The residential status under Income-tax plays a vital role in considering taxation of certain incomes. It has no nexus with the citizenship of India.
How to determine Residential Status?
The residential status of a taxpayer is determined on the basis of the tenure of his stay in India during the Financial Year. There are 3 types of Residential status for an Individual as explained below.
A] Resident:- Person shall be treated as ‘Resident’, if he satisfies any of the following basic conditions:-
1) If a person is in India for at least 182 days during the Financial Year OR
2) If a person is in India for at least 60 days during the Financial Year and for at least 365 days during the last 4 Financial Years.
Resident Individuals are further sub-divided into the following 2 categories :
a] Ordinary Resident:- Person shall be treated as ‘Ordinary Resident’ if he satisfies both the additional conditions.
1) If a person is resident of India for any 2 out of the last 10 Financial Years AND
2) If a person is in India for at least 730 days during the last 7 Financial Years.
b) Not Ordinary Resident:- If any of the additional conditions specified above are not satisfied then that person is treated as ‘Not Ordinary Resident’ for that Financial Year.
B] Non-Resident:- If none of the basic conditions is satisfied then the person is treated as ‘Non-Resident’ for that Financial Year.
How does Residential Status affect taxes?
Taxability of Income in India as per Residential Status-
|Particulars||Ordinary Resident||Not Ordinary Resident||Non Resident|
|1. Income received in India||Taxable||Taxable||Taxable|
|2. Income accrue or arise in India and is received in India||Taxable||Taxable||Taxable|
|3. Income accrue or arise outside India but is received in India||Taxable||Taxable||Taxable|
|4. Income accrue or arise outside India and is received outside India|
|a) Foreign Business income where business is controlled from India||Taxable||Taxable||Not taxable|
|b) Foreign Professional Income where Profession is set up in India||Taxable||Taxable||Not taxable|
|c) Any Other Foreign income||Taxable||Not taxable||Not taxable|
What if a person is going abroad for a job or as a crew member of a ship?
If a person is leaving India due to his employment or as a crew member of an Indian ship during a current financial year, then he shall be treated as Resident only if-
He was in India at least for 182 days during the current financial year and also he was in India at least for 365 days during the last four financial years.
- Eg. Mr Prakash got a job in Spain. He left India for the very first time on 1st July 2020. He was in Spain till March-end. Find out the residential status of Mr Prakash for the financial year 2020-21?
- Solution:- Since Mr Prakash left India for the very first time, he was in India for at least 365 days during the last four financial years. However, during the current financial year 2020-21, he was in India only up to 1st July i.e. for 92 days.
- As the condition states, he should be at least for 180 days during 2020-21.
- Mr Prakash is treated as Non-resident for the financial year 2020-21.