RESIDENTIAL STATUS

Introduction
All Taxable entities are divided in the
following categories for the purpose of
determining Residential Status :
1. an individual
2. a Hindu Undivided Family ( HUF)
3. a Firm or an Association of Person
(AOP)
4. a joint stock company ; and
5. every other person
Contd…..
Tax is levied on total income of assessee.
Under the provisions of Income Tax Act,
1961 the total income on each person is
based upon his Residential Status. Sec. 6 of
the Act divides the assessable persons into
Three Categories :
i. Resident ;
ii. Resident but Not ordinarily Resident ; and
iii. Non-Resident.
Contd…
 The concept of Residential Status has nothing to do with
nationality or domestic of a person. An Indian, who is a citizen
of India can be non-resident for Income Tax purposes, whereas
an American who is a citizen of America can be Resident of
India for Income Tax purposes.
 Residential Status of a person depends upon the territorial
connections of the person with this country , i.e. for how many
days he has physically stayed in India.
 The Residential Status of different types of persons is
determined differently .
 Similarly, the Residential Status of the Assessee is to be
determined each year with reference to the “Previous Year”.
The Residential Status of the Assessee may change from Year
to Year. What is essential is the Status during the Previous year
and not in the assessment year.
RESIDENTIAL STATUS OF AN ‘INDIVIDUAL’

An individual may be …

(a) Resident and ordinarily Resident in
India
(b) Resident and not-ordinarily
Resident in India;
(c) non-resident in India.
Resident and Ordinary Resident
[ Section 6 (1), 6(6)(a) ]
To determine the Residential Status of an Individual, [Section 6 (1)]
prescribes Two Test. An individual who fulfils any one of the
following Two Tests is called Resident under the provisions of this
Act. These Tests are :
 Test No. 1. Stay in India for 182 days or more.
 If an individual has to become Resend of India during any previous
year, his / her personal stay in India during that year is a must although
the number of days of stay differs in the two tests. It means that if an
individual does not stay in India at all in any previous year , he cannot
be Resident of India in that year. Stay in India means that the
individual should have stayed in India territory and anywhere ( cities,
villages, hills, even Indian territory waters ) for such number of days.
 The period of 182 days need not be at a stretch. But physical presence
for an aggregate of 182 days in the relevant previous is enough. The
Status of Resident is not linked with any particular place or town or
house.
Contd….
 The onus to prove the number of days of stay in India lies on
the assessee. It is for him to prove, if he desires to be taxed as
non-resident or not ordinarily resident.
 Test No. 2. Presence for 365 days during the Four
preceding Previous Year and 60 days or more in that
relevant Previous Year.
 A person may be frequent visitor to India. In his case, the
residential status will be determined on the basis of his
presence in India for 365 days in four years immediately
preceding the relevant Previous year. Along with this his
presence for 60 days during the relevant previous year is
another essential conditions to be fulfilled. The purpose,
object or reason of visit to and stay in India has nothing to do
with the determination of residential status.
Contd….
 Explanations :
 For Indian Citizen going abroad on a Job or as a member of
crew of an Indian ship [Explanation (a) ]
 In case of Indian citizen who is going outside Indian for a Job and
his contact for such employment outside India has been approved
by the Central Government or he is a member of crew of an Indian
Ship, Test (a) U/s 6(1) remains same but in Test (b) words ‘60 days’
have been replaced to 182 days.
 For Indian Citizens and Persons of Indian Origin [Explanation
(b) ]
 For such person Test (a) remains the same but in Test (b) )
words ‘60 days’ have been replaced to 182 days.
 ( A person shall be deemed to be of Indian origin if he or either of
his parents or any of his grand parents was born in India or
undivided India .)
Resident but Not-Ordinarily
Resident [ Section 6(6) ]
 An individual who is resident u/s 6(1) can claim the
beneficial status of N.O.R. if he can prove that :
(a) He was non resident in India for 9 previous years
out of 10 previous years preceding the relevant previous
year.
OR
(b) He was in India for a period or periods aggregating
in all to 729 days or less during seven previous years
preceeding the relevant previous year.
An individual who is Resident u/s 6(1) can be subdivided
into two categories :
(i) Ordinary Resident ; or
(ii) Not ordinarily Resident
Ordinary Resident
(a) He was in India for a period or periods totaling in all to
182 days or more during relevant previous year.
OR
(b) He was in India for a period or periods totaling in all
to 60 days or more during relevant previous year and 365
days or more during four previous years preceding the
relevant previous year.
And
Must be resident of India (by fulfilling at least one of two
above mentioned tests) in at least 2 out of 10 previous years
preceding the relevant previous year.
And
Must have stayed in India for 730 days or more during 7
previous years preceding the relevant previous year.
Resident But Not Ordinarily Resident
(a) He was in India for a period or periods totaling in all to
182 days or more during relevant previous year
OR
(b) He was in India for a period or periods totaling in all
to 60 days or more during relevant previous. year and 365
days or more during four previous years preceding the
relevant previous year.
And
Was non-resident in India in 9 or 10 previous years out of 10
previous years preceding the relevant previous year.
OR
Was in India for less than 730 days during 7 previous years
preceding the relevant previous year.
Non- Resident [ Section 2(30) ]
Under Sec. 2(30) of the Income Tax Act,
1961 an assessee who does not fulfill any
of the two conditions given in Sec. 6(1)
(a) or (b) would be regarded as “ Non-
Resident” assessee during he relevant
previous year for all purposes of this Act.
Contd….

