UNIT -1

RES I D E NTI A L S T A T U S
SUBJECT CODE: BBA 301
LECTURE – 02

PREPARED BY:
MS. MANDEEP KAUR
 WAY AHEAD

•Why to Determine Residential Status?

•General Rules
•Categorization of Residential Status
•Rules for determining Residential Status:
Section 6(1) : Rules for determining residential status of an individual
Section 6(2) : Rules for determining residential status of an HUF, Firm,
AOP, BOI
Section 6(3) : Rules for determining residential status of an Company
Section 6(4) : Rules for determining residential status of Firm/AOP/BOI
•Glance on Incidence of Tax
Why to Determine Residential Status?

Since India follows Residence based and Source based taxation system -

• Tax incidence on an Assessee depends on his residential status. For example 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 important in order to
find out his tax liability.
General Rules

• Citizenship and Residential status are separate.

• Determined on the basis of residence of the previous year.
• Status varies from year to year – it may change from one previous year to another
previous year.
• It is not necessary that the stay should be only at one place.
• It is not necessary that stay should be for a continuous period.
• Day of arrival in India as well as the day of departure shall be counted as stay in India.
• Person of India origin (if he or either of his parents or any of his grandparents was born
in undivided India).
• Place and Purpose of stay in India is immaterial.
Categorization of Residential Status.
Residential Status

For Individuals and HUF For Firm, Company and

AOP/BOI
a. Resident and Ordinarily Resident a. Resident
b. Resident but not Ordinarily Resident b. Non - Resident
c. Non -Resident
Rules for determining
Residential Status
 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 fulfill at least one of the following two basic
conditions:

Basic Condition :
• He is in India for a period of 182 days or more in the relevant PY.
OR

• 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.
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 PY for the purpose of employment.
• Indian citizen who leaves India during the PY as member of the crew of Indian ship.
• Indian citizen or person of Indian Origin who comes on visit to India during the PY.

IT MEANS IN THE ABOVE CASES ONLY BASIC CONDITION (He is in India for a period of 182 days
or more in the relevant PY)
IS APPLICABLE.
 RESIDENTIAL STATUS OF AN INDIVIDUAL

Section 6 (6) : If an individual is to qualify as an ordinary Resident of India , he has to fulfill both of
the following two conditions in addition to fulfilling the criteria as provided in section 6(1) :
Additional Conditions Explanation

A He has been resident in India for at least 2 out of 10 Previous

years immediately preceding the relevant PY AND
B He has been in India for a period of 730 days or more during 7
years immediately preceding the relevant PY.
 Note:

Individuals satisfying conditions of section 6 (1)

but not section 6(6) will be classified as resident
but not ordinarily resident.
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 a single place. Also the purpose of stay is immaterial.

• Forthe purpose of 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.
Points To Remember

• 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.
 QUESTION 1
A citizen of USA has been staying in India
since 1991. He leaves India on 16.7.2019
on a visit to USA and returns on 4.1.2020.
Determine his residential status for the
previous year 2019-2020.
SOLUTION

•STEP 1: FIND OUT IF HE IS A RESIDENT?

•STEP 2: FIND OUT IF HE IS ORDINARILY RESIDENT OR NOT?
 Month No. of Days
April , 2019 30
May , 2019 31
June , 2019 30
July , 2019 16
August , 2019 -
September , 2019 -
October , 2019 -
November , 2019 -
December , 2019 -
January , 2020 28
February , 2020 29
March , 2020 31
Total 195 Days
STEP 1: FIND OUT IF HE IS A RESIDENT?
• Thus his total stay in India during the previous year is of 195 days.
• As he is in India for more than 182 days during the relevant previous year, he
satisfies the first condition and is, therefore, A RESIDENT.
IN THIS CASE WE NEED NOT EXAMINE THE SECOND CONDITION* AS THE
FIRST CONDITION IS ALREADY SATISFIED.

*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.
STEP 2: FIND OUT IF HE IS ORDINARILY RESIDENT OR NOT?

EXAMINE FIRST CONDITION That is he has been resident in

India for at least 2 out of 10 previous years immediately
preceding the relevant PY.

THEN EXAMINE THE SECOND CONDITION That is he has been

in India for a period of 730 days or more during 7 years
immediately preceding the relevant PY.
CONTD.,

FIRST CONDITION - Ten years prior to the relevant PY are 2008-09 to 2017-18.
During these years he has been in India. He, therefore satisfies the first condition.

