Understanding Residential Taxation Essential Information

Residential Status under Section 6: Determining Your Tax Liability

The taxpayers are classified into three broad categories on the basis of their residential status

1. Resident and ordinarily resident
2. Resident but not ordinarily resident
3. Non-resident

The residential status of an assessee must be ascertained with reference to each previous year. A person who is Resident and Ordinarily Resident in one year may become non-resident or resident but not ordinarily resident in another year or vice versa.

Residential status of Individuals 

Residential status on the basis of the Number of days of stay in India

Under section 6(1), an individual is said to be resident in India in any previous year, if he satisfies any one of the following conditions

• He has been in India during the relevant previous year for a total period of 182 days or more, or
  

• He has been in India during the 4 years immediately preceding the relevant previous year for a total period of 365 days or more and has been in India for at least 60 days in the relevant previous year

If the individual satisfies any one of the conditions mentioned above, he is a resident. If both the above conditions are not satisfied, the individual is a non-resident.

Notes

• The term “stay in India” includes stay in the territorial waters of India (i.e., 12 nautical miles into the sea from the Indian coastline). Even the stay in a ship or boat moored in the territorial waters of India would be sufficient to make the individual resident in india.
  
  
• It is not necessary that the period of stay must be continuous or active nor is it essential that the stay should be at the usual place of residence, business or employment of the individual.
  
  
• For the purpose of counting the number of days stayed in India, both the date of departure as well as the date of arrival are considered to be in india
  
  
• The residence of an individual for income-tax purpose has nothing to do with citizenship, place of birth or An individual can, therefore, be resident in more countries than one even though he can have only one domicile.

Exceptions

The following categories of individuals will be treated as resident in India only if the period of their stay during the relevant previous year amounts to 182 days or more. In other words, even if such persons were in India for 60 days or more (but less than 182 days) in the relevant previous year, they will not be treated as resident due to the reason that their stay in India was for 365 days or more during the 4 immediately preceding years.

• Indian citizen, who leaves India during the relevant previous year as a member of the crew of an Indian ship or for purposes of employment outside India, or
• Indian citizen or person of Indian origin who, being outside India comes on a visit to India during the relevant previous Year.

However, such person having total income, other than the income from foreign sources exceeding 15 lakhs during the previous year will be treated as resident in India if -

• the period of his stay during the relevant previous year amounts to 182 days or more,
• or he has been in India during the 4 years immediately preceding the previous year for a total period of 365 days or more and has been in India for at least 120 days in the previous year. 

Deemed resident [Section 6(1A)]

An individual, being an Indian citizen, having total income, other than the income from foreign sources [i.e., income which accrues or arises outside India (except income from a business controlled from or profession set up in India) and which is not deemed to accrue or arise in India], exceeding 15 lakhs during the previous year would be deemed to be resident in India in that previous year, if he is not liable to pay tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.

However, this provision will not apply in case of an individual who is a resident of India in the previous year as per section 6(1).

Meaning of “liable to tax” – Liable to tax, in relation to a person and with reference to a country, means that there is an income-tax liability on such person under the law of that country for the time being in force. It also includes a person who has subsequently been exempted from such liability under the law of that country [Section 2(29A)]..

Residential status of HUF

Resident - A HUF would be resident in India if the control and management of its affairs is situated wholly or partly in India.

Non-resident - If the control and management of the affairs is situated wholly outside India it would become a non-resident.

Resident and ordinarily resident/ Resident but not ordinarily resident - If Karta of resident HUF satisfies both the following additional conditions (as applicable in case of individual) then, resident HUF will be “Resident and ordinarily resident” (ROR), otherwise it will be “Resident but not ordinarily resident” (RNOR).

Additional conditions

1. Karta of resident HUF should be resident in at least 2 previous years out of 10 previous years immediately preceding relevant previous year.
2. Stay of Karta during 7 previous years immediately preceding relevant previous year should be 730 days or more. 

Meaning of the term “control and management”

• The expression ‘control and management’ referred to under section 6 refers to the central control and management and not to the carrying on of day-to-day business by servants, employees or
  
  
• The business may be done from outside India and yet its control and management may be wholly within Therefore, control and management of a business is said to be situated at a place where the head and brain of the adventure is situated.
  
  
• The place of control may be different from the usual place of running the business because the control and management of a business need not necessarily be done from the place of business or from the registered office of the assessee.
  
  
• But control and management do imply the functioning of the controlling and directing power at a particular place with some degree of permnence.
  

Residential status of companies

A company would be resident in India in any previous year, if-

• it is an Indian company; or
• its place of effective management, in that year, is in India. 

“Place of effective management” to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made [Explanation to section 6(3)]

Residential status of Firms, AoPs, BoIs, local authorities and artificial juridical persons

Resident - Firms, AoPs, BoIs, local authorities and artificial juridical persons would be resident in India if the control and management of its affairs is situated wholly or partly in India.

Non-resident - Where the control and management of the affairs is situated wholly outside India, they would become non-residents.

 ILLUSTRATION  1

Darren Bravo, a West Indies cricket player visits India for 102 days in every financial year. This has been his practice for the past 10 financial years.

1. Find out his residential status for the AY. 2022-23.
   
   
2. Would your answer change if the above facts relate to Srinath, an Indian citizen who resides in West Indies and represents the West Indies cricket team?
   
   
3. What would be your answer if Srinath had visited India for 120 days instead of 102 days every year, including P.Y.2021-22?

SOLUTION                                                                                                                        

Determination of Residential Status of Darren Bravo for the A.Y. 2022-23:

Period of stay during the P.Y. 2021-22 = 102 days

Calculation of period of stay during 4 preceding previous years (102 x 4=408 days)

Mr. Darren Bravo has been in India for a period of more than 60 days during P.Y. 2021-22 and for a period of more than 365 days during the 4 immediately preceding previous years. Therefore, since he satisfies one of the basic conditions under section 6(1), he is a resident for the A.Y. 2022-23.

Computation of period of stay during 7 preceding previous years = 102 x 7=714 days

Since his period of stay in India during the past 7 previous years is less than 730 days, he is a not-ordinarily resident during the A.Y. 2022-23. 

Therefore, Mr. Darren Bravo is a resident but not ordinarily resident during the previous year 2021-22 relevant to the A.Y. 2022-23.

1. If the above facts relate to Srinath, an Indian citizen, who residing in West Indies, comes on a visit to India, he would be treated as non-resident in India for previous year 2021-22, irrespective of his total income (excluding income from foreign sources), since his stay in India in the current financial year is, in any case, less than 120 days.
   
   
2. In this case, if Mr. Srinath’s total income (excluding income from foreign sources) exceeds 15 lakh, he would be treated as resident but not ordinarily resident in India for Y.2021-22, since his stay in India is 120 days in the P.Y.2021-22 and 480 days (i.e., 120 days x 4 years) in the immediately four preceding previous years.

If his total income (excluding income from foreign sources) does not exceed 15 lakh, he would be treated as non-resident in India for the P.Y.2021-22, since his stay in India is less than 182 days in the P.Y.2021-22.