03 residential status 17 18 ay

WHY TO LEARN RESIDENTIAL STATUS?
• Tax incidence on an assessee depends on his
residential status. For instance, whether an income,
accrued to an individual outside India, is taxable in
India depends upon the residential status of the
individual in India.
• Similarly, whether an income earned by a foreign
national in India or outside India is taxable in India
depends on the residential status of the individual,
rather than on his citizenship.
• Therefore, the determination of the residential status of
a person is very significant in order to find out his tax
liability. 2

TAXABLE ENTITY
 A taxable entity can be:
 An Individual,
 A Hindu Undivided Family,
 A firm,
 An Association of Persons,
 Joint stock company and
 any other person.
3

CATEGORISATION OF RESIDENTIAL STATUS
 The following table explains how these are subcategorized
with respect to their residential status.
INDIVIDUAL
/HUF
RESIDENT
ORDINARY
NOT-
ORDINARY
NON-
RESIDENT
Others included in definition
of “person”
RESIDENT
NON-
RESIDENT
4

IMPORTANT CONSIDERATIONS
 Residential status for each previous year –
 Residential status of an assessee is to be determined in each
previous year as it may vary from PY to PY
5

IMPORTANT CONSIDERATIONS
 Resident in India and abroad –
 A person may be resident in two (or more) countries at the
same time.
 It is, therefore, not necessary that a person who is resident in
India will be non-resident in all other countries for the same
assessment year.
6

DETERMINING THE RESIDENTIAL
STATUS OF AN INDIVIDUAL S 6(1)
If an individual considered to be a resident of India,
he has to fulfill at least one of the following two
BASIC conditions: ( ANY ONE OF THE 2)
Con
ditio
n
Explanation
1 He is in India in the PY for a period of 182 days or
more OR
2 He is in India for a period of 60 days or more during
the PY and
365 days or more during 4 PPY
7

EXCEPTIONS TO 2ND BASIC CONDITION:
 In the following two cases, 60 days in second basic
condition to be replaced with 182 days or more
1. An Indian citizen who leaves India during the previous
year for the purpose of taking employment outside
India OR as a crew member in Indian Ship
2. An Indian citizen or a foreign national of Indian origin
(lives outside India) who comes on visit to India during
the previous year (a person is said to be of Indian
origin if either he or any of his parents or any of his
grand parents was born in undivided India).
8

DETERMINING IF A RESIDENT IS AN ORDINARILY
RESIDENT- ADDITIONAL CONDITIONS
 If an individual is to qualify as an ordinarily
resident of India, he has to fulfill both of the
following two additional conditions in addition to
fulfilling basic conditions
Condition Explanation
1 He has been resident in India in at least 2 out of
10 PPY
2 He has been in India for a period of 730 days or
more during 7 PPY
9

 It will be worthwhile to note the following propositions:
1. It is not essential that the stay should be at the
same place. It is equally not necessary that the
stay should be continuous. Similarly, the place of
stay or the purpose of stay is not material.
2. Where a person is in India only for a part of a day,
the calculation of physical presence in India in
respect of such broken period should be made on
an hourly basis. A total of 24 hours of stay spread
over a number of days is to be counted as being
equivalent to the stay of one day.
3. For calculating number of days in India, days of
entry and exit should be included
10

SUMMARY- INDIVIDUALS
Status Ordinarily
Resident
Not
Ordinarily
Resident
Non
Resident
Conditions
Basic Yes Yes No
Additional
1- 2/10 PPY Yes Yes/No N.A.
2- 730/7PPY Yes Yes/No N.A.
11

SUMMARY
Status
OR 1+2
NOR 1+ 0 or 1
NR 0+ N.A.
12

DETERMINING THE RESIDENTIAL STATUS
OF HUF
 Section 6(2): This section applies to Hindu
Undivided Family. The distinction under this section
is made as:
“A Hindu undivided family is said to be resident in
India if control and management of its affairs is
wholly or partly situated in India. A Hindu
undivided family is non-resident in India if control
and management of its affairs is wholly situated
outside India.”
 Control and management is situated at a place
where the head, the seat and the directing power
are situated. 13

ORDINARILY RESIDENT- HUF
 Section 6(6)(b): A resident Hindu undivided family is
an ordinarily resident in India if the Karta or
manager of the family business satisfies the
following two additional conditions:
Condition Explanation
1 He has been resident in India in at least 2
out of 10 PPY
2 He has been in India for a period of 730 days
or more during 7 PPY
If Conditions stipulated in Section 6(6)(b) are not satisfied by a HUF
fulfilling conditions stipulated in Section 6(b), then it is classified as a
resident non-ordinary HUF.
14

