2.Residential Status - College

8/11/2019 2.Residential Status - College

1/31

Residential status

1


2/31

Overview

The incidence of tax on an assessee depends upon

- nature of income (revenue or capital)

- place of its accrual or receipt

- assesseesresidential status

Assessees are either

- resident or

- non-resident

in India.

Resident individuals and Hindu undivided families may be

- resident and ordinarily resident or

- resident but not ordinarily resident

Residential status has to be determined for each previous year. Residential status canchange from year to year.

2


3/31

Residential status of an individualSec. 6

An individual may be

- resident and ordinarily resident

- resident but not ordinarily resident

- non-resident

Resident and ordinarily resident [Sec. 6(1), 6(6)(a)]

Step 1Determine whether individual is resident in India.

Step 2 - If individual is resident in India, determine whether he is ordinarily resident

in India.

3


4/31

Basic tests to determine whether an individualis resident in India

Section 6(1)

An individual is said to be resident in India in any previous year, if he satisfies atleastone of the following basic conditions

(a) he is in India in the previous year for a period of 182 days or more or

(b) he is in India for a period of 60 days or more during the previous year and 365days or more during the four years immediately preceding the previous year.

Note :

1. Residential status is always determined for the Previous Year (period of 12 monthsfrom 1st April to 31st March).

2. Stay in India includes stay in the territorial waters of India (12 nautical miles intothe sea from the Indian coastline.

4


5/31

Basic tests to determine whether an

individual is resident in India

3. Period of stay need not be continuous.

4. Stay need not be at the usual place of residence, business or employment of the

individual.

5. For counting the number of days of stay in India, both the date of arrival and the

date of departure are to be included.

6. Dates stamped on Passport are normally considered as proof of dates of departure

from and arrival in India.

7. Official tours abroad in connection with employment in India shall not be regarded

as employment outside India.

5


6/31



8. A person may be resident of more than one country for any Previous Year.

9. The residence of an individual for income tax purpose has nothing to do with

citizenship or place of birth. An individual can, therefore, be resident in more than

one country.

10. Citizenship of a country and residential status of that country are two separate

concepts. A person may be an Indian national/Citizen but may not be a resident in

India and vice versa.

6


7/31



Exceptions

A. Explanation (a) to Section 6(1)

The period of 60 days in (b) has been extended as follows :

Who can take the benefit of extended period Extended

period

An Indian citizen

- who leaves India

- during the previous year

for the purpose of employment outside India or

as a member of the crew of an Indian ship

182 days

7


8/31



B. Explanation (b) to Section 6(1)

The period of 60 days in (b) has been extended as follows :

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

Who can take the benefit of extended period Extended

period

An Indian citizen or a person of Indian origin

- who comes on a visit to India

182 days

8


9/31

Additional tests to determine whether aresident is ordinarily resident in India

Section 6(6)

A resident individual is treated as resident and ordinarily resident in India if he

satisfies the following 2 additional conditions

i. He has been resident in India in atleast 2 out of 10 previous years immediately

preceding the relevant previous year

AND

i. He has been in India for a period of 730 days or more in the 7 years immediately

preceding the relevant previous year.

9


10/31

Resident but not ordinarily resident &

Non-resident

Resident but not ordinarily resident

An individual

- who satisfies one or more of the basic conditions laid down in Section 6(1)

- but does not satisfy the 2 additional conditions laid down in Section 6(6)

is treated as resident but not ordinarily resident in India

Non-resident

An individual- who does not satisfy any of the basic conditions laid down in Section 6(1)

is treated as non-resident.

10


11/31

Residential status of a Hindu undivided family

Section 6(2)

A Hindu undivided family (HUF) is said to be resident in India if the control andmanagement of its affairs are wholly or partly situated in India.

If the HUF is resident, the status of the karta determines whether the HUF is

resident and ordinarily resident or resident but not ordinarily resident.

A resident HUF is ordinarily resident in India if -

- the karta or manager of the family (including successive kartas) is

i. resident in India in atleast 2 out of 10 previous years immediately

preceding the relevant previous yearAND

ii. he has been in India for a period of 730 days or more in the 7 yearsimmediately preceding the relevant previous year.

11


12/31

Residential status of a Hindu undivided family

If the karta / manager of a resident HUF does not fulfill any one or both the above

conditions, the HUF will be regarded as resident but not ordinarily resident in India.

An HUF will be non-residentin India if its control and management is situated wholly

outside India.

12


13/31

Residentialstatus of a company

Section 6(3)

An Indian company is always residentin India.

