GIBS INCOME TAX LAW & PRACTICE BBA RESIDENTIAL STATUS & EXEMPTED INCOMES

UNIT-I
CHAPTER 2 RESIDENTIAL STATUS & TAX INCIDENCE

Need to determine Residential Status?

Total income of an assessee cannot be determined without knowing his residential status in
India because the scope of Total Income & the incidence of tax depend upon the residential
status of the assessee in India. Total Income will be different in case of a person resident in
India & a person non-resident in India.

❖ Residential Status should be determined for each previous year separately.

❖ Resident for one source, resident for all sources.
❖ A person can be resident in more than one country in the same P/Y.
❖ It is the duty of the assessee to furnish all relevant particulars before assessing
officer to enable him to determine his correct residential status.

1) RESIDENTIAL STATUS OF AN INDIVIDUAL SEC 6(1)

INDIVIDUAL

RESIDENT NON-RESIDENT

ORDINARILY NOT ORDINARILY

RESIDENT RESIDENT

Basic Conditions:
A person is in India for at least 182 days in P.Y.
OR
A person is in India for at least 60 days in P.Y. and 365 days in 4 years, immediately
preceding P.Y.
❖ If a person satisfies at least one of the basic conditions, then he will be resident in India
in that particular P.Y. otherwise Non Resident.

Exceptions of the second basic condition:

The period of 60 days shall be substituted for 182 days or more in the following cases:
1) If an Indian citizen leaves India during the P.Y. for the purpose of employment or he/she
is the Crew member of Indian ship.

2) Where an individual who is a citizen of India or a person of Indian origin, who is already
Outside India and comes to India on a visit during the previous year.

Indian origin: A person is said to be of Indian origin if he, his parents or his grandparents
either of them was born in undivided India.

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GIBS INCOME TAX LAW & PRACTICE BBA RESIDENTIAL STATUS & EXEMPTED INCOMES

Additional Conditions: (For Resident & Ordinarily Resident)

A person has been resident in India for at least 2 years out of 10 years, immediately
preceding P.Y. AND
A person is in India for at least 730 days in 7 years, immediately preceding P.Y.

❖ If a person satisfies both the additional conditions then he will be treated as “ordinarily
resident” otherwise “not ordinarily resident”.

2) Residential status of HUF Sec 6(2)

HUF

RESIDENT NON-RESIDENT

ORDINARILY NOT ORDINARILY

RESIDENT RESIDENT

❖ A HUF is said to be resident in India if the control and management of the affairs of
HUF is wholly or partly situated in India.
❖ If control and management is wholly situated outside India then non-resident.

For Resident & Ordinarily Resident

If ‘Karta’ of HUF satisfies both the additional conditions as stated above, then HUF is
treated as “ordinarily resident” otherwise “not ordinarily resident”.

3) Residential status of Firm/BOI/AOP/any other artificial person: Sec

6(4)
If control and management of the affairs are wholly or partly situated within India, then they
are resident in India otherwise non-resident.

4) Residential status of company: Sec 6(3)

Indian Company: An Indian company is always resident in India.

Foreign Company: If control and management of the affairs of foreign company is wholly
situated within India, then resident otherwise non-resident.
The place of control and management of a company's affairs is one, where the meetings of
its Board of Directors are held.

NOTE - A firm, AOP, every other person or Company can never be a not ordinary resident.

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GIBS INCOME TAX LAW & PRACTICE BBA RESIDENTIAL STATUS & EXEMPTED INCOMES

INCIDENCE OF TAX SEC 5

INCOME OR NOR NR

1. Income received in India, irrespective of the place of

accrual. ✓ ✓ ✓

2. Income deemed to be received in India, irrespective of

the place of accrual. ✓ ✓ ✓

3. Income accruing or arising in India, irrespective of the

place where it is received. ✓ ✓ ✓

4. Income deemed to accrue or arise in India, irrespective

of the place where it is received. ✓ ✓ ✓

5. Income accrues and received outside India from a

business set up outside India and controlled fully orpartially ✓ ✓ X
from India.

6. Any Income accrues and received outside India from a

business set up outside India and controlled fully fromoutside ✓ X X
India.

