CASACHINGUPTA.

COM RESIDENTIAL STATUS

CHAPTER – 2
RESIDENTIAL STATUS

Sections covered in this chapter

Sec 5 Scope of Total income
Sec 6(1) Residential status of an Individual
Sec 6(2) Residential status of an HUF, Firm, AOP & BOI
Sec 6(3) Residential status of Company
Sec 6(4) Residential status of other assessee
Sec 6(5) Resident for one source resident for all source
Sec 6(6) Resident & Not Ordinarily Resident
Sec 7 Income deemed to be received
Sec 9 Income deemed to accrue or arise in India

Need to Determine Residential Status

 A person may earn incomes from various sources. These sources may be in India or or outside India.
Similarly the person earning such incomes may be an Indian Citizen or foreign Citizen.

 Income tax act neither say that Indian Citizens will pay Income tax nor does it says that only Indian
Income will be taxable.

 Taxability Under Income Tax act depends upon Residential status of the assessee i.e whether he is a
resident or non resident in India during the previous year

Special Points :
1. Residential status should not be confused with Citizenship : A person may be a foreign citizen and still
be a resident of India. Similary an Indian citizen may be a non resident. Therefore determination of
Residential status of an assessee is independent of his citizenship.

2. Resident for one source, resident for all Sources : If an assessee is a resident in any year with regard to
any one source of income, he will be treated as resident in that year with regard to all other sources of his
income. He cannot have difference residential status for different sources of income in same year.
Sec. 6(5)

3. Resident in India and other countries simultaneously : It is not necessary that a person, who is resident in
India, cannot become resident in any other country for the same assessment year. A person may be resident
in more than one country at the same time.

4. Residential status is determined for every Assessment year separately and can change from one A/Y to
another

Determination the Residential Status of an Individual

An individual may be a :
(a) Resident in India or
(b) Non-resident in India.

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Individual is said to be Resident in India during a Assessment year if [SEC 6(1)]

He satisfies any one of the following two basic conditions:

1st condition: He is IN INDIA for a period of 182 days or more in the relevant previous year

OR

2nd condition: He is IN INDIA for 60 days or more during the relevant previous year
AND

Has been in India for 365 days or more during four previous years immediately preceding
the relevant previous year.

Individual is said to be Non-resident in India if

He does not satisfy either condition 1 or 2

SPECIAL POINTS :

1. In computing the period of stay in India, it is not necessary that the stay should be for a continuous period.
e.g. if an assessee is once present in India during the relevant previous year say for 120 days & then again
for 90 days ,he will be satisfying the requirement of 182 days presence.

2. It is also not necessary that the stay should be only at one place. It can be at different places in India

3. While calculating the presence of 182 days or more, both day of arrival and day of departure should be
included. But if information regarding hourly entry and hourly exit in the same previous year is also
available, then a total of 24 hours will be taken as one day.

4. India means : Sec 2(25A)

 Territory of India ,
 Its territorial waters,
 Seabed and subsoil underlying such waters,
 Continental shelf,
 Exclusive economic zone and
 Air space above its territory and territorial waters.

5. Only physical presence of assessee is relevant. His position of assets in India & residential status of family
members is not relevant.

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Exceptions to 2nd basic condition

Under the following three cases, 2nd Basic condition is not applicable. i.e an Individual will be resident in
the following cases if he is in India for atleast 182 days in the previous year. The second condition of 60/365
days will not be applicable.

CASE 1:
 Individual, who is a citizen of India

 Who leaves India in any previous year

 For the purpose of employment outside India

Special point : If a person goes outside India for business purpose or for training or on foreign tour or
education purpose or temporary transfer etc. then in such case second Basic condition will be also be
applicable

CASE 2 :
 Individual, who is a citizen of India

 And also crew member of an Indian ship

 Who leaves India in any previous year

Special point :
 Individual, being a citizen of India and
 a crew member of a foreign bound ship leaving India,
 period from Date of joining to Date of signing off
 as per continuous discharge certificate
 shall, be excluded from stay in India

CASE 3 :
 Individual who is a Citizen of India or is a Person of Indian origin,

 Who being outside India,

 Comes on a visit to India in any previous year.

