Residential Status

For the purpose of Income-tax, an individual may have any one of the following residential status:

1. Resident and ordinarily resident in India
2. Resident but not ordinarily resident in India
3. Non-resident

The residential status of the taxpayer is to be determined every year by applying the provisions of the Income-tax Act. The residential status of an individual may change from year to year.

Resident

As per Section 6(1) of Income Tax Act

An individual is said to be RESIDENT in India in any previous year, if he satisfies at least one of the following conditions:

1. he is in India in that year for a period of 182 days or more ;
   or
   
2. he is in India for a period of 60 days or more during the previous year and 365 days or more during the period of 4 years immediately preceding the previous year.

Exceptions : The condition no. 2 is not taken into consideration in following cases:

1. If an Indian citizen leaves in India during the previous year for the purpose of employment outside India;
2. If an Indian citizen leaves in India during the previous year as a member of the crew of an Indian ship; or
3. If an Indian citizen or a person of Indian origin comes on a visit to India during the previous year.

* A person is deemed to be of Indian origin, if he or either of his parents of any of his grand parents was born in undivided in India.

The Finance Act, 2020, w.e.f., Assessment Year 2021-22 has amended the above exception to provide that the period of 60 days as mentioned in (2) above shall be substituted with 120 days, if an Indian citizen or a person of Indian origin whose total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year. Income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).

Note: The Finance Act, 2020 has introduced new section 6(1A) to the Income-tax Act, 1961. The new provision provides that an Indian citizen shall be deemed to be resident in India only if his total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year. For this provision, income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).

However, such individual shall be deemed to be in Indian resident only when he is not liable to tax in any country or jurisdiction by reason of his domicile or residence or any other criteria of similar nature. Thus, from Assessment Year 2021-22, an Indian Citizen earning total income in excess of Rs. 15 lakhs (other than from foreign sources) shall be deemed to be resident in India if he is not liable to pay tax in any country. A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided in India.

Resident and Ordinarily Resident / Resident but not ordinarily resident

As per Section 6(6) of Income Tax Act, a resident individual is treated as Resident and ordinarily Resident in India he satisfies both the following conditions:

1. He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.
2. His stay in India is for 730 days or more during 7 years immediately preceding the relevant year.

A resident individual who does not satisfy any of the aforesaid conditions or satisfies only one of the aforesaid conditions will be treated as Resident but not ordinarily resident.

Non-Resident

An individual is a non-resident in India during the previous year if he does not satisfy any of the conditions laid down relating to Resident status in Sections 6(1) and 6(1A).

Residential Status of Hindu Undivided Family (HUF)

As per Section 6(2) of Income Tax Act, a resident Hindu Undivided Family is said to be resident in India if the karta or manager of the family (including successive kartas) is resident in India in at least 2 out of 10 years immediately preceding the previous year and is in India for at least 730 days or more immediately preceding the previous year. If karta or manager of a resident family is not resident in India in at least 2 out of 10 years immediately preceding the previous year or is is not present in India for at least 730 days or more immediately preceding the previous year, the family will be regarded as Resident but Not Ordinarily Resident.

A Hindu Undivided Family will be non-resident in India if its control and management is situated wholly outside India.

Residential Status of a firm or an Association of Persons

As per Section 6(4) of Income Tax Act, a partnership firm or an association of persons is said to be resident in India if the control and management of its affairs is situated wholly or partly in India during the previous year.

A resident HUF will be treated as resident and ordinarily resident in India during the year if its manager (i.e. karta or manager) satisfies both the following conditions:

(1) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.
(2) His stay in India is for 730 days or more during 7 years immediately preceding the relevant year.

A resident HUF whose manager (i.e. karta or manager) does not satisfy any of the aforesaid conditions or satisfies only one of the aforesaid conditions will be treated as resident but not ordinarily resident.

An HUF is treated as non-resident if control and management of its affairs is situated wholly outside India during the previous year.

Residential Status of a Company

As per Section 6(3) of Income Tax Act, an Indian company is always resident in India.

A foreign company is resident in India only if during the previous year if the control and management of its affairs are situated wholly in India.

A foreign company is treated as non-resident if during the previous year the control and management of its affairs is situated wholly or partly out of India.

Every person other than an individual, HUF and company is said to be resident in India during the year, if the control and management of its affairs for that year is located wholly or partly in India.