Residential+Status

8/3/2019 Residential+Status

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RESIDENTIAL STATUS AS PER INCOME TAX ACT• Residential Status of a person determines

whether the person‟s income is chargeable

to tax in India or not.

• It is necessary because total income of aperson cannot be assessed until and unlesshis/ her residential status is determined asper the rules prescribed in the Income taxAct‟ 1961.




• PLEASE NOTE :

• Residential Status determination is very crucial being the First Stepin the Assessment of Income, hence calculations should be madestrictly as per the prescribed rules only.

• Residential Status has to be determined for each previous year asper the assessment of income of each previous year.

• Assessment of wrong Residential Status may lead to wrong

assessment of Income and may attract various Penalties as statedin Section 271 of the Income Tax Act’ 1961.

• A person may be resident in more than one country for any previousyear. The chargeability of tax may be subject to Double TaxationAvoidance Treaty if exists between the two countries.

• Citizenship and Residential status of a person are separate

concepts, since former has a direct reference to the Constitution ofIndia, while latter has reference to Indian Income Tax Act only.• For the purpose of determining Residential Status of a Firm or a

HUF, the Residential Status of Partner of the firm or the members ofthe HUF is immaterial except in cases where the residence of thePartners or the Family members affects its control & management.




CATEGORIES OF Residential Status

Category Individuals/ HUF Any Other forms ofPerson

A Resident in India• Ordinarily Resident.

• Not Ordinarily Resident

Resident in India

B Non resident in India Non resident in India




RULES FOR DETERMINING THE RESIDENTIALSTATUS OF A PERSON• Let’s bifurcate the answer to this question in Five Parts:

• Part A : Residential Status of an Individual• Part B : Residential Status of an Hindu Undivided

Family (HUF)• Part C : Residential Status of Firms and Association

of Persons• Part D : Residential Status of a Joint Stock

Company.

• Part E : Residential Status of every other ArtificialJuridical p




RESIDENTIAL STATUS OF AN INDIVIDUAL,sec(6)

• For determining the Residential Status of an Individual one has topass the litmus test of two broad situations, First is the testing of twoBasic Conditions, and Second is the testing of other two Additional

Conditions.

• BASIC CONDITIONS: Basic Condition (a) He is in India in the previous year for a

period of 182 days or more.

Basic Condition (b) He is in India for a period of 60 days ormore during the previous year and 365days or more during 4 yearsimmediately preceding the previousyear




• The above period of 60 days gets extended to 182 days in the

following three situations:

• 1) If you being an Indian Citizen leave India during the previousyear for the purpose of employment outside India; or,

• 2) If you being an Indian Citizen leave India during the previous

year as a member of the crew member of an Indian Ship.

• 3) If you being an Indian Citizen or a Person of Indian Origin come to visit India during the previous year.

• So if any Individual/ HUF satisfies at least one of two basicconditions subject above exemptions he gets qualified for thesecond round of tests i.e., testing of two additional conditions.

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http://indiataxes.com/Information/incometax/contents/other/per_indianorigin.htm




ADDITIONAL CONDITIONS: (a) He has been “resident” in India in at

least 2 out of 10 previous years

immediately preceding the relevantprevious year.

(b) He has been in India for a period of 730days or more during 7 yearsimmediately preceding the relevantprevious year




• Here you must note that unlike testing of the twobasic conditions as mentioned above here theIndividual has to satisfy both theconditions simultaneously to qualify him/ herself as a ‘Resident and Ordinarily Resident’Abbreviated as ROR,sec 6(1)

• However if an Individual is able to satisfy eithernone or only one of the two additional conditionsspecified above he qualifies himself as a‘Resident but not Ordinarily Resident’Abbreviated as RNOR

• Non Resident satisfies none of the basicconditions and the additional conditions areirrelevant.




RESIDENTIAL STATUS OF A HUF • Hindu Undivided Family can either be Resident or a Non Resident in

India. Like an Individual, HUF can also be ROR, RNOR or a NonResident. Following are the conditions when a HUF can either be aResident or Non resident:-

• Situation I: HUF qualifies as a „RESIDENT‟

Basic Condition The Control andManagement of affairs of

the HUF is wholly or partlysituated in India.

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• The term Control and Management refers to thedecisions taken regarding affairs of the HUF;

• Once it is determined that the HUF is Resident

for the Previous year then one has to assesswhether it is ROR or RNOR. If the HUF satisfiesboth of the below mentioned AdditionalConditions simultaneously it qualifies as ROR

but if none or only one of the additionalconditions is satisfied the HUF qualifies asRNOR for the relevant Previous Year.








