RESIDENTIAL STATUS AND TAX INCIDENCE

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3 .»Tax incidence on an assessee depends on his residential status. whether an income. accrued to an individual outside India. »For instance. is taxable in India depends upon the residential status of the individual in India.

»Similarly. depends on the residential status of the individual. the determination of the residential status of a person is very significant in order to find out his tax liability 4 . whether an income earned by a foreign national in India (or outside India) is taxable in India. »Therefore. rather than on his citizenship.

»A Joint Stock Company. »A Hindu Undivided Family(HUF).& »Every other person.WHAT MUST ONE KNOW FOR DECIDING RESIDENTIAL STATUS »Different taxable entities » An individual. »A firm or an Associations Of Persons (AOP). 5 .

or Resident and ordinarily resident in India Resident but not ordinarily Non-resident in India. companies BOI . resident in India . AOPs Resident in India. or Non-resident 6 .Like firms ..Different residential Status FOR INDIVIDUALS & HUF ALL OTHER ASSESEE.

HOW TO DETERMINE THE RESIDENTIAL STATUS OF THE INDIVIDUAL 7 .

Residential Status of Individual The residential status of individual will be determined as underAssessee Basic Condition Additional Condition two additional Resident He must satisfy at least one of the Must satisfy basic conditions. Non-Resident Should not satisfy any of the basic Not required. conditions given u/s 6(6). conditions. conditions Not Ordinarily Resident He must satisfy at least one of the satisfy one or none of additional basic conditions. 8 .

9 . then find out whether he is ³ordinarily resident´ in India.Resident and ordinarily resident »STEP »First find out whether such individual 1 is ³Resident´ in India »STEP »If such individual is ³Resident´ in 2 India. then no further investigation is necessary. However. if such individual is a ³Nonresident´ in India.

10 .BASIC CONDITIONS TO TEST AS TO AN INDIVIDUAL IS RESIDENT BASIC CONDITION 1 BASIC CONDITION 2 He must be in India for a period of 182 days or more during the previous year. or He must be in India for a period of 60 days or more during the previous year and 365 days or more during the four years immediately preceding the previous year.

11 . »An Indian Citizen or a Person of Indian Origin visits India during the previous year »Then he shall be a Resident of India only if he is in India for 182 days or more.Exceptions »Period of 60 days referred in basic condition 2 has been extended in following circumstances : »An Indian Citizen leaves India during the previous year as a crew member of a ship or for the purpose of employment outside India.

Additional Condition 1 CONDITIONS TO TEST AS TO WHEN A RESIDENT INDIVIDUAL IS ORDINARILY RESIDENT IN INDIA Additional Condition 2 He has been resident in India in at least 2 out of 10 previous years immediately preceding the relevant previous year He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year 12 .

»In brief it can be said that an individual becomes resident and ordinarily resident in India if he satisfies at least one of the basic conditions and the two additional conditions 13 .

(6) (A)] Case 1 Case 2 If he satisfies at least one of the basic conditions. but none of the additional conditions If he satisfies at least one of the basic conditions ³AND´ one of the two additional conditions 14 . 6(1).CONDITIONS TO TEST AS TO WHEN A RESIDENT BUT NOT ORDINARILY RESIDENT [SEC.

RESIDENT »An individual is a Non-Resident in India if he satisfies none of the basic conditions. In the case of non-resident. additional conditions are not relevant 15 .NON .

» Resident HUF: If the control and management of the affairs of HUF is situated wholly or partly in India then HUF is said to be Resident in India. » When a resident HUF is ordinarily resident in India A resident HUF is ordinarily resident in India if the karta of the family satisfies the two additional conditions as laid down in section 6(6)b 16 .Resident HUF: If the control and management of the affairs of HUF is situated wholly outside India then HUF is said to be Non.Residential Status of HUF The residential status of HUF depends upon the control and management of its affairs.Resident in India. » Non.

Residential status of a company »An Indian company is always resident in India. 17 . during the previous year . control and management of its affairs is either wholly or partly situated out of India. during the previous year . »A foreign company is resident in India only if . a foreign company is treated as non resident if . control and management of its affairs is situated wholly in India »In other words .

RELATIONSHIP BETWEEN STATUS AND INCIDENCE OF TAX 18 .

Relationship between status and Incidence of tax Sec 6(4) »Under the Act . incidence of tax on a tax payer depends on his residential status and also on the place and time of accrual or receipt of income. »INDIAN INCOME AND FOREIGN INCOME : »Indian Income : Any of the following three is an Indian income² »If the income is received in India during the previous year and at the same time it accrues in India during the previous year. Accrues: happens 19 .

»FOREIGN INCOME: if the following two conditions are satisfied then such income is foreign income-- 20 .» If the income is received in India during the previous year but it accrues outside India during the previous year. »If the income is received outside India during the previous year but it accrues in India during the previous year.

»Income is not received in India . and »Income does not accrue or arise in India 21 .

Case 1 and Case2 given below are taxable in India . Any other foreign income is not taxable in India Non resident in India Taxable in India Not taxable in India Case 1 Business income and business is controlled wholly or partly in India Case 2 Income from profession which is set up in India 22 .Incidence of tax for different tax payers INDIVIDUALS AND HINDU UNDIVIDED FAMILY Resident and ordinarily resident Indian income Foreign income Taxable in India Taxable in India Resident but not ordinarily resident Taxable In India Only two types of foreign income s i..e.

FIRM CO-OPERATIVE SOCIETY ETC Resident in India Non resident in India Indian income Foreign income Taxable in India Taxable in India Taxable In India Not Taxable in India .Incidence of tax for different tax payers ANY OTHER ASSESSE ( LIKE COMPANY . 23 .

Foreign income : foreign income is taxable in the hands of resident or resident and ordinarily resident in India. Foreign income is not taxable in the hands of non resident in India 24 .Conclusions »Conclusions ± The following broad conclusions can be drawn ± 1. Indian Income: Indian income is always taxable in India irrespective of Residential Status of the tax payer » 2.

»In the hands of resident but not ordinarily resident tax payer . foreign income is not taxable in the hands of resident but not ordinarily resident taxpayers 25 . foreign income is taxable only if it is (a) business income and business is controlled wholly or partly from India or »(b) professional income from a profession which is set up in India »In any other case .

»Back up slides 26 .

Incidence of Tax Tax Incidence Particulars R Income received in India by or on behalf of assessee Income deemed to received in India by or on behalf of assessee Yes Yes NOR Yes Yes NR Yes Yes Income accruing or arising in India Income deemed to accrue or arise in India Yes Yes Yes Yes Yes Yes Income which accrues or arise outside India Yes No No 27 .

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