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Residential Status under Income Tax Act

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.

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 of 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.

Also read –

Tax Planning in respect of Residential Status

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