RESIDENTIAL STATUS AND

SCOPE OF TOTAL INCOME

CA. RAJAN
[Email address]
 ASPIRE ACADEMY

Contents
SCOPE OF TOTAL INCOME – SEC 5 ........................................................................................................... 2
RESIDENTIAL STATUS – SEC 6 ................................................................................................................... 2
INCOME DEEMED TO BE RECEIVED – SEC 7 .............................................................................................. 6
INCOME DEEMED TO ACCRUE OR ARISE IN INDIA – SEC 9 ........................................................................ 7

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SCOPE OF TOTAL INCOME – SEC 5

Particulars Resident and Resident but not Non Resident

Ordinarily Resident Ordinarily Resident
Income received or deemed Taxable Taxable Taxable
to be received in India
Income accruing or arising Taxable Taxable Taxable
or deemed to accrue or
arise in India
Income accruing or arising Taxable, even if such Generally Not Not Taxable
outside India income is not received Taxable. It is Taxable
or brought into India only if it is from
business controlled
in India or
profession set up in
India

Notes
1. Only an Individual and a HUF can be resident but not ordinarily resident.
2. Global Income shall be taxed in India in the case of a person who is a resident and ordinarily
resident.
3. Once the income is included in the total income on accrual basis, it shall not again be so
included on receipt basis.
4. Merely because income accruing or arising outside India is included in a financial statement
prepared in India, it shall not be deemed to be received in India.

RESIDENTIAL STATUS – SEC 6

INDIVIDUAL

A. RESIDENT - Sec 6(1)

Basic Conditions
1. He is in India in that previous year for a period or periods amounting in all to 182 days or more

(OR)

2. He is in India for a period or periods amounting in all to (a) 60 days or more during the previous
year AND (b) 365 days or more during the 4 years preceding that previous year.

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Exceptions to the conditions for determining residential status
The basic conditions discussed above for determining the residential status are relaxed for the benefit of
Indian citizens who go abroad for employment during any previous year and also for the benefit of Indian
citizens or persons of Indian origin who are settled abroad but come to India on a visit. Accordingly, in the
following exceptional cases, the residential status of an individual shall be determined with suitable
modifications.
1. When a Citizen of India leaving India
An individual, who is a citizen of India, go abroad in any year for the purpose of employment or
as a member of crew of an Indian ship, is considered as resident in India in that year only if he has
been in India in that year for 182 days or more.
2. When a citizen of India or a person of Indian Origin residing outside India visiting India
A citizen of India or a person of Indian Origin who is residing outside India and comes to India on
a visit in any previous year is required to stay in India for 182 days for being treated as Resident.
Therefore, any such person can stay up to 181 days and still retain the status of “Non – Resident”

However, such person having total income, (other than the income from foreign sources) exceeding
Rs. 15 Lakhs during the previous year will be treated as Resident in India if –
(a) The period of his stay during the relevant previous year amounts to 182 days or more (or)
(b) He is in India for a period or periods amounting in all to (a) 120 days or more during the
previous year AND (b) 365 days or more during the 4 years preceding that previous year.

Rule 126 of the Income Tax Rules

In the case of an individual, who is a citizen of India and a member of the crew of a foreign bound
ship leaving India, the period of stay for such voyage in India shall not include the period beginning
on the date entering into the Continuous Discharge Certificate in respect of joining the ship by
the said individual for the eligible voyage and shall end on the date entered into the Continuous
Discharge Certificate in respect of signing off by that individual from the ship in respect of such
voyage. Eligible voyage is a voyage undertaken by a ship engaged in the carriage of passengers or
freight in International traffic where
a. For the voyage having originated from any port in India, has as its destination any port
outside India and
b. For the voyage having originated from port outside India has as its destination any port in
India.

Additional points
 For the purpose of calculating residential status u/s 6, the day on which the applicant entered
India as well as the day on which he left India should be taken into account.
 Stay in India includes stay in the territorial waters of India ( i.e 12 nautical miles into the sea from
the Indian coastline)

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 It is not necessary that stay in India has to be continuous or active nor is it essential that the stay
should be at the usual place of residence, business or employment of the individual.
 Citizenship of a country, the nature of visa granted, purpose of visit or place of stay have no
relevance for the purpose of determining the residential status of an individual.
 A person shall be deemed to be of Indian Origin if he or either of his parents or any of his
grandparents were born in undivided India.
 Income from foreign sources means income which accrues or arises outside India (except income
derived from a business controlled in or a profession set up in India)

B. NON RESIDENT

If an Individual does not satisfy both the basic conditions above, he shall be considered as a non-
resident.

