RESIDENTIAL

STATUS
-IMPACT ON TAX LIABILITY
060820
LEARNING OUTCOME

 Ability to determine residential status for determining tax incidence of a

Company.
 RESIDENCE OF ASSESSEES
 Taxable income of an assesse is determined with reference to his residence in India during the PY.
 Incidence of tax has nothing to do with the citizenship.
 A person may be resident in more than one country for the same previous year.

Types of Residents

Resident Non-Resident

Ordinarily Not Ordinarily

Resident Resident
 Resident
 Basic Conditions:- (Atleast any one of the following conditions should be satisfied)

(a) Stay in India in the P.Y. for a period of 182 days or more,

OR

(b) Stay in India for at least 365 days during the 4 years preceding the P.Y. and is in India for at least 60 days
during the P.Y.
Residence -Individual

 Basic conditions:
 1) He is in India in the previous year for a period of 182
days or more.
 2) a) He is in India for a period of 60 days or more during
the previous year
 and
 b) 365 days or more during 4 years immediately
preceding the previous year.
Example

 X left India for the first time on May 20, 2003. During the financial
year 2005-06, he came to India once on May 27 for a period of 53 days.

Determine his residential status for the assessment year 2006-07.

Solution

 Since X comes to India only for 53 days in the previous year 2005-06,
he does not satisfy any of the basic conditions laid down in section 6(1).
He is, therefore, non-resident in India for the assessment year 2006-07.
Example

 Mr. Amar, Indian citizen left India first time on November 25, 2011 for meting his
relatives outside India.
 During the calendar year 2012 he did not visit India. He finally came to India as
on 15th January 2013. Determine his residential status for the financial year 2011-
12 and 2012-13.
Solution

Particulars 2011-12 2012-13

In this year he was in

Step – I
India for 76 days. So he
As Mr. Amar is Indian Citizen, as per basic
In this year he was in India is non-resident. (As he
condition
for 239 days. So he is is Indian Citizen
he should stay in India for the period for 182
resident condition of 60 days is
days during the financial year.
become 182 days for
 
him)
Example

 Mr. Raman, Indian citizen left India first time on November 25, 2016 to visit U.S.
 He finally came to India as on 15th Feb 2020. Determine his residential status for
the financial year 2019 - 20.
 Answer : Non – Resident as not fulfilled Basic condition
Case 1:

  Bill Gates, owner of Microsoft comes to India for 100 days every
year. What shall be his residential status for A.Y. 2020-21 (F.Y.
2019-20)?

 A. Resident
 B. Non-Resident
Solution:

  Bill Gates’s residential status shall be determined in 2 steps:

 Step 1: Total stay of Bill Gates in last 4 years preceding 2019-20 (Concerned
F.Y.) is 400 days (i.e. 100 * 4) and his stay in F.Y. 2019-20 is 100 days. Therefore,
since he has satisfied 2nd condition of the basic conditions, he is a resident in
India.
Ordinary Resident: A person will be ordinary resident if fulfil both following conditions

 Additional Conditions:- (Both to be satisfied)

(a) Stay in India for at least 2 out of 10 P.Y.’s preceding the relevant P.Y.

and
(b) Stay in India for at least 730 days in all during 7 P.Y.’s preceding the relevant P.Y.

O.R.= Basic Conditions (At least any 1) + Additional Conditions (Both)

Solution:

Particulars 2011-12 2012-13

As he is leaving India first

time, it means he is
Step –II
satisfying both the both Not Applicable as he is
Let’s check whether both the additional conditions
additional conditions. So not ordinary resident
are satisfied
he is resident and
ordinary resident
Exception to conditions (2)

 Period 60 Days is extended to 182 days in the

following cases.
i) An Indian citizen who leaves India during the previous
year for the purpose of employment outside India
ii) Indian citizen who leaves India during the previous year
as a member of crew of Indian ship.
iii) Indian citizen or person of Indian origin who comes on
a visit to India during the previous year.
 Thus in these cases, if person stays in India for a
period of 182 days or more in the concerned F.Y.,
he is said to be Resident in India.
 A person is deemed to be of Indian origin if he, or either of his parents or any of
his grand-parents was born in undivided India.
Resident and Ordinarily Resident – u/s 6(6)

 Additional conditions:
i) He has been resident in India in at lest 2 out of 10
previous year immediately preceding the previous year.
ii) He has been in India for a period of 730 days or more
during 7 years immediately preceding the relevant
previous year.
Resident and Not Ordinarily Resident – u/s
6(6)
 Individual who satisfies at least one of the basic conditions u/s 6 (1) but
 does not satisfy the additional conditions under u/s 6 (6)
Non Resident

 Individual who does not satisfy at least one of the basic

conditions
u/s 6 (1).
Case 1:

  Bill Gates, owner of Microsoft comes to India for 100 days every
year.
 What shall be his residential status for A.Y. 2020-21 (F.Y. 2019-20)?