SECOND CONDITION - Seven years prior to PY means the period 1.4.2011 to

31.3.2018. During this period he should be in India for at least 730 days.
As he has been in India during the entire period, this condition is also satisfied.

AS BOTH CONDITIONS HAVE BEEN SATISFIED, HE IS A RESIDENT AND

ORDINARILY RESIDENT IN INDIA.
QUESTION :
‘G’ was born in LAHORE IN 1946. He has been staying in England since 1972. He
came to visit India on 3.10.2019 and returns on 31.3.2020. Determine his residential
status for assessment year 2020-2021.

During the PY 2019-2020, ‘G’ stays in India for 181 days (29+30+31+31+29+31)
that is (3.10.2019 to 31.3.2020).
He does not satisfy the first condition of 182 days.
Further second condition is not applicable in his case as he is a person of Indian
origin (he was born in undivided India) and visits India during the previous year.
He is therefore , A NON RESIDENT.
RESIDENTIAL STATUS OF HUF
Section 6(2) : This section applies to Hindu Undivided Family. HUF 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.
RESIDENTIAL STATUS OF HUF
Once the HUF is a resident in India, it is to be further
determined whether it is:
• Resident and ordinarily resident in India; or
• Resident but not ordinarily resident in India.
RESIDENTIAL STATUS OF HUF

The HUF is said to be an resident and ordinarily resident in India if the Karta or
manager of the family business satisfies both the following conditions:
Condition Explanation
A He (Karta) has been resident in India in at least 2 out of 10
PY immediately preceding the relevant PY. AND
B He has been in India for a period of 730 days or more during
7 years immediately preceding the relevant PY.

A HUF, Which is resident in India, is said to be resident but not ordinarily resident in India
during the relevant PY , if Karta of the HUF does not satisfy any one , or both , of the
conditions mentioned in clauses (A) and (B) above.
RESIDENTIAL STATUS OF FIRM,
AOP/BOI
• These entities may either be resident or non-resident in India for any PY.
• 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 PY.

However , they are treated as non resident in India if control and management of
their affairs are situated wholly outside India.
RESIDENTIAL STATUS OF COMPANY
• Section 6(3) : A company is said to be a resident in India in any PY , if
It is an Indian company; or
Its place of effective management, in that year, is in India.
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.

• A company is said to be a non- resident in India in any PY , if

It is not an Indian company; or
Its place of effective management, in that year, is not in India.
RESIDENTIAL STATUS OF ANY OTHER PERSON
• Section 6 (4) : Every other person is said to be
Resident in India if control and management of his affairs is wholly or partly
situated in India during the relevant PY.

He is non resident in India if control and management of his affairs is situated
wholly outside India.
 TAX INCIDENCE ON THE BASIS OF RESIDENTIAL STATUS
1. For Resident and Ordinarily Both Indian Income and Foreign Income are taxable.
Resident
2. For Resident but not Ordinarily Indian Income are Taxable.
Resident Only two types of Foreign income are taxable **
** Case 1 – If it is business income and business is controlled
wholly or partly from India.
** Case 2 - If it is income from profession which is set up in
India.
3. For Non Resident Only Indian income is taxable.

R-OR R-NOR NR
Indian Income Taxable Taxable Taxable

Foreign Income Taxable Only two types of foreign income Non Taxable
are taxable.
MEANING OF INDIAN AND FOREIGN INCOME

• Indian Income – If during the PY income is –

Received in India or
Deemed to be received in India or
Accrues in India or
Deemed to accrues in India
Foreign Income -
• Income is not received or deemed to be received in India AND
• Income is not accrued or deemed to be accrued in India.
Meaning of -
1. Income Received in India
 First Receipt
 Cash vs Kind
2. Income Deemed to be received in India –
 Interest credited to RPF
 Contribution of employer to PF
 TDS
3. Income Accrue or arise in India
4. Income Deemed to accrue or arise in India
DEEMED TO ACCRUE OR ARISE IN INDIA
1. Income from Business Connection –

• Maintaining a branch office in India

• Appointing an agent in India

• Erecting a factory in India

• Forming a local subsidiary company

2. Income from any property/asset/source of income situated in India.

3. Income through transfer of capital asset situated in India.

4. Income under “salaries” if services are rendered in India.

5. Salary payable abroad by government to citizens of India for services rendered outside India.

6. Dividend paid by an Indian company.

7. Income by way of interest/royalty/technical fees –

• When received from central or state government

• When received from resident

• When received from non resident

 INCIDENCE OF TAX AT A GLANCE
Particulars OR NOR NR
Income received or deemed to be received in India whether Yes Yes Yes
earned in India or elsewhere
Income accrues or arises or is deemed to accrue or arise in Yes Yes Yes
India , whether received in India or elsewhere

Income which accrues or arises outside India and received Yes Yes No
outside India from a business controlled from India.