SUMMARY- HUF
Status Ordinarily
Resident
Not
Ordinarily
Resident
Non
Resident
Conditions
C & M of HUF
wholly / partly in
India
Yes Yes No
Additional- for
Karta
1- 2/10 PPY Yes Yes/No N.A.
2- 730/7PPY Yes Yes/No N.A.
15

SUMMARY
Status
OR 1+2
NOR 1+ 0 or 1
NR 0+ N.A.
16

RESIDENTIAL STATUS OF FIRM/ASSOCIATION
OF PERSONS
 A partnership firm and an AOP are said to be
RESIDENT in India if control and management of
their affairs are wholly or partly situated within
India during the relevant previous year.
 They are, however, treated as NON-RESIDENT in
India if control and management of their affairs
are situated wholly outside India.
17

RESIDENTIAL STATUS OF COMPANY
 An Indian company is always RESIDENT in India.
 A Company other than Indian company is
RESIDENT in India only if, during the previous year,
Place Of Effective Management (POEM) is in India.
 However, a Company other than Indian company
is treated as NON-RESIDENT if, during the
previous year, Place Of Effective Management
(POEM) is not in India.
18

RESIDENTIAL STATUS OF COMPANY
 Place Of Effective Management (POEM)
 a place where key management and commercial
decisions that are necessary for the conduct of the
business of an entity as a whole are, in substance
made.
19

RESIDENTIAL STATUS OF ANY OTHER
PERSON- SIMILAR TO AOP OR FIRM
 As per section 6(4), every other person is resident
in India if control and management of his affairs is,
wholly or partly, situated within India during the
relevant previous year.
 On the other hand, every other person is non-
resident in India if control and management of its
affairs is wholly situated outside India.
20

 For other persons:
 For Indian Income, it shall be taxable, whether the
person is resident or not resident doesn’t matter.
 Foreign income is taxable in India, only if it is earned by
a resident in India but not taxable in India if it is earned
by a non-resident.
21

INCIDENCE OF TAX & SCOPE OF TOTAL
INCOME
PARTICULARS OR NOR NR
Income received or deemed to be received in
India whether accrued/arisen (earned) in India
or elsewhere
Yes Yes Yes
Income accrues or arises or is deemed to
accrue or arise in India, whether received in
India or elsewhere
Yes Yes Yes
Income which accrues or arises outside India
and received outside India from a business
controlled from / profession set up in India
Yes Yes No
from any other source/ cases
Yes No No
and received outside India during the years
preceding the PYs and remitted to India during
the PY ( Past untaxed income)
No No No22

INCOME RECEIVED IN INDIA
 Receipt of income – first receipt in India after it is
accrued or earned
 Taxable for all.
23

INCOME DEEMED TO BE RECEIVED IN INDIA
 Not actually received but considered as received by
him. E.g.
i. Interest accrued on NSC VIIIth issue
ii. Interest accrued to RPF in excess of 9.5% of a/c
balance
24

INCOME ACCRUING OR ARISING IN INDIA
 Accrue or arise – when right to receive the income
is vested to assessee
 Income accrues where the source is situated
 E.g.
1. Salary accrues where the service is rendered
2. Rent accrues where the property is situated
3. Interest accrues where investment is made
25

INCOME DEEMED TO ACCRUE OR ARISE IN INDIA
 Actually accrue outside India but are deemed to be
accrued in India
 Eg:” salary paid by Govt. of India to its employees
posted abroad
 pension paid outside India but service rendered in
India
26

INCOME DEEMED TO ACCRUE OR ARISE IN INDIA
Income Payer Deemed to accrue/arise in
India
Interest/Royalty/Technical services fee Govt Y
Interest/Royalty/Technical services fee
for the purpose of business/Profession
in India
R Y
NR Y
Interest/Royalty/Technical services fee
for the purpose of business/Profession
outside India
R N
NR N
27

INCOME ACCRUING BUT RECEIVED OUTSIDE INDIA
 If such income arise from a business controlled from
India or a profession set up in India.
 It is taxable in the case of Resident & NOR
 If there is no business connection or income arises from
any other source, it is taxable only in the case of a
resident
 Past untaxed income later on remitted to India is exempt
for all
28

03 residential status 17 18 ay

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03 residential status 17 18 ay