Residence in India as per Income Tax Act, 1961
The residential status of an individual is very important as per Income Tax Act, 1961. Provisions relating to residential status is in section 6. Residence in India of Income Tax Act. Taxability of any income depends upon residential status under this Act. Residential Status has nothing to do with Citizenship of India. Even foreign citizens can be resident in India for tax purposes depending upon their period of staying in India. There are two categories – (i) Resident and (ii) Non-Resident. All individuals are either Resident or Non-resident for a Previous Year. A Resident in a Previous Year (Year for which taxability is to be determined) can become non-resident in succeeding year. But, he/she cannot be both a resident and non-resident.
Individuals (Person only) and HUF (Hindu Undivided Family) can further be sub-divided into two categories. (i) Resident and Ordinarily Resident, and (ii) Resident but not Ordinary Resident. Other all individuals as Company, Firm and entities can be either resident or non-resident only.
Residential Status for Person
A Person will be resident in India if he/she any of the below conditions –
- He/She has been in India during Previous year for 182 days or more; or
- He/She has been in India during the Previous year for 60 days and during 4 years immediately preceding Previous Year, he/she has been India for 365 days or more.
If a person satisfies any of the above conditions, he/she will be resident in India for concerned Previous Year. There is an exception for a certain type of person. A person is resident if and only if he/she stays in India for 182 days or more in relevant Previous Year. The second condition of staying 60 days is ignored for below-mentioned persons –
- Indian citizens, who leave India in any 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 engaged outside India in an employment or a business or profession or in any other vocation, who comes on a visit to India in any previous year
So a Person leaving India as a crew member of a Ship can be resident only if he stays for 182 days or more during relevant Previous Year. But, there was confusion about which dates to include as staying in India. The Central Board of Direct Taxes (CBDT) has inserted Rule 126 in the Income-Tax Rules, 1962 vide Notification No.70/2015 dated 17.8.2015. This Rule helps to compute the period of stay in such cases.
According to Rule 126, for the purposes of section 6(1), in the case of an individual, being a citizen of India and a member of the crew of a ship, the period or periods of stay in India shall, in respect of an eligible voyage, not include the following period:
- The Period Commencing from the date entered into the Continuous Discharge Certificate in respect of joining the Ship by the individual for the eligible voyage to
- The Period ending on the date entered into the Continuous Discharge Certificate in respect of signing off by that individual from the ship in respect of such voyage.
Eligible Voyage means a Voyage undertaken by a Ship engaged in the carriage of passengers or freight in the International traffic where –
Voyage starts from any port in India and terminates to any port outside of India, or
The voyage starts from any port outside of India and terminates at any port in India.
Further his/her status is divided into two categories – (i) Resident and Ordinary Resident, and (ii) Resident and non-ordinary. Any person can be Resident but not ordinary if he/she satisfies any of the below conditions –
- He/She is non-resident in any 9 of 10 Previous Year preceding the relevant Previous Year for which his/her residential status is to be determined.
- If he/she has stayed in India for 729 days or more during Previous Year preceding the relevant Previous Year for which his/her residential status is to be determined.
So, a person can be resident and ordinary resident only when he/she satisfies both the conditions listed below –
- He/She is resident in 2 Previous Year preceding the relevant Previous Year.
- He/She has stayed in India for more than 729 days in India during 7 Previous Year preceding the relevant Previous Year.
Residential Status for HUF
A Hindu Undivided Family (HUF) is resident in India if It’s controlled from India. HUF is resident when it is controlled and managed from a place in India. Its status of ordinary or not ordinary is determined by the status of its Karta. If Karta of an HUF is resident and ordinary resident, HUF will also be resident and ordinary HUF. Similarly, if Karta of an HUF is a resident but not ordinary resident, HUF will also be resident but not ordinary Resident.
Residential Status for Firms & Association of Persons
A Firm or Association of Persons will be resident in India if it’s controlled and managed from a place in India. This control can be either full or in part. If it is wholly controlled and managed in a place outside of India, it will be non-resident for relevant Previous Year.
Residential Status of Companies
A company would be resident in India in any relevant previous year if it satisfies any one of the conditions listed below –
- it is an Indian company; or
- its place of effective management, in that year, is in India.
Indian Company means a Company registered in India as an Indian Company. Place of Effective Management means the place where it’s key managerial and business decisions are taken.
Residential Status of local authorities and artificial juridical person
Local authorities and the artificial juridical person will be resident in India if their place or control and management are in India. This control and management from a place in India can either be wholly or partly. If they are controlled and managed wholly from a place outside of India, they will become non-resident for that relevant Previous Year.
Now that you have understood the residential status under Income Tax Act, you can read our article – Taxation as per residential Status under Income Tax Act.