A foreign company is residentin India if the control and management of its affairs are

wholly situated in India during the relevant previous year.

However, a foreign company will be non-resident in India if its control and

management is situated wholly or partly outside India.

13


14/31

Residential status of a firm or an association ofpersons

Section 6(4)

A partnership firm or an association of persons is said to be resident in India if the

control and management of its affairs are wholly or partly situated in India during the

relevant previous year.

However, a partnership firm or an association of persons will be non-residentin India

if its control and management is situated wholly outside India.

14


15/31

Residential status of local authorities andartificial juridical persons

Section 6(4)

Local authorities and artificial juridical persons will be treated as resident in India if

the control and management of its affairs is situated wholly or partly in India.

Where the control and management of its affairs is situated wholly outside India, they

would become non-residents.

15


16/31

Control and management

The term control and management refers to the head and brain which

directs the affairs and management of the company.

Usually control and management of a companys affairs is situated at the place

where the meetings of its board of directors are held.

Control and management refers to the central control and management and not to

the carrying on of day-to-day business by servants, employees or agents.

The place of control and management may be different from the usual place ofrunning the business or even from the registered office of the assessee.

16


17/31

Incidence of tax

Section 5

Incidence of tax of a taxpayer depends on

- his residential status

- place of accrual or receipt of income

- time of accrual or receipt of income

Incidence of tax in the case of resident and ordinarily residentSection 5(1)

a. Income which is received or deemed to be received in India in the previous year byhim or on his behalf

b. Income which accrues or arises or is deemed to accrue or arise to him in Indiaduring the previous year and

c. Income which accrues or arises to him outside India during the previous year.

17


18/31

Incidence of tax

Incidence of tax in the case of resident but not ordinarily residentSection 5(1)

Same as in the case of resident and ordinarily resident except that income accruing orarising to him outside India is NOT to be included in his total income.

However, where such income is derived from a business controlled from or aprofession set up in India, then it must be included in his total income even though itaccrues or arises outside India.

Incidence of tax in the case of a non-residentSection 5(2)

a. Income which is received or deemed to be received in India in the previous year byhim or on his behalf and

b. Income which accrues or arises or is deemed to accrue or arise to him in Indiaduring the previous year.

18


19/31

Incidence of tax

The charge of income tax with regard to the three categories of taxpayers can be

summarised as follows:

19

Sources of Income R & OR R & NOR NR

Indian Income

Income received or deemed to bereceived in India during the

current financial year

Taxable in India Taxable in India Taxable in India

Income accruing or arising or

deemed to accrue or arise in India

during the current financial year



deemed to accrue or arise outside

India, but first receipt is in India




20/31

Incidence of tax

20

Sources of Income R & OR R & NOR NR

Foreign Income


deemed to accrue or arise outside

India and received outside India,


Taxable in India Not Taxable in

India

Not Taxable in

India

Income accruing or arising

outside India from a Business/

profession controlled in/from

India during the current financial

year

Taxable in India Taxable in India Not Taxable in

India

Income accruing or arising outside

India from any source other than

Business / Profession controlled

from India

Taxable in India Not Taxable in

India

Not Taxable in

India


21/31

Incidence of tax

In the above context, receipt of income refers to the first occasion when the

recipient gets the money under his own control and it is the first receipt that

determines the year and place of receipt for the purposes of taxation. If the

income is already received outside India, no tax liability will arise when the whole

or any part of such income is remitted to India.

Taxpayers in all categories are chargeable on income, from whatever sourcederived, which is received or is deemed to be received in India by or on behalf of

them or which accrues or arises or is deemed to accrue or arise to them in India

other than income specified as exempt income.

A "resident and ordinarily resident" pays tax in India on his entire world income,

wherever accrued or received.

A "non-resident" pays tax only on his taxable Indian income and his foreign income

(earned and received outside India) is totally exempt from Indian taxes.

A "not ordinarily resident" pays tax on taxable Indian income and on foreign

income derived from a business controlled in or a profession set up in India.

21


22/31

Deemed receipt and accrual of income in India

Taxability of a certain item as income would depend upon the method of accountingfollowed by the assessee.

Cash system income would be taxable only when received by the assesseehimself or on his behalf.

Mercantile system income would be taxable once the assessee gets the legalright to claim the amount.

Salaries liability to tax arises immediately when the income is due to theassessee irrespective of the method of accounting followed.

Dividends u/s 8, income would be included in the total income of theshareholder in the year in which final dividend is declared and in the case ofinterim dividend, in the year in which they are made unconditionally available tothe shareholders.

