From the perspective of income tax, determining the taxability status of a person in India is very important. So to calculate tax as per Income Tax ACT India, you have to determine your residential status. In order to determine a resident’s status in India, the Income Tax Department of India has prescribed certain guidelines which easily allow us to determine whether a person is a resident of India or not. Let us take a look at those guidelines.
Without knowing an assessee’s residential status, it is impossible to determine his total income. An individual who becomes a resident in India is liable to pay taxes on his worldwide income (including Indian and foreign income). However, an individual who becomes a non-resident is only liable to pay taxes on his Indian income. For each previous year, each person’s residential status must be determined independently.
Residential status: How to check?
- A Resident
- A Non-Resident (NRI)
- A Resident not Ordinarily Resident (RNOR)
Let’s now go over the provisions of the Income Tax Act and see how one can be a resident/non-resident/a resident not ordinarily resident based on the provisions of the act. In order to calculate a taxpayer’s income tax liability for a particular year, we take into account his or her residency status during that year.
Resident in India
The status of residents in India is mainly determined by the number of days they stay in India. If a person satisfies any of the given conditions, then the person is said to be a resident of India.
Condition A– The person is in India for 182 days or more during the previous year or
Condition B– The person is in India for 60 days or more during the previous year and for 365 days or more during 4 years immediately preceding the relevant previous year.
If any of the above-mentioned conditions are met, then a person is necessarily a resident of India. To make things clear, let us take up an example.
Exception of Conditions B
In the following cases, 60 days as mentioned in the Condition B will be replaced by 182 days
- The Indian citizen leaves India during the previous year for employment outside India.
- Indian citizen or person of Indian origin who, being outside India comes on a visit to India during the relevant previous year. However, such a person having total income other than the income from foreign sources exceeding Rs. 15 lakhs during the previous year will be treated as a resident in India if 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.
Who is the person of Indian Origin: An Indian is someone who was born in undivided India before 15th August 1947, or who has either one or both parents or grandparents born there.
Employment Means: Employment includes self-employment (own business or profession)
Deemed Resident: An Indian citizen whose total income (excluding foreign source income) exceeds Rs.15 lakhs in the previous year is considered to be a resident of India that year, if he is not taxed in any other country or territory, he is always regarded as a deemed resident.
Non-Resident of India
When a person doesn’t meet any of the basic requirements as given under the ‘resident in India’ section, the person is said to be a non-resident.
Resident Not Ordinarily Resident
If both of the following conditions are met, a person becomes Resident Ordinarily Resident (ROR).
- Has been a resident of India in at least 2 out of 10 years immediately after previous years and
- Has spent at least 730 days in India in 7 immediately preceding years
Any person who falls under the ‘Resident in India’ category, but does not meet the requirements of ‘Not-Ordinary Resident’ will be treated as an ‘Ordinary Resident of India’.
Important Points for Residential Status
Before determining a person’s residential status, you should also consider the following factors.
- Every year, the residential status of a person is determined separately.
- One day consists of 24 hours.
- In the absence of an exact arrival time, the day of arrival shall be considered complete. In the same way, if the time of departure is unknown, it shall also be considered a complete day.
If you still have some queries or are facing some issues with respect to understanding the residential status of a person, feel free to ask us.