees for technical service or royalty, if payable by
o Person resident in India
Exception
a. If the money borrowed or technical service or royalty service is utilised for
business or profession outside India
b. If the money borrowed or technical service or royalty service is utilised for making
income from any source outside India

o Government

o A non resident
a. If money borrowed is used for business or profession in India
b. If technical service or royalty service is utilised for business or profession in India
or making income from any source in India
Provisions regarding Incidence of Tax

Particulars of Income Whether taxable

Resident and Resident but Non resident
ordinarily not ordinarily
resident resident
1. Income received or deemed to be received in India YES YES YES
whether earned in India or elsewhere
2. Income which accrues or arises or is deemed to accrue YES YES YES
or arise in India during the previous year, whether received
in India or elsewhere
3. Income which accrues or arises outside India and YES YES NO
received outside India from a business controlled from
India
4. Income which accrues or arises outside India and YES NO NO
received outside India in the previous year from any other
source
5. Income which accrues or arises outside India and NO NO NO
received outside India during the years preceding the
previous yea and remitted to India during the previous year
THANK YOU!!