DIRECT TAXATION
Residential Status and
Incidence of Tax
Part A
Residential status of an individual
There are four categories of individuals in terms of
their residential status:
1.
Resident and ordinarily resident (ROR),
2.
Deemed to be resident (DR),
3.
Resident but not ordinarily resident (RNOR), and
4.
Non-resident (NR)
RESIDENT AND ORDINARILY RESIDENT (ROR)
Under section 6(1) of the Income Tax Act, 1961 an
individual is said to be resident in India in any previous year if he satisfies
at least one of the following two basic conditions:
i)
The individual must be physically present in India for a period of 182
days or more in the previous year; and
ii)
The individual must be physically present in India for a period of 60
days or more during the previous year
and 365 days or more during 4 previous years which immediately preceding the
relevant previous year.
A resident is said to be “ordinarily resident” in India, if he is not a “not ordinarily resident” u/s 6(6) of the Income Tax Act, 1961.
DEEMED TO BE RESIDENT (DR)
Under section 6(1A) of the Income Tax Act, 1961 an
individual, being a citizen of India, having total income, other than the
income from foreign sources, exceeding fifteen lakh rupees during the previous
year shall be deemed to be resident in India in that previous year, if he is
not liable to tax in any other country or territory by reason of his domicile
or residence or any other criteria of similar nature.
An
individual who is said to be resident in India in the previous year u/s 6(1)
shall not be a deemed to be resident in India in that previous year.
RESIDENT BUT NOT ORDINARILY RESIDENT (RNOR)
Under section 6(6) of the Income Tax Act, 1961 a person
is said to be "not ordinarily resident" in India in any previous year
if such person is—
(a) An
individual who has been a non-resident in India in nine out of the ten previous
years preceding that year, or has during the seven previous years preceding
that year been in India for a period of, or periods amounting in all to, seven
hundred and twenty-nine days or less; or
(b) A
citizen of India, or a person of Indian origin, having total income, other than
the income from foreign sources, exceeding fifteen lakh rupees during the
previous year, who has been in India for a period or periods amounting in all
to one hundred and twenty days or more but less than one hundred and eighty-two
days; or
(c) A
citizen of India who is deemed to be resident in India u/s 6(1A).
NON-RESIDENT (NR)
An individual who does not satisfy any of the two
basic conditions u/s 6(1) of the Income Tax Act, 1961 is a non-resident in
India.
Important note:
The day on which an individual enters India and the day on which he leaves India shall be taken into account in calculating the number of days he stayed in India.
EXCEPTIONS TO THE ABOVE RULES
In the
case of an individual, —
1.
Being a citizen of India, who leaves India in any previous year as a member of
the crew of an Indian ship as defined u/s 3(18) of the Merchant Shipping Act,
1958, the individual will be resident in India only if he is in India during
the relevant previous year for at least 182 days.
2.
Being a citizen of India, who leaves India in any previous year for the purposes
of employment outside India, the individual will be resident in India only if
he is in India during the relevant previous year for at least 182 days.
3.
Being a citizen of India, or a person of
Indian origin within the meaning of Explanation to section 115C (e), who, being outside India, comes
on a visit to India in any previous year, the individual will be resident in
India only if he is in India during the relevant previous year for at least 182
days, but
if, total income of such person, other than the income from foreign sources,
exceeds fifteen lakh rupees during the previous year, the individual will be resident in India only if
i)
He is physically present in India for a period of 182 days or more in
the previous year; or
ii)
He is physically present in India for a period of 120 days or more
during the previous year and 365 days or more during 4 previous years which
immediately preceding the relevant previous year.
Important notes:
1.
According to Rule 126, for the purposes of
Section 6(1), in case of an individual, being a citizen of India and a member
of the crew of a ship, the period or periods of stay in India shall, in respect
of an eligible voyage, not include the period
i)
Commencing from the date entered into the
Continuous Discharge Certificate in respect of joining the ship by the said
individual for the eligible voyage, and
ii)
Ending on the date entered into the
Continuous Discharge Certificate in respect of signing off by that individual
from the ship in respect of such voyage.
2.
An Eligible Voyage is a voyage undertaken by
a ship engaged in the carriage of passengers or freight in international
traffic either
a)
Originating from any Indian port for the
destination of any port outside India, or
b)
Originating from any port outside India for
the destination of any Indian port.
3.
A person is said to be of Indian origin if
he/she or either of his/her parents or either of his/her grandparents were born
in undivided India.
Residential status of
Hindu undivided family (HUF)
There are three categories of HUF in terms of their residential
status:
1.
Resident and ordinarily resident (ROR),
2.
Resident but not ordinarily resident (RNOR), and
3.
Non-resident (NR)
There are two types of conditions to judge the
residential status of an HUF –
A. BASIC CONDITIONS
Under section 6(2) of the Income Tax Act, 1961, an HUF
is said to be resident in India in any previous year if it satisfies the
following basic condition:
During the relevant previous year the control and management of the affairs of
the HUF is wholly or partly situated in India.
B. ADDITIONAL CONDITIONS
Under section 6(6) of the Income Tax Act, 1961 a
resident HUF is treated as resident and ordinarily resident in India if he
satisfies both the following two additional conditions:
i)
The manager or Karta of the
family must be the resident of India in at least 2 out of 10 previous years
which immediately preceding the relevant previous year; and
ii)
The manager or Karta of the
family must be physically present in India for a period of 730 days or more
during 7 previous years which immediately preceding the relevant previous year.