22


23/31

Meaning of income received or deemed to be

received

Income received or deemed to be received in India is taxable in India irrespective

of

assesseesresidential status

place of accrual of income

The receipt of income refers to only the first occasion when the recipient gets the

money under his control.

Once an amount is received as income, remittance or transmission of that amount

from one place or person to another does not constitute receipt of income in the

hands of the subsequent recipient or at the place of subsequent receipt.

23


24/31

Meaning of income received or deemed to

be received

Income deemed to be receivedSection 7

The following shall be deemed to be received during the previous year, irrespective ofwhether it is actually received or not

(i) The annual accretion to the balance at the credit of an employee participating in

a recognised provident fund, to the extent to which it is chargeable to tax underrule 6 of Part A of the Fourth Schedule

- employerscontribution in excess of 12% of salary

- Interest in excess of 8.5%

(ii) Transferred balance in a recognised provident fund to the extent to which it is

chargeable to tax under sub-rule (4) of rule 11 of Part A of the Fourth Schedule.

(iii) Contribution made by the Central Govt. or any other employer to the account ofan employee under a pension scheme referred to Section 80CCD.

24


25/31

Meaning of income accruing or arising

Accrue refers to the right to receive income, whereas due refers to the right toenforce payment of the same.

Example : Salary for work done in a month will accrue throughout the month, day today, but will become due on the last day of the month or the first day of the nextmonth.

Explanation 1 to Section 5 : An item of income accruing or arising outside India shallnot be deemed to be received in India merely because it is taken into account in abalance sheet prepared in India.

Explanation 2 to Section 5 : Once an item of income is included in the assesseestotalincome and subjected to tax on the basis of its accrual / deemed accrual or receipt, itcannot again be included in the personstotal income and subjected to tax either inthe same or subsequent year on the ground of its receipt whether actual ordeemed.

25


26/31

Income deemed to accrue or arise in India

Section 9

Certain incomes deemed to accrue or arise in India even though they may actuallyaccrue or arise outside India.

Applies to all assessees irrespective of residential status, nationality, domicile andplace of business.

Nature of income deemed to accrue or arise in India

Income from business connection in India

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

Capital gain on transfer of a capital asset situated in India

Income from salary if service is rendered in India Income from salary (not being perquisite / allowance) if service is rendered

outside India (provided the employer is Government of India and the employee isa citizen of India)

Dividend paid by an Indian company

26


27/31


Nature of

income [Sec.

9(1)(v) / (vi) /

(vii)]

From whom

income is

received

Payers source of income Whether income

deemed to accrue

or arise in India

Interest Government of

India

Any Yes

Interest A person resident

in India

Borrowed capital used by

the payer for carrying on

business / profession

outside India or earning

any income outside India

No

Interest A person resident

in India


the payer for any other

purpose

Yes

27


28/31


Nature of

income [Sec.

9(1)(v) / (vi) /

(vii)]

From whom

income is

received


deemed to accrue

or arise in India

Interest A person non-

resident in India


the payer for carrying onbusiness / profession in

India

Yes

Interest A person non-

resident in India


the payer for any other

purpose

No

28


29/31


Nature of

income [Sec.

9(1)(v) / (vi) /

(vii)]

From whom

income is

received


deemed to accrue

or arise in India

Royalty / fees

for technicalservices

Government of

India

Any Yes

Royalty / fees

for technical

services

A person resident

in India

Payment is relatable to a

business / profession or

any other source carried

on by the payer outside

India

No

Royalty / fees

for technical

services

A person resident

in India

Payment is relatable to any

other source of Income

Yes

29


30/31


30

Nature of

income [Sec.

9(1)(v) / (vi) /

(vii)]

From whom

income is

received


deemed to accrue

or arise in India

Royalty / feesfor technical

services

A person non-resident in India

Payment is relatable to abusiness / profession or

any other source carried

on by the payer in India

Yes

Royalty / fees

for technicalservices

A person non-

resident in India

Payment is relatable to any

other source of Income

No


31/31


Explanation to Section 9

Income of a non-resident shall be deemed to accrue or arise in India under clause (v)

interest, clause (vi)royalty or clause (vii)fees for technical services of Section 9(1)

and shall be included in his total income, whether or not, -

a. The non-resident has a residence or place of business or business connection in

India or

b. The non-resident has rendered services in India.

In other words, income by way of interest, royalty, fees for technical services fromservices utilised in India would be deemed to accrue or arise in India in case of a non-

resident and be included in his total income, whether or not such services were

rendered in India.

31

2.Residential Status - College

Documents

Transcript of 2.Residential Status - College