C. DEEMED RESIDENT - SEC 6 (1A)

An individual shall be deemed to be resident in India in any previous year, if the following conditions
are satisfied

a. The person is a citizen of India

b. His total income, other than income from foreign sources, exceeds Rs. 15 Lakhs during the previous
year
c. He is not liable to tax in any other country or territory by reason of his domicile or residence or any
other criteria of similar nature

Sec 6(1A) shall not apply in case of an individual who is said to be resident in India in the previous
year under Sec 6 (1)

Such individual shall be treated as resident but not ordinary resident. Accordingly, his income shall
be chargeable to tax in India

“Income from foreign source” means income which accrues or arises outside India (except income
derived from a business controlled in or a profession set up in India) and which is not deemed to
accrue or arise in India

“Liable to tax” in relation to a person and with reference to a country, means that there is an
income-tax liability on such person under the law of that country for the time being in force and
shall include a person who has subsequently been exempted from such liability under the law of
that country.

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D. NOT ORDINARY RESIDENT

A person is said to be “Not Ordinary Resident” in India in any previous year if such person is

1. An individual who has been Non resident in India in 9 out of 10 preceding previous years. (OR)

2. Has resided in India for a period not exceeding 729 days during the 7 preceding previous years
(OR)

3. A citizen of India, or a person of Indian origin, (who, being outside India, comes on a visit to
India in any previous year) having total income, other than income from foreign sources,
exceeding Rs. 15 Lakhs during the previous year, who has been in India for a period or periods
amounting in all to 120 days or more but less than 182 days (OR)

4. A citizen of India who is deemed to be a resident under Sec 6(1A)

E. ORDINARILY RESIDENT
Individual who is NOT ORDINARY RESIDENT is an ORDINARY RESIDENT
Residential status of Indian citizen / a person of Indian Origin visiting India during the previous year are
summarized hereunder:

1. Stay in India up to 119 days - Always shall be regarded as non - resident

2. Stay in India for 120 days or more but less than 181 days

Conditions:

(a) During preceding 4 years, he was in India for 365 days or more; AND
(b) His taxable income (Other than income from foreign sources) exceeds Rs. 15 Lakhs during the
previous year

If both the conditions are fulfilled - shall be regarded as resident but not ordinarily resident in
India

If he satisfies one or none of the above conditions – shall be regarded as non-resident in India

3. Stay in India for 182 days or more

Conditions:

(a) He has been a non-resident in India in 9 out of 10 preceding previous years (OR)
(b) He has been in India for a period not exceeding 729 days during the 7 preceding previous
years.

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If he fails to fulfil both the conditions - shall be regarded as resident and ordinarily resident in
India

If he satisfies one or more of the above conditions - shall be regarded as resident but not ordinarily
resident in India.

HUF

RESIDENT: If Control and Management of its affairs is situated wholly or partly in India
NON RESIDENT: If control and management of its affairs is situated wholly outside India
RESIDENT BUT NOT ORDINARY RESIDENT: If control and management of the affairs of HUF is
situated wholly or partly in India AND if the Manager of the family satisfies any one of the
following conditions, the HUF shall be considered as Not Ordinarily Resident.
Condition 1: he has been a Nonresident in India in 9 out of 10 preceding previous years OR
Condition 2: he has been in India for a period not exceeding 729 days during the 7 preceding previous
years
RESIDENT AND ORDINARY RESIDENT: If control and management of the affairs of HUF is situated
wholly or partly in India AND if the Manager of the family does NOT SATISFY any one of the ADDITIONAL
conditions, the HUF shall be considered as Ordinarily Resident.
COMPANY

RESIDENT IN INDIA if
a. It is an Indian Company and
b. In case of other companies, where its place of effective management (POEM) in that year, is in
India
In ANY OTHER CASE, the company shall be considered as NON RESIDENT.
POEM: means a place where the key management and commercial decision that are necessary for
conduct of business of any entity as a whole are, in substance made. The concept of POEM is relevant
only in the case of Foreign Company.
FIRM, AOP AND EVERY OTHER PERSON

RESIDENT – If Control and Management is wholly or partly in India

NON RESIDENT – If Control and Management is wholly outside India

INCOME DEEMED TO BE RECEIVED – SEC 7

a. Employer’s contribution to Recognized Provident fund (RPF) in excess of 12 % of salary
b. Interest credited to RPF in excess of 9.50 % pa
c. Transferred balance from Unrecognized to Recognized Provident Fund (being the employers’
contribution and interest thereon)
d. Contribution made by any employer in the previous year to the account of an employee under a
pension scheme referred to in Sec 80 CCD.