7. Remittances. (Past untaxed income brought to India in

previous year). X X X

❖ EXCEPTIONS TO INCOME ACCRUE OR ARISE IN INDIA

1) Purchase of goods in India for purpose of export by a non - resident.
2) Collection of news and views for transmission outside India by NR who is engaged in the
business of running news agency or of publishing newspapers, magazines or journals.
3) Shooting of cinemographic films in India.

EXAMPLES FOR INCOME DEEMED TO ACCRUE OR ARISE IN INDIA(SECTION 9)

1) Income from a business connection in India. (A business connection involves a relation

between a business carried on by a non - resident which yields profit and some activity in
India, which contributes to the earning of profits.)

Some examples of NR having business connection in India are -

a) Branch or agent or subsidiary in India for purchase or sale or other business
purposes.
b) Factory in India
c) Financial association in India.

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GIBS INCOME TAX LAW & PRACTICE BBA RESIDENTIAL STATUS & EXEMPTED INCOMES

2) Income from any property, asset or source of income situated in India

3) Salary payable by the Govt. to an Indian citizen for services rendered outside India.
4) Interest paid by an Indian company outside India.
5) Interest / Royalty / Fee for technical services payable by Govt. or by a non – resident or
by resident in India for money borrowed or used for a business or profession in India.

PROBLEMS
Problem 1
A, a foreign citizen visited India first time on 25/10/2022. After a stay of 130 days he left India
and never came again. Determine the residential status of the Individual for A/Y 2023- 24.
(Ans. Non-Resident)

Problem 2
R, a foreign citizen visited India first time on 12/01/2023. After a stay of 250 days he left India
and never came again. Determine the residential status of the Individual for A/Y 2023-24.
(Ans. Non-Resident)

Problem 3
X left India for the first time on May 20, 2015. During the financial year 2022-23, he came to
India once on June 24 for a period of 57 days. Determine his residential status for the
assessment year 2023-24. (Ans. Non-Resident)

Problem 4
X comes to India, for the first time, on May 24, 2015. During his stay in India up to October
10, 2022, he stays at Delhi up to April 10, 2022 and thereafter in Madras till his departure
from India. Determine his residential status for the assessment year 2023-24. (Ans. ROR)

Problem 5
R, a foreign citizen (not being a person of Indian origin), comes to India, for the first time in
the last 25 years on January 12, 2022. On September 1, 2022, he leaves India for Nepal on
a business trip. He comes back on February 26, 2023. Determine the residential status of X
for the assessment year 2023-24. Does it make any difference if X, is of Indian origin.
(Ans. R-NOR; NO)

Problem 6
X, a foreign national (not being a person of Indian origin), comes to India for the first time on
April 15, 2018. During the financial years 2018-19, 2019-20, 2020-21, 2021-22 & 2022-23
he is in India for 130 days, 80 days, 13 days, 210 days and 75 days respectively. Determine
the residential status of X for the assessment year 2023-24. (Ans. R-NOR)

Problem 7
X, a foreign citizen (not being a person of Indian origin), leaves India for the first time in the
last 20 years on November 20, 2020. During the calendar year 2021, he comes to India on
September,1 and stays for a period of 30 days. During the calendar year 2022, he does not
visit India at all but comes to India on January 16, 2023. Determine the residential status of
X for the assessment year 2023-24. Does it make any difference if X, is of Indian origin. (Ans.
ROR; NR)

Problem 8
For the assessment year 2023-24; P, receives the following income:
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GIBS INCOME TAX LAW & PRACTICE BBA RESIDENTIAL STATUS & EXEMPTED INCOMES

Royalty earned in India but received on July 25, 2022 in Nepal: Rs.35, 000
Dividend from a foreign company received in America on June 02, 2022 Rs.46, 000
Profit of a business situated in London, received in Nepal on May 23, 2022 but controlled
from India: Rs.65000
Rent of 2022-23 of a house property situated in Nepal and received there on March 31,
2023: Rs.1, 65,000
Speculation profit earned and received outside India on May 25, 2022: Rs.14, 000.
Determine the gross total income of X for the assessment year 2023-24 if he is (a) resident
and ordinarily resident, (b) resident but not ordinarily resident, and (c) non-resident.
(Ans. (a) 325000 (b) 100000 (c) 35000)