 A. Resident (ordinary resident)

 B. Resident (Not ordinary resident)
Solution:
  Bill Gates’s residential status shall be determined in 2 steps:
 Step 1: Total stay of Bill Gates in last 4 years preceding 2019-20 (Concerned F.Y.) is
400 days (i.e. 100 * 4) and his stay in F.Y. 2019-20 is 100 days. Therefore, since he has
satisfied 2nd condition of the basic conditions, he is a resident in India.

 Step 2: His total stay in India in last 7 years preceding F.Y. 2019-20 is 700 days (i.e.
100 * 7), he satisfies only the  1st condition of the additional conditions, hence he is
Not-Ordinarily Resident (NOR) in India.
 Thus, for AY 2020-21, Bill Gates shall be resident but Not Ordinarily Resident (NOR).
Indian Income and foreign income
 Indian Income: Any of the following three is an Indian income:
 i) If income is received (or deemed to be received) in India during the previous year and
at the same time it accrues (or arises or is deemed to accrue or arise) in India during the
previous year;
 ii) If income is received (or deemed to be received) in India during the previous year but
it accrues (or arises) outside India during the previous year;
 iii) If income is received outside India during the previous year but it accrues (or arises or
is deemed to accrue or arise) in India during the previous year;
Foreign income:

  If the following conditions are satisfied, then such income is foreign income:
 i)   Income is not received (or not deemed to be received) in India;
and

 ii) Income does not accrue or arise (or does not deemed to accrue or arise) in
India.
Income Deemed to Accrue or Arise in India

 Income from house property (residential or commercial) in India

 Income from any other asset in India
 Capital gain from asset located in India
 Income from business connection in India
 Salary from services rendered in India
 Salary from services rendered by a citizen for government of India outside
India
 Interest income or royalty/fee income from government of India
 Interest income or royalty/fee income received from a resident Indian (for
purpose other than overseas business)
 Interest income or royalty/fee income received from a non-resident Indian
for running business in India
  Resident and Resident but not Non-resident
ordinarily resident ordinarily resident

Indian Income Taxable Taxable Taxable

Foreign Income
–     If it is business income and business is controlled Taxable Taxable Not taxable
wholly or partly in from India

–     If it is income from a profession which is set up in Taxable Taxable Not taxable
India

–     If it is business income and business is controlled from Taxable Not taxable Not taxable
outside India

–     If it is income from a profession which is set up Taxable Not taxable Not taxable
outside India

–     Any other foreign income (like salary, rent, interest, Taxable Not taxable Not taxable
etc.)
Example:- Compute taxable income of Raman if he is
resident, Not ordinarily resident and Non resident

i) Dividend from Indian company 10,000

ii) Profit from business in japan received in India 1,20,000
iii) Profit from business in Pakistan deposit in bank there, this business controlled from 200,000
India
iv) Profit from business in Indore (controlled by London head office) 1,10,000
v) Interest received by non resident on loan provide to him for business carried on in India 50,000
vi) Income earned in America received there but brought in India 80,000
vii) Share of income from Indian partnership firm 1,50,000
viii) Income from house property in India received in America 62,000
ix) Interest on debentures of an Indian company received in Dubai 25,000
x) Capital gain on sale of agricultural land situated in Ajmer 48,000
IMPORTANT NOTE

 While calculating number of days stay in India , Both day of departure and
arrival in India are to be counted as stay in India
 Not Ordinarily Resident

N.O.R.= Basic Conditions (At least any 1) + Additional Conditions (Not Satisfied)
Non-Resident

 When a person does not satisfy the BASIC CONDITIONS.

 Additional conditions are irrelevant.
 ILLUSTRATION

Mr. Amit, who was born and brought up in India, went for
further studies to U.K. on 1st March, 2014 and came back to
India on 1st October, 2015. Find out his residential status
for the Assessment year 2016-17.
ILLUSTRATION

 Determine the residential status of Mr. X for the previous year 2016-17 who left
India for the first time on 15-09-2012 and came back on 1-9-2015. He again left
for Dubai on 15-6-2016 to come back on 14-02-2017 to settle in India for ever.
ILLUSTRATION

 Mr Heynes, a West Indian, came to India for the first time on 10-01-2013 and left
for Australia on 15-09-2013. He again came to India on 1-5-2016 to leave for
South Africa on 15-7-2016. Determine his residential status for the previous year
2016-17.
ILLUSTRATION

 Mr Singh, shifted from India on 15-11-2015 to settle there. He came back to India
on 15-12-2016 to attend the last rites on the death of a relative and was to go back
on 01-01-2017 but due to illness he stayed in India till 28th Feb. 2017. The
assessing officer wants to treat him as a resident for the previous year 2015-16. Is
he correct?
ILLUSTRATION

 Mr A came to India for the first time from USA on 30th June 2010. He stayed here
at a stretch for 3 years and left for Japan on 1 st July 2013. He returned to India on
1st April 2014 and remained here till 31st July 2014 when he went back to USA.
He again came to India taking an employment with an American concern on 20 th
January 2017. Determine his residential status for the AY 2017-18.