Additional Condition (a) Karta has been “resident” inIndia in at least 2 out of 10previous years immediatelypreceding the relevant previousyear

Additional Condition (b) Karta has been in India for aperiod of 730 days or more

during 7 years immediatelypreceding the relevant previousyear.




Situation II: HUF qualifies as a „NON-RESIDENT‟

Basic Condition The Control and Managementof affairs of the HUF is totally

Outside India

• RESIDENTIAL STATUS OF FIRMS OR AOP

• A Firm or Association of Persons can either beResident or a Non Resident in India. Unlike anIndividual / HUF, a firm or AOP can not be assessedas ROR or RNOR. Following are the conditions whena Firm or AOP can be treated as a Resident or Nonresident for a previous year:




The term Control and management herein refers to in

case a firm is in the hands of the Partner and in case ofAOP in the hands of the Chief Officer and in no sense

refers to the management of day to day business affairs

Status Control and Management of

Affairs

RESIDENT Is situated Wholly in India

Is situated Partly in India

NON RESIDENT Is situated totally Outside

India




RESIDENTIAL STATUS OF A JOINT STOCK COMPANY

• A Company can be assessed as Resident or a Non Resident inIndia on the same lines as a Firm or an AOP can be assessed.Following are the conditions when a Company can be treated as aResident or Non resident for a previous year.

• The term Control and management herein refers to CentralControlling Power and has no reference to the day to day affairs ofthe Company

An Indian

Company A Foreign Company Control and Management

of Affairs

RESIDENT RESIDENT

NON-RESIDENT

Is situated Wholly in India


Is situated totally Outside India




RESIDENTIAL STATUS OF EVERY ARTIFICIAL JURIDICAL

PERSON

• Every other person can be assessed as Resident or aNon Resident in India on the same lines as a Firm/ AOPor a Company can be assessed. Following are theconditions when an artificial juridical person can be

treated as a Resident or Non resident for a previousyear:-

Status Control and Management of Affairs

RESIDENT Is situated Wholly in India


NON RESIDENT Is situated totally Outside India




Relationship between residential status and Incidenceof Tax (Section 5) :-

• The below diagrammed table will provide distinct clarity on IncomeChargeability on the basis of one’s Residential Status:-

Type of

Income

ROR RNOR Non Resident

Indian

Income Taxable in India Taxable in India Taxable in India




Type of Income ROR RNOR Non Resident

Foreign Income

If it is BusinessIncomebusiness iscontrol wholly

or partly fromIndia

Taxable inIndia

Taxable inIndia

Not Taxable inIndia

It is fromIncome fromProfessionwhich is setupin India

Taxable in

India

Taxable in

India

Not Taxable in

India




If it is Business

Income &business iscontrolled fromoutside India

Taxable in

India

Not

Taxable inIndia

Not

Taxable inIndia

It is from Income

from Professionwhich is setupoutside India

Taxable in

India

Not

Taxable inIndia

Not

Taxable inIndia

Any other

Foreign Income Taxable inIndia NotTaxable inIndia

NotTaxable inIndia




ANY OTHER FORM OF PERSON

Type of Income Resident Non Resident

Indian Income Taxable in India Taxable in India

Foreign Income Taxable in India Not Taxable inIndia




RECEIPT OF INCOME vs. REMITTANCE OF

INCOME

• As per the Act all Income received in India istaxable irrespective of residential status of aperson, but a clear difference infact existsbetween receipt & remittance of income, theformer if received in India becomes taxable in

India and latter if received outside India, butremitted to India afterwards, becomes nontaxable in India.




Example

• Mr. A, an Indian Citizen received $4000 in out of FixedDeposits made by him in Bank of America, USA. Whichhe later remitted to India at an exchange rate of 1$= Rs.40/- (i.e., 1,60,000/- INR), Is his Income taxable in India

or USA?

• The Answer is that his Income is not taxable in India butis taxable in USA. The reason behind this is the Incomeout of Interest aroused & was received in USA by the

assessee, only later it was remitted to India. Herein thelaw clearly states that only receipts in India are taxableand not remittances made after any receipt of suchIncome outside India




CASH vs. KIND

• It is not necessary that an Income should beactually received in Cash form only, even if the

Income is received in Kind form it is taxable inIndia, e.g., Mr. A received a Maruti Car onwinning Kaun Banega Badshaah? contest. Inthis case tax calculated at applicable rates on

cost of Maruti car as on the date of receipt oraccrual, whichever is earlier will have to be paidto Govt. in cash.

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