 Rule of Residence for an Individual in brief :

 The following Table given below summarize the Rule of residence for the
assessment year 2018-2019.
n the case of an Indian Citizen who In the case of an Indian Citizen or a In the case of an individual [other
leaves India during the previous person of Indian origin ( who is than that mentioned in column (1)
year for the purpose of abroad) who comes on a visit to and (2)]
employment (as a member of the India during the previous year.
crew of an Indian Ship)

(1) (2) (3)

(a) Presence of at least 182 (a) Presence of at least 182 days in (a) Presence of at least 182 days
days in India during the previous India during the previous year 2018- in India during the previous year
year 2018-2019 2019. 2018-2019.
(b) Non-functional (b) Non-functional (b) Presence of at least 60 days
in India during the precious year
2018-2019 and 365 days during 4
years immediately preceding the
relevant previous year (i.e., during
April 1, 2014 and March 31, 2018.)
Residential Status OF ‘H.U.F.’, ‘FIRM’, ‘ A.O.P.’

 Section 6(2) of the Act provides that status of these persons shall
be determined as per Tests given below :
 1. Resident [ Section 6(2) ]
 It means that if a H.U.F. , FIRM, AOP is controlled from India
even partially it will be Resident assessee.
 The Control and management of affairs refers to the controlling
and directing power, the Head and the Brain. It means that
decision making power for vital affairs is situated in India. The
control and management means de facto control and
management and not merely the right to control or manage.
 In case of a Firm, it is said that the control and management of
firm is saturated at a place where partners meet to decide the
affairs of the firm. If such place is outside India , it will be said
that the control and management is outside India.
Contd….
 2. Non- Resident [ Section 2(30) ]
a H.U.F. , FIRM, AOP shall be Non-Resident if the control and
management affairs is situated wholly outside India.
 3. Not Ordinarily Resident [ Section 6(6)b ]
H.U.F. will be ‘Not Ordinarily Resident’ if :
(i) its manager (Karta) has not been resident in India in 9 out of 10
previous year preceding the relevant accounting year ; or
(ii) the manage had not , during the 7 previous year preceding the
relevant accounting year been present in India for a period or periods
amounting in all to 730 days.
 While determining the Residential Status of a Firm or HUF Is should be
noted that Residential Status of Partners or co-parceners of a HUF is of
immaterial consideration. What is important to note is that from where the
business is being controlled. There may be a situation where all the
partners of a Firm are Resident in India but even then that Firm may be
Non-Resident if its full control and management lies outside India.
Residential Status Of A ‘COMPANY’ [Section 6(3)]

An Indian Company is always Resident in

India. A foreign Company is resident in
India, only if, during the previous year ,
control and management of its affairs is
situated wholly in India. Conversely, a
Foreign Company is treated as Non-
Resident if, during the previous year,
Control and Management of its affairs is
either wholly or partially situated out of
India.
Residential Status Of ‘ Every Other Person’ [Section 6(4)]