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INCOME DEEMED TO ACCRUE OR ARISE IN INDIA – SEC 9

Section Income
Any income through or from any business connection in India
Any income through or from any property in India
9 (1) (i) Any income through or from any asset or source of income in India or
Any income through transfer of a capital asset situated in India
9 (1) (ii) Any salary income, if it is earned in India
9 (1) (iii) Any salary payable by the Government to an Indian Citizen for service outside India
9 (1) (iv) Dividend paid by an Indian Company outside India
9 (1) (v) Interest payable by Government, resident or non-resident
9 (1) (vi) Royalty payable by Government, resident or non-resident
9 (1) (vii) Fees for Technical services payable by Government, resident or non-resident
9 (1) (viii) Any sum of money paid / property transferred by a resident Indian to a non –
resident of foreign company on or after 5th day of July 2019

Business Connection
The basic concept of business connection is that a non resident person should be liable to tax for the
profits earned in India if he has real and significant or substantial economic nexus with India. A non
resident will have such real and significant economic nexus if he carries on business in India through a
business connection in India. For eg, business carried on by a non resident through a branch office in India
or an organization or agent of a non resident in India.
1. It is significant only for international transactions.
2. It is not relevant for Resident assesses as the global income is taxed.
3. It is applicable only for resident but not ordinarily residents and Non-residents.
4. Even for the above two assesse, the term business connection is not relevant if the income accrues
or is received or deemed to be received in India
5. It is relevant only if the income is deemed to accrue or arise in India.
Definition
It is defined to include business activity carried out by a non-resident in India through an agent. The
agent performs any of the following functions: -
a. He has, an authority to conclude contracts on behalf of the non- resident or
b. He concludes contracts or
c. He plays the principal role leading to conclusion of contracts by that non-resident and the
contracts are
a. In the name of the non-resident or
b. (i) for the transfer of the ownership of property owned by that non-resident or
(ii) for the granting of the right to use property owned by that non- resident or
(iii) for the granting of the right to use property which that non-resident has the right to
use.
c. For the provision of service by the non-resident or

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d. Without any authority, maintains stock of goods or merchandise in India and regularly delivers
them or
e. Secures orders in India mainly or wholly for the non-resident or various non-residents who are
subjected to the same common control.
Exceptions for Business Connection: Agents having independent status
(a) The agent acts in his own capacity as an agent in the normal course of his business, no business
connection is established as there is no dependency
(b) Where an agent works mainly or wholly on behalf of a non-resident, he is considered to have
dependent status which results in “Business Connection”
For instance, Mr. A, a non-resident merchant dealing in diamonds approaches Mr. X who is an existing
dealer in diamonds and he agrees to deal in the diamonds as an agent of Mr. A in the ordinary course of
his business. Now, even if the contract between Mr. A and Mr. X is cancelled, Mr. X can still continue to
deal in his diamonds in the ordinary course of his business. This is a situation where an agent has his
independent status.
Significant economic presence of non-resident in India means
(a) Aggregate of payments arising from transactions in respect of any goods, services or property
including download of data or software during the previous year exceeds such amount as may
be prescribed or
(b) Systematic and conditions soliciting of business activities or engaging in interactions with such
number or users as may be prescribed, in India through digital means
Transactions constitute significant economic presence in India, whether or not –
(i) The agreement for such transaction or activities is entered in India or
(ii) The non-resident has a residence or place of business in India or
(iii) The non-resident renders services in India
Certain transactions / operations not to be considered as deemed to accrue or arise in India.
In the case of non-residents, the following shall not be considered as business connection in India and
therefore, no income shall be deemed to accrue or arise in India;
1. Transactions which are confined to mere purchase of goods in India for export
2. Operations confined to collection of news and views in India for transmission out of India by or
on behalf of non-resident, who is engaged in the business of running news agency or of publishing
newspaper or magazines or journals.
3. Operations confined to the shooting of cinematograph film in India, where such nonresident is
a. An individual – who is not a citizen of India or
b. A firm – not having any partner who is a citizen of India or who is resident in India or
c. A company – not having any shareholder who is a citizen of India or who is resident in
India.
4. Activities which are confined to display of uncut and unassorted diamonds in special notified zone
by a foreign company engaged in the business of mining diamonds.
Operations wholly not carried out in India
In the case of a business in which all the operations are not carried out in India, the income of the business
deemed to accrue or arise in india shall be such part of the income reasonably attributable to the

