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How to determine the residential status of an individual

How to determine the residential status of an individual in India? Income Tax is Chargeable on Income earned by an individual and the calculation of Income earned by an Individual depends whether an individual is a resident or a Non resident. In this article we would like to explain what makes an Individual a Resident of India and how is taxability of Income determined.

How to determine the residentail status of an individual

How to determine the residential status of an individual in India

(A) Let’s first understand how residential status is determined.

Residential status is determined on the basis of physical presence i.e. the number of days of stay in India in any Year and it is computed separately for each year. An Individual is a resident if he/she satisfies any of the following conditions:

  1. Is in India for a period of 182 days or more in that financial year.
  2. Is in India for 60 days or more during that financial year and has been in India for 365 days or more during 4 previous years immediately preceding the relevant financial year.

If none of the above mentioned Conditions are satisfied, the Individual is said to be a Non Resident Indian (NRI).

However there are certain exceptions to rule of Classification of Residential Status (i.e. only condition no.1 mentioned above is applicable). The following are the exceptions.

  • When an Indian Citizen leaves India in any previous year for the purpose of employment outside India or as crew member of an Indian Ship.
  • When an Indian Citizen or a person of Indian origin who resides outside India and comes on a visit to India.

An Individual who is a Resident as per the above mentioned provisions can be classified into two categories.

  • Resident and Ordinary Resident– A resident is an Ordinary Resident if he/she satisfies BOTH the below mentioned conditions.
  • Is a resident in India for 9 out of 10 years immediately preceding the financial year
  • Has been in India for at least 730 days during 7 years preceding the financial year.
  • Resident but not Ordinary Resident– If any the above condition is not satisfied the Individual is classified as Resident but not Ordinary Resident.

(B) Now, let us understand how an Individual’s Residential Status affects their Tax Liability.

  • Resident and Ordinary Resident: If an Individual is a Resident and Ordinary Resident then income in India or Outside India i.e. Global Income is taxable.
  • Resident but not Ordinary Resident: For a resident but not ordinary resident income accrued in India, income received in India and Income from business outside but controlled in India is taxable.
  • Non Resident: In case of a non resident Individual income which is accrued in India and received in India is taxable.

In the next article, we would come back with a brief detail on taxability of incomes of an NRI.

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