Residence And Tax

Liability
• An assessee may earn his income in India or
out side India or at both the places.
• Which income is assessable in India depends
on the residential status of an assessee, as such
a taxpayer has to pay tax according to his
residential status in a particular financial year.
 Residence and Citizenship
• Residence and citizenship are two different
aspects.
• An Indian may be non-resident and a outsider
may be resident for income tax purposes.
• The residence of a person may change from
year to year but citizenship cannot be changed
every year.
• A person may be resident in more than one
country for the same previous year.
On basis of residence the
assessees are divided into
three categories
• Persons who are resident in India, popularly
known as ordinarily resident.
• Persons who are not ordinarily resident in
India.
• Persons who are non-resident.
• There are separate rules for determining the residence of
different kinds of assessees. The different kinds of assessees
are individuals, Hindu Undivided Families, firms, an
Association of persons, companies, local authorities and
artificial juridical persons.
 Individuals
• The residence of an individual is determined
on the basis of the rules stated hereunder:
Resident (Ordinarily Resident):
An individual is said to be resident in India in
any previous year if he satisfies any one of the
following basic conditions:
• He is in India in the previous year for a period of
182 days or more.
• He has been in India for at least 365 days during
the four years preceding the previous year and is
in India for at least 60 days during the previous
year.
 Exceptions to the above
rules of 60 days stay in India
• An individual who is a citizen of India and leaves
India in any previous year for the purpose of
employment or
• A member of the crew of an Indian ship must have
stayed in India for at least 182 days during the
previous year instead of 60 days.
• If any citizen of India or a foreign national or Indian
origin, who is living outside India, comes on a visit to
India in the previous year, he must have stayed in
India for at least 120 days during the previous year
instead of 60 days.
• Indian origin means that either he or either of
his parents or any of his grand parents was
born in undivided India.
• For calculating number of days stay in India,
days of entry and exit should be included in
the period of stay in India.
• His total stay for at least 182 days may be with
gaps. It is also not necessary that the entire
stay should be at one place. It may be at
different places in India.
 Ordinarily resident
• Additional conditions: In fact, in order that an
individual may become ordinarily resident in
India, he has to satisfy both the following
conditions besides satisfying any one of the
above mentioned basic conditions:
• He has been resident in India in at least 2 years
out of the 10 previous years preceding the
relevant previous years. And
• He has been in India for at least 730 days in all
during the 7 previous years preceding the
relevant previous year.
 Not-Ordinarily resident
• If an individual satisfies any one of the above
basic conditions (a) or (b) but does not satisfy
the abovementioned two additional conditions,
he is said to be Not ordinarily resident. [Sec.
6(6)(a)]
 Non-Resident
• If an individual satisfies none of the above-
mentioned basic conditions (a) and (b) stated
under the head resident he is said to be non-
resident.
 Hindu Undivided Family, Firm
Or Association Of Persons
Resident
• A Hindu undivided family, firm or Association of
persons are resident in India in any pervious year
if the control and management of its affairs is
situated completely or partly in India during the
relevant previous year.
• Exp. Even if a part of their control and
management is situated in India during the
previous year, they will be called resident in
India.
 Not-Ordinarily Resident
• Firm and association of persons cannot be not ordinarily
resident.
• A Hindu undivided family is not-ordinarily resident in
India if its karta does not satisfy both the following
additional conditions.
1. He has been resident in India (according to the rules
applicable to an individual) in two out of ten years,
preceding for at least two years;
2. He has been in India, during the seven years preceding
that previous year, for a period amounting in all to at
least 730 days.
• H.U.F. is ordinarily resident only when its karta
satisfies both the above conditions. If the karta satisfies
either only one or none of the above conditions the family
becomes not ordinarily resident.
 Non-Resident
• All the three types of assessees (H.U.F., Firm
or A.O.P.) are non-resident only when the
control and management of their affairs is
situated wholly outside India.
 Companies
Resident
• 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.
Not Ordinarily Resident
• A company is never not ordinarily resident.
Non-Resident
• If a company does not satisfy both the
abovementioned conditions of residence, it is
said to be a non-resident company.
 Every other person
• Every other person (local authority, artificial
juridical person) is said to be resident in India
in any previous year in every case, except
where during that year the control and
management of its affairs is situated
completely outside India.
• In brief, only an individual and a HUF can be
ordinarily resident, not-ordinarily resident or
non-resident in India. All other persons can be
either resident or non-resident in India.
Exp.
• Shri om prakash, an Indian citizen was born in
the U.K. He came to India, when he was of 12
years age and went outside India for the first
time when he was 25 years of age. He left for
the UK in may 2019 and again came back to
India in march 2022.
Solution
• Shri om prakash came to India in march 2022.
neither he was in India for at least 182 days
nor 60 days during the previous year. Hence,
he is non-resident in India for the assessement
year 2022-23.