Problem 9
X furnishes the following particulars of his income earned during the previous year relevant
to the assessment year 2023-24:
Interest on German Development Bonds (two-fifths is received in India) 90,000
Income from agriculture in Bangladesh, received there but later on remitted to India Rs.35,
000
Income from property in Canada received outside India [Rs.76, 000 is used in Canada for
meeting educational expenses of X's daughter in USA and Rs.10, 000 is later on remitted to
India]
Income earned from business in Kampala (Uganda) which is controlled from Delhi Rs.65, 000
Dividend paid by an Indian company but received outside India on April 10, 2021 46,500
Past untaxed profit of 2015-16 brought to India in 2022-23, 43,000
Profits from a business in Madras and managed from outside India 27,000
Profits on sale of a building in India but received in Sri Lanka 14, 80,000
Pension from a former employer in India, received in Rangoon 36,000
Gift in foreign currency from a relative received in India 80,000

Find out the gross total income of X, if he is (I) resident and ordinarily resident in India, (ii)
resident but not ordinarily resident in India or (iii) non-resident in India for the assessment
year 2023-24.
(Ans. (a) 1819000(b) 1644000(c) 1579000)

Problem 10
R furnishes the following particulars of his income earned during the previous year relevant
to the assessment year 2023-24:
Interest for debentures in an Indian Co. received in London 5,000
Interest on a company deposit in India but received in Germany Rs.22, 000
Interest on U.K Development Bonds 50% of interest received in India Rs.40, 000
Dividend from British Co. received in London Rs.10, 000
Profits on sale of plant at Germany 50% of profits are received in India Rs.60, 000
Income earned from business in Germany which is controlled from Delhi, Rs.40, 000 is
received in India Rs.70, 000
Profits from a business in Delhi and managed from London Rs.45, 000
Rent from property in London deposited in a Indian Bank at London, brought to India Rs.50,
000
Interest received in London on money lent to a resident in India in London but the same
money was used in India Rs.46, 000
Fees for technical services rendered in India but received in London Rs.25, 000
Royalty received in London for a right given to non-resident in India to be used for business
in India Rs.34, 000

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GIBS INCOME TAX LAW & PRACTICE BBA RESIDENTIAL STATUS & EXEMPTED INCOMES

Find out the gross total income of X, if he is (I) resident and ordinarily resident in India, (ii)
resident but not ordinarily resident in India or (iii) non-resident in India for the assessment
year 2023-24.
[Ans. (a) Rs.4,07,000 (b) Rs.2,97,000 (c) Rs.2,67,000]

Problem 11
A furnishes the following particulars of his income earned during the previous year relevant
to the assessment year 2023-24:
Interest paid by an Indian Co. but received in London Rs.2,00,000
Pension from former employer in India, received in USA Rs.8, 000
Profits earned from business in Paris which is controlled in India, half of the profits being
received in India Rs.40, 000
Income from agriculture in Bhutan and remitted to India Rs.10, 000
Income from property in England and received there Rs. 8,000
Past foreign untaxed income brought to India Rs.20, 000

Find out the gross total income of X, if he is (I) resident and ordinarily resident in India, (ii)
resident but not ordinarily resident in India or (iii) non-resident in India for the assessment
year 2023-24.
[Ans. (a) Rs.2,66,000 (b) Rs.2,48,000 (c) Rs.2,28,000]

True or False:-
(1) Dividend by an Indian company paid outside India is income in India.
(2) Salary paid by the Govt. to a citizen of India for service rendered outside India is taxable
in India.
(3) Tax Incidence is highest in the case Individual.
(4) An income from agriculture in U.S.A. is taxable in the Ordinary Resident.
(5) Under .the Income- Tax Act, the incidence of taxation depends on the citizenship of the
tax-payer.
(6) Income from transfer of capital asset situated outside India is taxable in case of an
ordinary resident only.
(7) Income earned and Received outside India is not taxable for Ordinary Resident in India.

Q. 1 Is it possible that the Karta of a Hindu Undivided Family (HUF) is non-resident in

India in any A.Y. But the HUF. itself is resident for the same year? If so, how?