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Special Point:
a) A person is said to be of Indian origin if he or either of his parent or any of his grand parent was born in
Undivided India.
b) If a person comes to India for permanent settlement than 2nd basic condition will be applicable

An Individual cannot simply be called a Resident in India

If he is a Resident in India , we have to further determine whether he satisfies conditions of Sec 6(6) :

An Individual is Resident & Not Ordinarily Resident RNOR during a previous year if {Section 6(6)}

He satisfies Either of the following additional conditions:

1st condition: He has been in India for 729 days or less, during 7 previous years immediately preceding the
relevant previous year. OR

2nd condition: He is Non Resident in India for at least 9 out of 10 previous years immediately preceding
the relevant previous year.
Individual is said to be Resident & Ordinarily resident (ROR) in India during a previous year if

He does not satisfies Either of Additional conditions

INDIVIDUAL

Resident in India Non-Resident in India

Fulfill Any
additional
condition
u/s 6(6)
YES

NO

RNOR
ROR

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Residential Status of Hindu Undivided Family (HUF) [Section 6(2)]

HUF is said to be a resident in India during a previous year if

Any part of the control and management of its affairs is situated in India during the relevant previous year

HUF is said to be a Non-Resident in India during a previous year if

No part of the control and management of its affairs is situated in India during the relevant previous year

HUF is resident and ordinarily resident during a previous year if [Section 6(6)]

The Karta/Manager of the HUF satisfies both the following conditions:

(a) He must be resident in at least two out of ten previous years immediately preceding the relevant year
And
(b) He must be in India for at least 730 days during 7 previous years immediately preceding the relevant
previous year.

HUF is said to be resident but not ordinarily resident during a previous year if

The Karta/Manager of the HUF satisfies any one and not both of the above conditions.

Special points :
 In order to determine whether a HUF is resident or non-resident, the residential status of Karta of the
family during the previous year is not relevant.

 Residential status of karta during the preceding previous years prior to relevant previous years is
considered for determining whether HUF is ROR or RNOR

 The place of control and management means that place where the head and brain of the HUF business
( i.e. The karta ) is situated, and where vital decisions concerning the HUF affairs are taken, such as,
expansion or diversification of business, raising of finance, appointment and removal of staff etc.

Residential Status of
Firm, Association of Person (AOP) , Body of Individuals (BOI) [Section 6 (2)]

These entities may either be resident or non-resident in India for any previous year. They are not further
bifurcated into ordinarily and not ordinarily residents.

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Firm, AOP, BOI is said to be resident in India during a previous year if

Any part of the control and management of its affairs is situated in India during the relevant previous year

Firm, AOP, BOI is said to be Non-Resident in India during a previous year if

No part of the control and management of its affairs is situated in India during the relevant previous year

Special Point : In the case of a firm , the control and management is in the hands of the partners and
therefore, if the partners generally meet in India regarding the affairs of the firm then the firm is said to be
resident in India.

Residential Status of a Company [Section 6 (3)]

A company is said to be resident in India in any previous year, if—

(i) it is an Indian company or

(ii) its place of effective management, in that year, is in India.

“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.

Residential Status of other Person [Section 6 (4)]

Other assessee is said to be a resident in India during a previous year if

Any part of the control and management of its affairs is situated in India during the relevant previous year

Other assessee is said to be a Non-Resident in India during a previous year if

No part of the control and management of its affairs is situated in India during the relevant previous year

INDIAN INCOME VS FOREIGN INCOME

Particulars Due Received Type of Income

Sale in Delhi Sale price received in Delhi India India Indian Income

Sale in Delhi Sale price received in USA India Outside Indian Income
India
Sale in USA Sale price received in Delhi Outside India Indian Income
India
Sale in USA Sales price received in USA Outside Outside Foreign income
India India

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Sec 5 : Scope of Total income on Basis of Residential status

Particular of income Indian ROR RNOR NR

/Foreign
Income
1. Income due in India Indian Income Taxable Taxable Taxable
(whether Received in India or
outside India )
2 Deemed Incomes u/s 9 Indian Income Taxable Taxable Taxable

3 Income due outside India & Indian Income Taxable Taxable Taxable
received in India

4 Income due outside India and

received outside India

-From Business/profession set up Foreign Taxable Taxable Not Taxable

in India Income
Foreign Taxable Not Taxable Not Taxable
-From any other source Income

INCOME RECEIVED IN INDIA

 Any income received in India is taxable for all categories of assesses i.e. ROR, RNOR & NR. It does
not matter whether such income have become due in India or outside India

 As per ―Keshav Mills Ltd (SC)‖ remittance of an already received amount does not result in its receipt
at that other place.

 Thus if an assessee having received an income in a foreign country, say in Japan, remits it to his family
in India, it is not an income received in India, as the income has already been received in Japan & after
its receipt it is being merely remitted to India.

INCOME ACCRUE OR ARISE IN INDIA

Income accrue or arise in India is taxable for all for all categories of assesses viz. ROR, RNOR & NR. It
does not matter whether such income is received in India or outside India
 As per Ashokbhai Chimanbhai (SC), when the right to receive the income becomes vested in the
assessee, it is said to accrue or arise.

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INCOME DEEMED TO ACCRUE OR ARISE IN INDIA : SECTION 9

Income deemed to accrue or arise in India is taxable for all for all categories of assesses viz. ROR,
RNOR & NR. It does not matter where such income is received in India or outside India

The following incomes shall be deemed to accrue or arise in India:

(a) Income from a Business connection in India.- Where by virtue of “ business connection” in India,
income accrues or arises outside India to any person it is deemed to accrue or arise in India.

