Residential-Status-under-Income-Tax

SBS Hyderabad 29th June, 2019 Residential Status under Income-Tax Act, 1961 by Ravi Teja K 1st Year Intern M/s SBS and Company LLP [email protected] 040-4018 3366 (119)

Topics to be covered 1. Why to determine Residential Status? 2. Categorization of Residential Status. 3. Rules for determining the Residential Status :  Section 6(1) - Rule for determining the Residential Status of an Individual  Section 6(2) - Rule for determining the Residential Status of an HUF, Firm, AOP, BOI  Section 6(3) - Rule for determining the Residential Status of Company  Section 6(4) - Rule for determining the Residential Status of any other person 4. Glance on Incidence of Tax 2 [email protected] www.sbsandco.com 040-40183366(119)

Why to determine Residential Status?  There are three principles adopted internationally to guide taxation  Citizenship Principle  Source Principle  Residence Principle  In the country like US, income is taxed based on Citizenship and Source based taxation systems, where as India follows the Residence based and Source based taxation systems. 3 [email protected] www.sbsandco.com 040-40183366(119)

Why to determine Residential Status?  Since India follows Residence and Source based taxation system  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 his residential status of an 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. 4 [email protected] www.sbsandco.com 040-40183366(119)

Categorization of Residential Status Residential Status For Individuals and For Firm, Company and HUF AOP/BOI R-OR R-NOR Non – Resident Resident Non – Resident 5 [email protected] www.sbsandco.com 040-40183366(119)

Residential Status of an Individual  Section 6(1): This Section applies to Individuals. If an Individual is to qualify as Resident of India, he has to fulfil at least one of the following two basic conditions: Basic Explanation Condition He is in India for a period of 182 days or more in the relevant PY A B He is in India for a period of 60 days or more in the relevant PY and 365 days or more during 4 years immediately preceding the relevant PY 6 [email protected] www.sbsandco.com 040-40183366(119)

Residential Status of an Individual  Exceptions:  In the following cases, an individual needs to be present in India for a period of 182 days or more in order to become resident in India:  Indian citizen, who leaves India during the relevant previous year as a member of the crew of an India ship or for the purpose 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. Indian origin: 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. 7 [email protected] www.sbsandco.com 040-40183366(119)

Residential Status of an Individual  Section 6(6): If an Individual is to qualify as an Ordinary Resident of India, he has to fulfil both of the following two conditions in addition to fulfilling the criteria as provided in section 6(1) Additional Explanation Condition He has been resident in India at least 2 out of 10 previous A years immediately preceding the relevant PY He has been in India for a period of 730 days or more during B 7 years immediately preceding the relevant PY 8 [email protected] www.sbsandco.com 040-40183366(119)

Residential Status of an Individual  Points to remember:  The term “stay in India” includes stay in territorial waters of India ( i.e., 12 nautical miles into the sea from the Indian coastline). Even the stay in a ship or boat moored in the territorial waters of India would be sufficient to make the individual resident in India.  It is not necessary that the period of stay must be continuous or active nor is it essential that the stay should be at single place.  For the purpose counting the number of days stayed in India, both the date of departure as well as the date of arrival are considered to be in India.  The residence of an individual for income-tax purpose has nothing to do with citizenship, place of birth or domicile. An individual can, therefore, be resident in more countries than one, even though he can have only one domicile. 9 [email protected] www.sbsandco.com 040-40183366(119)

Residential Status of an Individual  Example: Mr. X, Indian citizen left India first time on November 25, 2017 for employment outside India. During the calendar year 2018 he did not visit India. He finally came to India as on 15th January 2019. Determine his residential status for the financial year 2017-18 and 2018-19.  Resident for the FY 2017-18 (Both the basic and additional conditions are satisfied)  Non-Resident for the FY 2018-19 (Since he is an Indian citizen, only basic condition A is to be checked) 10 [email protected] www.sbsandco.com 040-40183366(119)

Residential Status of HUF  Section 6(2): Under this section 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.  Non-Resident in India if control and management of its affairs is wholly situated outside India 11 [email protected] www.sbsandco.com 040-40183366(119)

Residential Status of HUF  Section 6(6)(b): A resident Hindu Undivided Family is an ordinary resident in India if the karta or manager of the family business satisfies both the following two conditions: Condition Explanation A He has been resident in India in at least 2 out of 10 previous years immediately preceding the relevant PY B He has been in India for period of 730 days or more during 7 years immediately preceding the relevant PY 12 [email protected] www.sbsandco.com 040-40183366(119)

Residential Status of Firms, AOP/BOI  Section 6(2): A Partnership firm and an Association of Persons 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  However, they are treated as non-resident in India if control and management of their affairs are situated wholly outside India. 13 [email protected] www.sbsandco.com 040-40183366(119)

Residential Status of Company  Section 6(3): A Company is said to be a resident in India in any previous year, if  It is an Indian Company, or  Its place of effective management (POEM), in that year, is in India.  Explanation: For the purpose of this clause “Place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of business of an entity as a whole are made. 14 [email protected] www.sbsandco.com 040-40183366(119)

Residential Status of Any other person  Section 6(4): Every other person is said to be  Resident in India in any previous year if the control and management of his affairs is situated wholly or partly in India  Non-resident in any previous year if the control and management of his affairs is situated wholly outside India 15 [email protected] www.sbsandco.com 040-40183366(119)

Glance on Incidence of tax Taxation of Income in India Residents Non-Residents Global Income Indian Income 16 [email protected] www.sbsandco.com 040-40183366(119)

Glance on Incidence of tax R-OR R-NOR NR Taxed Taxed Taxed Particulars Taxed Taxed Taxed Taxed Taxed Not taxed Income received or deemed to be received in India whether earned in India or elsewhere Taxed Not taxed Not taxed Not Taxed Not taxed Not taxed Income accrues or arises or deemed to be accrue or arise in India, whether received in India or elsewhere Income which accrues or arises outside India and received outside India from a business controlled from India Income which accrues or arises outside India from any other source Income which accrues or arises outside India and received outside India during the years preceding the PYs and remitted to India during PY 17 [email protected] www.sbsandco.com 040-40183366(119)

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