Q.2 Mr. X is a foreign citizen. His grandmother was born in Dhaka in August 12, 1930. He
comes to India on October 26, 2022 for a visit of 210 days. His income for the P/Y 2022-23
is as follows:
1. Income earned and received in India Rs.3, 40,000
2. Income earned and received outside India Rs.7, 86,000
3. Income from a house property situated in India Rs.92, 000
Determine the residential status and compute the taxable income of Mr. X for the A/Y 2023-
24. (Ans. NR; 432000)

Q.3 X Ltd. and Y Ltd. companies are registered in Nepal and India respectively. Allmeetings
of board of directors of X Ltd were held in India, whereas all board meetings of Y Ltd. were
held in Nepal during the previous year 2022-23. Determine the residential status of X Ltd.
and Y Ltd. for the assessment year 2023-24.

Q.4 How does the tax liability of a 'Not Ordinary Resident person' differ from that of a
'Resident person' under the Income Tax Act, 1961. Explain.
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QUESTIONS FROM PREVIOUS YEARS QUESTION PAPERS

Q.1 Explain the rule regarding "Residential Status" of an Individual and Hindu Undivided
Family under the Income Tax Act.

Q.2 Mr. X has received the following amounts during the previous year ending on March 31,
2023:
(i) Income from salary in India from SPG Ltd. 80,000.
(ii) Dividend from an Indian company received in U.S.A. and spent there 10,000.
(iii) Income from house property in Pakistan and received there. 15,000.
(iv) Income from business in Calcutta controlled from U.S.A. 25,000.
(v) $7,000 earned in USA during the previous year 2021-22 was brought to India.
(vi) Received $1,000 draft from his uncle in USA for his daughter's marriage, Assume 1$ =
Rs.40/-
Compute the gross total income of Mr. X if he is (i) ROR (ii) Not ordinary Resident, and (iii)
Non Resident. [Ans. (a) 120000(b) 105000(c) 105000]

Q.3 How is the residential status of an individual determined under the Income Tax Act,
1961?

Q.4 How is the residential status of Hindu Undivided family determined for Income Tax
purposes?

Q.5 Mr. K came to India for the first time on 1st July, 2011 and has been staying here since
then. What will be his residential status for the previous year ending on 31st March, 2023?
(Ans. ROR)

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INCOMES WHICH DONOT FORM PART OF TOTAL INCOME

(EXEMPTED INCOMES)
Question: State some items of income which do not form part of Total Income.
Answer:
All receipts, which give rise to income, are taxable under the Income-tax Act unless it is
specifically provided that it does not form part of total income. Such incomes which do not
form part of total income may also be called incomes exempt from tax. As per section 10 to
13A, certain incomes are either totally exempt from tax or exempt up to a certain amount.
As per section 10 some incomes which do not form part of total income are followings:-
1) Agricultural Income in India (Section 10(1))
2) Any sum received by an individual, as a member of a HUF (Section 10(2))
3) Share of profit of a partner from a Firm including limited liabilities partnership(LLP)
(Section 10(2A))
4) Any allowances or perquisites paid or allowed outside India by the Govt. to a citizen of
India, for rendering services outside India. (Section 10(7))
5) Scholarship granted to meet the cost of education. (Section 10(16))
6) Daily & constituency allowance, etc. received by MPs & MLAs (Section 10(17)).
7) Any award or reward, in cash or in kind, instituted in public interest by the central or any
state Govt. (Section 10(17A))
8) Annual value of one palace of the ex-ruler. (Section 10(19A))
9) Income of scientific research association. (Section 10(21))
10) Income of Sikkimese individual which accrues or arise to him/her from any source in
the state of Sikkim or income from dividend/interest on securities from anywhere in the
world (exemption not available to a Sikkimese women who, on or after April 1, 2008
marries a non Sikkimese individual). {sec. 10(26AAA)}
11) Income of minor child clubbed in hands of a parent shall be exempt to the extent of Rs.
1500 per minor child. (Section 10(32))
12) Any dividend declared or distributed by a domestic company exempt in hands of
shareholders. (Section 10(34))
13) Income from International sporting events. (Section 10(39))
14) Any income of a foreign company on account of sale of crude oil will not be included in
nits total income, provided that the following conditions are fulfilled:-New section
inserted- Sec. 10(48)

a) The crude oil is sold to any person in India.

b) The income is received in India as per an agreement approved by Central Govt.
c) Income is received in Indian currency
d) Foreign company is not engaged in any other activity in India.

15) Interest up to Rs.3500 in post office savings exempted from income tax. (Section
10(15))

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