Categories of HUF and conditions to be
fulfilled
|
Category of HUF |
Basic conditions |
Additional conditions |
|
ROR |
Must fulfil the basic condition |
Must fulfil both the additional conditions |
|
RNOR |
Must fulfil the basic condition |
Does not fulfil any one of or both the additional
conditions |
|
NR |
Does not fulfil the basic condition itself |
Not applicable |
Residential status of a Firm or
Association of Persons (AOP)
RESIDENT FIRM
A firm will be a resident firm on the condition that during
the relevant previous year the control
and management of the affairs of the firm must be wholly or partly situated
in India.
NON-RESIDENT FIRM
A firm will be a non-resident firm on the condition
that during the relevant previous year the control
and management of the affairs of the firm must be wholly situated outside
India.
Residential status of a company
RESIDENT COMPANY
Following are the resident companies:
(i)
All Indian companies (the companies which are incorporated in India under
the Indian Companies Act, 2013);
(ii)
Other companies the control and
management of the affairs of which must be situated wholly in India during
the relevant previous year.
NON-RESIDENT COMPANY
Following
are the non-resident companies:
(i)
All the companies which are not Indian companies;
(ii) Foreign companies the control and management of the affairs of which must be wholly or partly situated outside India.
|
|
Nature of income |
ROR |
RNOR |
NR |
|
|
INDIAN INCOME: |
Whether Taxable |
||
|
1 |
Income accrues (or arises or is deemed to accrue or
arise) and is received (or deemed to be received) in India |
Yes |
Yes |
Yes |
|
2 |
Income accrues (or arises or is deemed to accrue or
arise) in India but is received outside India |
Yes |
Yes |
Yes |
|
3 |
Income accrues (or arises) outside India but is
received (or deemed to be received) in India |
Yes |
Yes |
Yes |
|
|
FOREIGN INCOME: |
Whether Taxable |
||
|
4 |
Income accrues (or arises) and is received outside India: |
|
|
|
|
a) Profit from a business which is controlled wholly or partly from
India |
Yes |
Yes |
No |
|
|
b)
Income from a profession which is set up in India |
Yes |
Yes |
No |
|
|
c) Any other foreign income |
Yes |
No |
No |
|
Understanding “Receipt (or accrual) of income in
India”
1.
Income received outside India and later on remitted to India, partly or
wholly, is not a receipt of income in India. If the remittance is made by any agent of the
assessee (may be a bank or some other person) then also the position remains
the same.
2.
It does not make any difference if the receipt of income is in cash or
in kind.
3.
If an income is not taxable on receipt basis, rather taxable on accrual
basis, it may be considered as receipt of income in India even if the income is
not received but accrued in India.
4.
An income deemed to be received (or deemed to accrue or arise) in India
in the previous year is also considered as receipt (or accrual) of income in
India. As per the Income Tax Act, 1961 the following incomes are deemed to be received
in India:
(a)
Interest credited to recognised provident fund account of an employee in
excess of 9.5%;
(b)
Employer’s contribution in recognised provident fund in excess of 12% of
salary;
(c)
Transfer of balance from unrecognised provident fund to recognised
provident fund;
(d)
Contribution by the central government or any other employer to the
account of an employee under a notified pension scheme u/s 80CCD;
(e)
Tax deducted at source;
(f)
Deemed profit u/s 41 (example: recovery of bad debt if allowed as
deduction earlier as bad debt, sale of assets used for scientific research,
etc.).
5.
Where a business is carried on in India through a person as “business
connection” on behalf of a non-resident, so much of the income as attributable
to the operations carried out in India shall be deemed to accrue or arise in
India.
6.
If a property or asset is situated in India, income from such property
or asset is deemed to accrue or arise in India. Example: One house property is owned by a
non-resident and it is let out on rent to another non-resident. If the house
property is situated in India, the income by way of rent is deemed to accrue in
India.
7.
If a property or asset is situated in India, any capital gain through a
transfer of such property is deemed to accrue in India. Example: One non-resident sells a property situated
in India to another non-resident. The capital gain, if any, arising out of such
sale is deemed to accrue in India.
8.
Any salary even if for any leave period will also be regarded as salary
earned in India.
9.
Salary payable abroad by the Indian Government to a citizen of India is
deemed to accrue or arise in India. In this connection it should be remembered that u/s
10(7) any allowance or perquisites paid abroad by the Indian Government to an
Indian National is fully exempt from tax.
10. Any dividend paid by Indian company outside India is
deemed to accrue in India, but dividend from a domestic company is not taxable
in the hands of shareholders.
11. Interest incomes of the following types are deemed to
accrue or arise in India:
(a)
Interest received from the Central Government of India or any State
Government in India;
(b)
Interest received from any resident in all cases except interest received
from the resident in respect of any debt or any amount borrowed and used by the
resident for the purpose of business or
profession carried on outside India or for the purpose of earning any income
from any source outside India;
(c)
Interest received from a non-resident if it is in respect of any debt or
any amount borrowed and used by the non-resident for the purpose of business or
profession carried on in India.
12. Royalty incomes of the following
types are deemed to accrue or arise in India:
(a) Royalty received from the Central Government
of India or any State Government in India;
(b) Royalty received from any resident in all
cases except royalty received from the resident in respect of business or profession carried on by the
resident outside India;
(c) Royalty received from a non-resident if it is
in respect of business or profession carried on by the non-resident in India.
13. Fee incomes (for technical services) of the
following types are deemed to accrue or arise in India:
(a) Fees received from the Central Government of
India or any State Government in India;
(b) Fees received from any resident in all cases except
fees received from the resident in respect of business or profession carried on
by the resident outside India;
(c) Fees received from a non-resident if it is in
respect of business or profession carried on by the non-resident in India.
Part B
Illustrations and Solutions
Click here for Illustration: 1 and Solution
Click here for Illustration: 2 and Solution
Click here for Illustration: 3 and Solution
Click here for Illustration: 4 and Solution
Click here for Illustration: 5 and Solution
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