Every other person is resident in India if

Control and Management of his affairs is,
wholly or partly, situated within India
during the relevant previous year.
On the other hand, every other person is
non-resident in India if control and
management of its affairs is wholly
situated outside India.
Amendments of ‘Residential Status’
for Assessment Year 2021-22
Type of Assessee
Residential Individual
Residential status of
Indian citizens non-resident in any
country
Not-Ordinarily resident in India
Not Ordinarily Resident HUF
Conditions for Assessment year 2020-21 Conditions for Assessment Year 2021-22
The condition of Stay in India for ’60 The condition of Stay in India for ’60
days’ is substituted by ‘182 days’ for days’ is substituted by ‘120 days’ for
certain class of Individuals (i.e. Indian certain class of Individuals (i.e. Indian
Citizens, etc.) Citizens, etc.)
Indian citizens if not a ‘resident of any
No such provision other country shall be deemed as
‘resident in India’
A resident individual is deemed as not- A resident individual is deemed as not-
ordinarily resident in India, if he has ordinarily resident in India, if he has
been a non- resident in India for at least 9been a non-resident in India for at least 7
years out of 10 years preceding the years out of 10 years preceding the
previous year. previous year.
A resident HUF is deemed as not- A resident HUF is deemed as not-
ordinarily resident in India, if Karta is’ ordinarily resident in India, if manager
non-resident’ in 9out of previous 10 has been a ‘non-resident’ in 7 out of
years. previous 10 years.
 Indian Citizens if not a ‘Resident’ of any other country shall be
deemed as ‘Resident in India’ [Applicable from Assessment
Year 2021-22]
 As residential status of an individual is determined on the basis of
number of days of his stay in India. An individual can arrange his
affairs in such a fashion that he does not become a tax resident of
any country during a particular year. He may carry out substantial
economic activities from India but he can manage his period of stay
in India so as to remain a non-resident in every country and not
required to declare his global income in India. This arrangement is
typically employed by High Net-Worth Individuals (HNIs) and
crew members on ships.
 The current rules governing tax residence make it possible for such
individuals, who may be Indian citizens receiving income sourced
from India, to not pay tax on that income anywhere in the world.
Therefore, it has been proposed by the Finance Bill that an Indian
citizen, who is not a tax resident of any country or jurisdiction, will
be considered to be a tax resident of India.
 The condition to substitute ’60 days with 182 days’ is changed from
’60 days to 120 days’ [Applicable from Assessment Year 2021-22]
 The residential status of an individual is determined by the number of
days of his stay in India. Under the existing Act, an individual is
resident in India in a financial year if:
 he is in India for 182 days or more during the year; or
 he has been in India for 365 days or more during the 4 immediately
preceding years and for 60 days or more during the financial year.
 However, in respect of Indian citizens who leave India during the
relevant financial year for the purpose of employment outside India or
as a member of the crew of an Indian ship, and in respect of Indian
citizens as well as persons of Indian origin who visit India during the
year, the period of 60 days as mentioned in (b) above is read as 182
days. It has been observed by the authorities that the relaxation given
by substituting the period of 60 days with 182 days is sometimes
misused. Therefore, the Finance Bill proposes that the period of stay in
India should be reduced from 182 days to 120 days.
 Condition to become ‘Not-Ordinarily Resident’ partially relaxed
[Applicable from Assessment Year 2021-22]
 As per Section 6 of the Income-tax Act, a resident individual is deemed as
not-ordinarily resident in India, if he satisfies any of the following
conditions:
 He has been a non-resident in India for at least 9 years out of 10 years
preceding the previous year; or
 He has been in India for 729 days or less during the period of 7 years
preceding the previous year.
 The category of ‘resident but not ordinarily resident’ has been introduced
to ensure that a non-resident does not suddenly face the compliance
requirements of a resident, merely because he spends more than 182 days
in India during a particular year. These conditions specified in the present
law have been the subject matter of disputes. Thus, the Finance Bill
proposes to rationalize these conditions and provides that an individual
shall be deemed to be ‘not ordinarily resident’, if he has been a Non-
Resident in any 7 out of the 10 immediately preceding years. This will also
help in avoiding any unintended hardship caused by the 120-day rule
discussed above.
 Indian Citizens who are ‘Bona Fide Workers’ : Clarification regarding
Proposal in the Finance Bill 2020
 The Finance Bill, 2020 has proposed that an Indian citizen shall be deemed
to be resident in India, if he is not liable to be taxed in any country or
jurisdiction. This is an anti-abuse provision since it is noticed that some
Indian citizens shift their stay in low or no tax jurisdiction to avoid payment
of tax in India.
 The new provision is not intended to include in tax net those Indian citizens
who are bona fide workers in other countries. In some section of the media
the new provision is being interpreted to create an impression that those
Indians who are bona fide workers in other countries, including in Middle
East, and who are not liable to tax in these countries will be taxed in India
on the income that they have earned there. This interpretation is not correct.
 In order to avoid any misinterpretation, it is clarified that in case of an Indian
citizen who becomes deemed resident of India under this proposed provision,
income earned outside India by him shall not be taxed in India unless it is
derived from an Indian business or profession. Necessary clarification, if
required, shall be incorporated in the relevant provision of the law.