As per R.D. Agarwal (SC) : Business connection involves a relation between a business carried on
by a non-resident in foreign country which yields profits or gains and some activity in India, which
contributes, directly or indirectly, to the earning of those profits or gains.”

Business connection is very well illustrated by the following examples:

(i) Forming a local subsidiary company to sell the products of non-resident parent company
(ii) Maintaining a branch office for the sale of goods or transacting other business in India.

Special point :

1.Following shall not be treated as business connection in India:

(i) Operations confined to purchase of goods in India for purpose of exports;

(ii) Operations confined to collection of news and views for transmission outside India by or on behalf
of Non-resident who is engaged in the business of running news agency or publishing newspaper,
magazines or journals;

(iii) Operations confined to shooting of cinematograph films in India by foreign citizen who is a non-
resident

2. BUSINESS CONNECTION also includes – A person acting on behalf of a non-resident and who
performs any one or more of the following –

Activity one – He exercises in India an authority to conclude contracts on behalf of the non-resident

Activity two – He has no such authority but maintains in India stock of goods from which he regularly
delivers goods or merchandise on behalf of the non-resident.

Activity three – He secures order in India for the non-resident

3. In the case of a business of which all the operations are not carried out in India, the income of the business
deemed to accrue or arise in India shall be only such part of the income as is reasonably attributable to the
operations carried out in India

4. Any share or interest in a company registered outside India shall be deemed to be situated in India, if the
share or interest derives, directly or indirectly, its value substantially from the assets located in India.

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5. In the case of a foreign company engaged in the business of mining of diamonds, no income shall be
deemed to accrue or arise in India to it through or from the activities which are confined to the display of
uncut and unassorted diamond in any special zone notified by Central Government in Official Gazette.

INDEPENDENT BROKERS / AGENTS ARE EXCLUDED – The “business connection”, shall not
include cases where the non-resident carries on business through a broker, general commission agent or any
other agent of an independent status, provided that such a person is acting in the ordinary course of his
business.

(b) Income from any Property, Asset or Source of income situated in India:
For instance, the house property or machinery or furniture, situated in India, is given on
rent , then such rental Income shall be deemed to accrue or arise in India in hands of the owner of
such property or source.

(c) Income from the transfer of any capital asset situated in India:
Any capital gain from the transfer of a capital asset, situated in India, is deemed to accrue or arise
in India in hands of the owner of such Capital asset.

(d) Income under salary head payable to a citizen of India abroad by the government:
It is applicable to government employees who are citizens of India and are posted abroad. They
render the services outside India and they are paid salary by Indian Govt. Such salary shall be
deemed to accrue or arise in India in hands of the employee.
It is important to note that by virtue of Section 10(7), all allowances and perquisites received by
such an employee is exempt .

(e) Income under the head Salary for services rendered in India
If a person has rendered services in India, salary for such services will be deemed to accrue or arise
in India in the hands of such employee.

(f) Dividend paid by an Indian company outside India.:- Any dividend paid by an Indian company
outside India is deemed to accrue or arise in India in the hand of recipient.

However as per Sec 10(34), Dividend paid by Indian company is exempt in hands of the recipient
But also taxable u/s 115BBDA in certain circumstances. [Refer Chapter Other Sources for details]

(g) Interest payable by:

(i) Government; or

(ii) A person who is resident in India, except where interest is payable in respect of money
borrowed and used for the purpose of business or profession carried on outside India or earning
any income from any source outside India; or

(iii) A person who is a non resident in India provided interest is payable in respect of money
borrowed and used for a business or profession carried on in India.

Then such interest shall be deemed to accrue or arise in India in the hands of the Recipient.

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(h) Royalty payable by :

(i) Government; or

(ii) A person who is resident in India except where it is payable in respect of any right/information/
property used for the purpose of a business or profession carried on outside India or earning any
income from any source outside India; or
(iii) A person who is a non resident in India provided royalty is payable in respect of any right/
information/ property used for the purpose of the business or profession carried on in India or
earning any income from any source in India.

Then such royalty shall be deemed to accrue or arise in India in the hands of the Recipient.

(i) Fees for technical services payable by:

(i) Government; or

(ii) A person who is resident in India, except where services are utilized for a business or
profession carried on outside India or earning any income from any source outside India; or

(iii) A person who is a non resident in India provided fee is payable in respect of services for a
business or profession carried on in India or earning any income from any source in India.

Then such fees shall be deemed to accrue or arise in India in the hands of the Recipient.

Special point:

1. Royalty does not include

 Lumpsum royalty Paid by resident
 For transfer of Computer software
 Supplied by a Non resident manufacturer
 Along with computer

2. Fees for Technical Services means consideration for rendering managerial, technical or consultancy
services.

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