1. Meaning
Determination of the "Residential Status" of an assessee is one of the key concepts under the Income Tax Act, 1962 since the taxability of an assessee be it an individual, a firm, a company, etc. is determined based on its residential status during any given assessment year.
It is pertinent to note that the term "Residential Status" has been defined under the tax laws with the purpose of determining tax paying liability of an assessee within the Indian Jurisdiction and it has nothing to do with the status of citizenship or nationality of an individual. It may so happen that an Indian citizen may be a "Non Resident" for the purpose of taxation in India or a citizen of a Foreign country may be a "Resident" liable to pay tax in India.
2. Classification of the Residential Status of the Assessee
Based on the provisions for Determination of Residential Status of the Assessee (discussed in the para below), assesses are classified as under:
- Resident
- Resident but Not Ordinarily Resident
- Non - Resident
Taxability of each category of the taxpayer is determined based in their residential status.
3. Resident
A) An individual is said to be a "resident" in any previous year, if-
a) Such individual is in India during such previous year for a period of 182 days or more. Here, it is not necessary for such person to be in India for 182 days or more at a stretch. Even if the sum total of multiple trips taken by such person to India during the previous year is 182 days or more, such individual will be deemed as a Resident; or
b) Such individual was in India for a period of 365 days or more during the 4 years immediately preceding the previous year and is in India for a period of 60 days or more during the previous year. Both the criteria must be satisfied in this condition for an individual to be considered as a Resident.
"The second condition mentioned above is a key condition which has the potential to cover many people especially the NRIs settled abroad who visit our country regularly every year to visit friends and family back here."
Exception to the 60 day rule:
i) In order to protect the interests of Indian Citizens working as a crew of a ship or going abroad for employment in the previous year, the said period of 60 days has been extended to 182 days or more.
ii) Any person being an Indian Citizen or a person of Indian Origin having total income other than income from foreign sources exceeding 15 lacs during the previous year, the said period of 60 days has been extended to 182 days or more. (This condition will not be applicable if the person is not liable to tax in any other country or territory by reason of his domicile or residence or other criteria)
B) A Hindu undivided family (HUF), firm or association of persons are said to be resident of Indian in a previous year except when the control and management of its affairs are situated outside India.
C) A company is said to be resident in India in any previous year -
a) It is an Indian Company; or
b) Its place of effective management is in India
4. Resident but Not Ordinarily Resident
Once the residential status of an individual has been determined as a "resident", the nest step is to determine whether such "resident" is a Resident Ordinary Resident (ROR) or Resident but Not Ordinary Resident (RNOR).
An individual will be considered as ROR if he satisfies both of the following conditions:
a) He has been a resident of India in at least 2 out of 10 immediately preceding previous years.
b) He has stayed in India for at least 730 days in 7 immediately preceding years
5. Non Resident
Any person not satisfying the definition of resident as mentioned above will be considered as a Non Resident for tax purpose in India.
6. Taxability
A) A resident have to pay tax on their global income subject to the provisions of the Income Tax Act, 1962.
B) Tax liability of NR or RNOR will be limited to income accrued, deemed to accrue or received in India. (Subject to the provisions of Income Tax Act and Double Taxation Avoidance Agreement with the country of residence of such person)
UPDATE
CBDT has vide its Circular 11 of 2020 dated May 8, 2020 clarified that any person who was not able to leave the country as a result of lock-down imposed due to the outbreak of Corona Virus, the period of stay from 22nd March, 2020 till 31st March, 2020 or from the period of quarantine till 31st March, 2020 shall not be considered for the purpose of determination of residential status.
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