How to check whether an individual is a resident or non-resident in India as per Income tax act?
Section 6 deals with deciding on the residency of a person under Income tax act. In this article we shall discuss on who will be a resident in India as per Income tax act. Residency in India is mostly dependent on the number of days a person stayed in India.
The first condition to become a resident in India is as under:
1. A person will be considered as resident in India if it has stayed in India for 182 days or more
or
2. If a person has stayed in India in the past 4 financial year, preceding the financial year for which we are determining residency, for 365 days or more, and is in India for 60 days or more in the financial year for which we are determining residency.
There are few benefits or relief announced in the above conditions for a person to be considered as resident which are as under:
1. If a person who is citizen of India leaves India as a part of crew of ship or for the purpose of employment then the above condition no. 2, 60 days will be replaced by 182 days.
or
2. If a person who is citizen of India or person of Indian origin who stays outside India but visit India then also in the above condition no. 2, 60 days will be replaced by 182 days. However, if such person has income from Indian sources of more than Rs.15 lakh in a previous year then such 60 days limit mentioned in condition no. 2, will be replaced by 120 days. Hence, a person earning more than Rs.15 lakh from Indian sources, visit’s India won’t get the benefit of 182 days and will be considered as resident if they stay 120 days or more in India.
Thus, once a person is declared/ considered as resident then we need to further check whether he is an ordinary resident in India or not. If he becomes a non-resident then there is no need to check about him being an ordinary resident or not.
Thus, to check whether a person is ordinary resident or not we need to see sub-section 6 of Section 6 which is as under:
(1) First condition to check whether you are an ordinary resident or not is that one needs to be resident in India in 2 out of 10 previous year preceding to the year for which we are determining the residency.
and
(2) In 7 years, preceding the year for which we are determining residency, he has been in India for 730 days or more.
Thus, as the condition has and in between them so a person will be considered as resident only if he fulfills both the above conditions. If a person does not fulfill any of the above condition he will be considered as not ordinary resident.
Further, Income tax had introduced a new provision under Section 6 of Income tax act by insertion of sub-section 1A in relation to deemed residency under Income tax act. Relevant extract of sub-section 1A is as under:
“(1A) Notwithstanding anything contained in clause (1), an individual, being a citizen of India, having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year shall be deemed to be resident in India in that previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.
Explanation.—For the removal of doubts, it is hereby declared that this clause shall not apply in case of an individual who is said to be resident in India in the previous year under clause (1).“
Thus, according to above provision a person is said to be deemed resident in India if he has income from Indian sources of about Rs.15lakh and he is not liable to tax in any other country because of domicile or residence or any other criteria.
Please note that deemed residency shall not apply where the person is already declared as resident in sub-section 1 above.
Further, under sub-section 6, a person who is deemed resident will be considered as not-ordinary resident always.
Thus, considering the above it can be said that there are 3 types of residency status in India:
1. Ordinary resident – Global Income taxable in India.
2. Not ordinary resident – Income accrue in India, received in India and income of business controlled or managed from India would be taxable in India.
3. Non-resident – Only income accrue or received in India would be taxable.
We have discussed in brief above what income would be taxable in India. To know about the income which would be taxable in India for such persons in detail one can read Section 5 of the Income tax act.
A small snapshot that we have tried to create in relation to residency under Income tax act. Please comment your views if any change required in the same:
Guidance on above article for Indian Income Tax by:
Naman Maloo (C.A., B.Com)
He is currently working as Partner – Direct Tax with a renowned firm in Jaipur having experience in dealing Assessments before Income Tax authority, Tax Audit, International Taxation, Tax planning for NRI, Business planning and consultation.
E-mail: naman.maloo@jainshrimal.in | LinkedIn: Naman Maloo
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