Income which accrues or arises outside India from any other Yes No No
source
Income which accrues or arises outside India and received No No No
outside India during the years preceding the PYs and
remitted to India during the PY.
 Question : The following are the particulars of income of R for the previous year 2019-2020:

Particulars Amount
(a) Rent from a Property in Delhi received in USA 80,000
(b) Income from a business in USA controlled from Delhi 1,20,000
(c ) Income from a business in Bangalore controlled from USA 1,80,000
(d) Rent from a Property in USA received there but subsequently remitted to India 60,000
(e) Interest from deposits with an Indian company received in USA 20,000
(f) Profits for the year 2018-19 of a business in USA remitted to India during PY 75,000
2019-2020 (Not Taxed Earlier)

(g) Gifts received from his parents 45,000

Compute his income for assessment year 2020-2021 if he is :
(i) resident and ordinarily resident in India.
(ii) not ordinarily resident in India.
(iii) non-resident in India.
Particulars OR NOR NR
(1) Income earned /deemed to accrue/arise in India 80,000 80,000 80,000
Rent from property in Delhi
Income from business in Bangalore 1,80,000 1,80,000 1,80,000
Interest from Indian Company 20,000 20,000 20,000
(2) Income earned & received outside India , from a business controlled 1,20,000 1,20,000 NO
from India
Income from business in USA
(3) Income earned and received outside India other than (2) 60,000 NO NO
Rent from property in USA
4,60,000 4,00,000 2,80,000

1. Profit of 2018-19 are not income of PY 2019-2020 & hence cannot be included in the income for assessment
year 2020-2021.
2. Gifts received from relatives are capital receipts and are not regarded as income.
 Question: The following is the income of Shri Raman Kumar for the PY 2019-2020.
Particulars Rs.
(a) Profit from business in Iran received in India. 5,00,000
(b) Income from House Property in Iran received in India. 1,20,000
(c ) Income from house property in Sri Lanka deposited in bank there. 1,80,000
(d) Profit of business established in Sri Lanka deposited there, this business is 2,00,000
controlled from India (out of Rs. 2,00,000 a sum of Rs.1,00,000 is remitted
in India)
(e) Income from profession in India but received in England 2,40,000
(f) Profit earned from business in Kanpur 1,60,000
(g) Income from agriculture in England, it is spent on the education of 2,70,000
children in London.

From the above particulars ascertain taxable income of Shri Raman Kumar for the PY 2019-2020, if he is (i) a
resident and Ordinarily resident, (ii) not ordinarily , (iii) a non-resident.
 Solution: Taxable Income of Shri Raman Kumar for the PY 2019-2020
Particulars R&OR NOR NR
Rs. Rs. Rs.
(1) Income received in India wherever accrues
(i) Profit from business in Iran received in India. 5,00,000 5,00,000 5,00,000
(ii) Income from House Property in Iran received in India. 1,20,000 1,20,000 1,20,000
(2) Income accrued in India wherever received
(i) Profit earned from business in Kanpur 1,60,000 1,60,000 1,60,000
(ii) Income from profession in India but received in England 2,40,000 2,40,000 2,40,000
(3) Income accrued and received outside India
(i) Income from house property in Sri Lanka deposited in bank 1,80,000 -------- ---------
there.
(ii) Profit of business established in Sri Lanka deposited there, 2,00,000 2,00,000 ---------
business being controlled from India
(iii) Income from agriculture in England 2,70,000 -------- ---------
Total Income 16,70,000 12,20,000 10,20,000
Circular number 11 of 2020 by the Ministry of Finance has laid down the
relaxations due to novel coronavirus pandemic.

By virtue of this circular, Individuals can now maintain their non residential status
even if they had to stay in India due to circumstances beyond their control.
Some people who were planning on keeping their residential status as “non- resident” by making sure
they do not stay in India for 182 days, were not able to do so due to the travel restrictions imposed by
the government in order to curb the spread of the on-going novel coronavirus pandemic.
The relaxation comes in the form of excluding some specified number of days from their stay in India
for the purpose of calculation of their residential status for the financial year 2019-20. This will help the
assessees by way of reducing their number of days spent in India and not become a “resident” for tax
purposes, thereby foregoing the burden of paying taxes on income earned all over the world. 
CONTD.,
THANK YOU!