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operations carried out in India. According to Rule 10 of the Income tax rules 1962, if such income cannot
be definitely ascertained, then it may be calculated as follows;
a) At a percentage of the turnover as may be considered reasonable by the Assessing Officer or
b) The profit may be apportioned from out of the total profits in the proportion of the receipts
accruing or arising in India to the total receipts of the business or
c) In such manner as the Assessing Officer may deem suitable.
A non-resident acting on behalf of another non-resident
There may be situations when the person acting on behalf of the non-resident secures order for other
non-residents. In such situations, business connection for other non-resident will be established if,
a) The non-resident controls the other non-resident or
b) The non-resident is controlled by the other non-resident or
c) Both the non-residents are subject to common control
In all the three situations, business connection is established, where a person habitually secures orders in
India, mainly or wholly for such non-resident.
For instance, Mrs P is acting on behalf of Mr. Q, a non-resident and secures order on behalf of Mr. R,
another non-resident, a business connection will be established if;
a) Mr. Q controls Mr. R or
b) Mr Q is controlled by Mr R or
c) Both Mr. Q and Mr. R are under common control of Mr. S

Interest, Royalty and Fees for Technical Services

Payable to a Nonresident by

Nature of Income Government Resident Non-Resident

Interest on monies Deemed to Deemed to accrue or Deemed to accrue or arise

borrowed accrue or arise in arise in India except in India only when used
India when used for a for the purposes of
Business or Profession business or profession
carried on outside India carried on in India
or for any source of
income outside India
Royalty in respect of Deemed to accrue or arise
any rights or in India when used for the
property or purposes of business or
information used or - do - - do - profession carried on in
services utilized India or for any source of
income in India
Fees for technical - do - - do - do -
services

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Additional points
1. “Royalty” is defined u/s 9(1)(vi) to mean consideration for

i) The transfer of all or any rights (including the granting of license) in respect of a patent,
invention, model, design, secret formula or process or trade mark or similar property.
ii) The imparting of any information concerning the working of, or the use of, a patent, invention,
model, design, secret formula or process or trade mark of similar property
iii) The use of any patent, invention, model, design, secret formula or process or trade mark or
similar property
iv) The imparting of any information concerning technical, industrial, commercial or scientific
knowledge, experience or skill
v) The use or right to use, any industrial, commercial or scientific equipment but not including the
amounts referred to in Sec 44BB.
vi) The transfer of all or any rights (including the granting of a license) in respect of any copyright,
literary, artistic or scientific work including films or video tapes for use in connection with
television or tapes for use in connection with radio broadcasting, but not including consideration
for the sale, distribution or exhibition of cinematographic films or
vii) The rendering of any services in connection with the activities referred to in sub clauses (i) to (v)
above.
It has been clarified that the transfer of all (or) any rights in respect of any right, property (or)
information includes and has always included transfer of all (or) any right for use (or) right to use a
computer software (including granting of a license) irrespective of the medium through which such
right is transferred.
Royalty includes and has always included consideration in respect of any right, property or
information whether or not
(i) The possession or control of such right, property or information is with the payer
(ii) Such right, property or information is used directly by payer
(iii) The location of such right, property or information is in India
The expression “Process” includes and shall be deemed to have always included transmission by
satellite (including up-linking, amplification, conversion for down linking of any signal), cable and optic
fiber or by any other similar technology, whether or not such process is secret.
It may be noted that the term Royalty includes any lump sum consideration but excluding any
consideration which would be the income of the recipient chargeable under the head “Capital Gains”.
2. Income by way of interest or royalty or fees for technical services shall be deemed to accrue or
arise in India and shall be included in the total income of the non-resident, whether or not the
non-resident has a residence or place of business or business connection or whether or not the
non-resident has rendered services in India

3. It may be noted that business income of a non-resident is taxable in India only if there is a business
connection in India whereas, by virtue of the above explanation, interest, royalty and fees for
technical services shall be taxed in India even if there is no business connection

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4. Income by way of royalty consisting of lump sum payment made by a resident for the transfer of
all or any rights including the granting of a license in respect of computer software, supplied by a
non-resident manufacturer along with a computer or computer based equipment under any
scheme approved by the Government shall not be deemed to accrue or arise in India

5. Fees for Technical services is defined u/s 9(1)(vii) to mean any consideration including any lump
sum consideration for rendering of any managerial, technical or consultancy services including
the provision of services of technical or other personnel but does not include consideration for
any construction, assembly, mining or like project undertaken by the recipient or consideration
which would be income of the recipient chargeable under the head “Salaries”

6. Computer software is defined u/s 9(1)(vi) to mean any computer programme recorded on any
disc, tape, perforated media or other information storage device and includes any such
programme or any customized electronic data.

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