Home > Income Tax > Miscellaneous > Residential Status under Income Tax Act

Residential Status under Income Tax Act

  1. Residential status of an Individual
  2. Tax Planning in respect of Residential Status by Individual
  3. Residential Status of HUF
  4. Residential Status of a Firm of Association or Persons (AOP)
  5. Residential Status of Company

Residential status is very important in Income Tax Act as the determination of tax liability depends much on it.

An assessee is either (a) resident in India; or (b) non-resident in India. However resident individual and HUF may be (a) resident and ordinarily resident; or (b) resident but not ordinarily resident.
All other assessess are either resident or non resident.

Residential status of an Individual

A person who has never gone out of India is always a resident and ordinarily resident in India.

Determining whether he/she is resident in India – 

A person is said to be resident in India if he satisfies at least one of the following conditions-

(i) he is in India for a period of 182 days or more in the year

(ii) he is in India for a period of 60 days or more during the year and 365 days or more during the four years immediately preceding the previous year.

The aforesaid period of 60 days is extended to 182 days in case of an Indian citizen who leaves India during the year for the purpose of employment outside India or an Indian citizen who leaves India during the year as a member of the crew of an Indian ship. For this purpose the requirement is leaving India for purposes of employment ( the employment may be in India or may be outside India).

The aforesaid period of 60 days is extended to 182 days also if Indian citizen or a person of Indian origin comes to a visit in India. A person is deemed to be of Indian origin if he, or either of his parents or any of his grand parents, was born in undivided India.

If a person doesn’t satisfies any of the above two conditions then he is non resident.

Determining whether he/she is ordinarily resident or not ordinarily resident

A resident individual is treated as Resident and ordinarily resident in India if he satisfies condition of resident as stated above and also satisfies both of the following conditions-

(i) he has been resident in India in at least 2 out of 10 years immediately preceding the relevant year

(ii) he has been in India for a period of 730 days or more during 7 years immediately preceding the relevant year.

The person who doesn’t satisfies both of the above conditions is a resident but not ordinarily resident.

Tax Planning in respect of Residential Status by Individual

The income tax will be applicable or not on an income source depends on the residential status of the assessee. The persons which are outside India for a major of time during the year and preceding year can keep some points in mind so that if they are capable of adjust their schedule they can save a lot of tax.

  1. Individuals who are visiting India on a business trip or in some other connection should not stay in India for more than 181 days in the year and no more than 364 days in preceding four years to enjoy non-resident status.
  2. If individual is in India for more than 364 days during the preceding four years then he should avoid staying in India for more than 59 days in a year. If he wants to stay more than 59 days then he may come in such manner that no more than 59 days come in a year for eg he may come after 2nd feb and leave before 29 may. so that no more than 59 days period is covered in both years.
  3. Similarly Indian citizen or person of Indian origin should plan their trip such that no more than 181 days will fall in one year.
  4. A non resident should not receive any income directly in India even if the business is controlled directly from India. He should first receive income outside India and then remit it to India, by such way no tax is leviable on such income.
  5. Similarly a non ordinarily resident should receive his income outside India which is earned outside India and from a business controlled outside India.

Residential Status of HUF

A Hindu Undivided Family (HUF) is said to be resident in India if the control and management of its affairs are wholly or partly situated in India.

A resident HUF is treated as Resident and ordinarily resident in India if the Karta (inclusive successive karta) satisfies satisfies both of the following conditions-

(i) he has been resident in India in at least 2 out of 10 years immediately preceding the relevant year

(ii) he has been in India for a period of 730 days or more during 7 years immediately preceding the relevant year.

If karta doesn’t satisfies any of the above conditions then HUF is treated as Resident but not ordinarily resident.

If HUF’s control and management is situated wholly outside India then it is treated as non resident.

Residential Status of a Firm or Association of Persons (AOP)

A partnership firm or association of persons is said to be resident in India if then control and management of its affairs wholly or partly situated within India during the relevant previous year. It is however treated as non resident in India if the control and management of its affairs are situated wholly outside India.

Residential Status of Company

An Indian company is always resident in India.

Residential status of foreign company from Assessment year 2016-17.

A foreign company will be resident in India if its place of effective management (POEM) during the relevant previous year is in India. For this purpose, the place of effective management means 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. For this purpose a set of guiding principles to be followed in determination of POEM may be issued by the Board of the benefit of the taxpayers as well as tax administration.

Read more – Income Tax Department’s Guide

close-link
TaxAdda Assistant - Chrome Extension for Easy Working on GST Portal

It will automate 3 works on GST portal for you
  1. Auto-fill payment page in GST portal and calculate adjustments and cash payment required. 
  2. Copy tax payable details and paste it in email or skpye for sending to clients.
  3. Auto fill challan with the amount of GST payable.
     
Download from Chrome Webstore  (Free Till 31st January 2018) or Know More

close-link
Remain Updated with GST & Income Tax
Join 20K subscribers