Residential Status

Scope of Total Income

Taxability of income of a person to income tax in India primarily depends on the residential status
of a person.

For all purposes of income-tax, taxpayers (individuals and HUF) are classified into three broad
categories on the basis of their residential status viz.
(1) Resident and ordinarily resident

(2) Resident but not ordinarily resident

(3) Non-resident

Taxpayers (other than individuals and HUF) are classified into two broad categories on the basis
of their residential status viz.
(1) Resident

(2) Non-resident

Taxability of Income
Section 5 provides the scope of total income in terms of the residential status of the assessee
because the incidence of tax on any person depends upon his residential status in India. The scope
of total income of an assessee depends upon the following three important considerations:

 The residential status of the assessee;

 The place of accrual or receipt of income, whether actual or deemed; and

 The point of time at which the income had accrued to or was received by or on behalf of
the assessee (Refer Class Notes)
Resident
Subject to the provisions of this Act, the total income of any previous year of a person who is a
resident includes all income from whatever source derived which—
(a) is received or is deemed to be received in India in such year by or on behalf of such
person, or

(b) accrues or arises or is deemed to accrue or arise to him in India during such year, or

(c) accrues or arises to him outside India during such year.

Not Ordinarily Resident

In the case of a person not ordinarily resident in India, the income which accrues or arises to
him outside India shall not be so included unless it is derived from a business controlled in or a
profession set up in India.

Note: All other income accruing or arising outside India which is not received or deemed to be
received or deemed to accrue or arise in India would not be included in his total income.

Non Resident
Subject to the provisions of this Act, the total income of any previous year of a person who is a
non-resident includes all income from whatever source derived which—
(a) is received or is deemed to be received in India in such year by or on behalf of such person
; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.

Notes:
a. The residential status of an assessee must be ascertained with reference to each previous
year. A person who is resident and ordinarily resident in one year may become non-
resident or resident but not ordinarily resident in another year or vice versa.

b. Income accruing or arising outside India shall not be deemed to be received in India
within the meaning of this section by reason only of the fact that it is taken into account
in a balance sheet prepared in India.

c. For the removal of doubts, it is hereby declared that income which has been included in
the total income of a person on the basis that it has accrued or arisen or is deemed to
have accrued or arisen to him shall not again be so included on the basis that it is received
or deemed to be received by him in India.
Let us sum up the above taxability of income through the table mentioned below!

Scope of total Income Resident and Resident but not Non-Resident

Ordinarily Ordinarily
Resident (ROR) Resident
(RNOR)
Income received or Yes Yes Yes
deemed to be received in
India during the previous
year
Income accruing or Yes Yes Yes
arising or deeming to
accrue or arise in India
during the previous year

Income accruing or Yes, even if such Yes, but only if such No

arising outside India income is not income is derived
during the previous year received or brought from a business
into India during controlled in or
the previous year profession set up in
India;

Otherwise, No.

Residential Status

Individuals

Resident Section 6(1)

An individual is said to be resident in India in any previous year, if he

a. is in India in that year for a period or periods amounting in all to one hundred and
eighty-two (182) days or more, or

b. having within the four years preceding that year been in India for a period or periods
amounting in all to three hundred and sixty-five (365) days or more, is in India for a
period or periods amounting in all to sixty (60) days or more in that year.

 If the individual satisfies any one of the conditions mentioned above, he is a resident.

 If both the above conditions are not satisfied, the individual is a non-resident
Deemed Resident Section 6(1A)

Notwithstanding anything contained in clause (1), 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

Meaning of “liable to tax”

 Liable to tax, in relation to a person and with reference to a country, means that there is
an income-tax liability on such person under the law of that country for the time being in
force.

 It also includes a person who has subsequently been exempted from such liability under
the law of that country

Other important points

 The term “stay in India” includes stay in the 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 the usual place of residence, business or employment of the
individual.

 For the 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 for
tax purposes than one even though he can have only one domicile
Crew Member points

 In case of foreign bound ships where the destination of the voyage is outside India, there
is uncertainty regarding the manner and the basis of determining the period of stay in
India for an Indian citizen, being a crew member.

 Explanation 2 to section 6(1) provides that in the case of an individual, being a citizen of
India and a member of the crew of a foreign bound ship leaving India, the period or
periods of stay in India shall, in respect of such voyage, be determined in the prescribed
manner and subject to the prescribed conditions

 The following period is excluded in computing the residential status

Period commencing from Period ending on

the date entered into the
Continuous Discharge Certificate
in respect of joining the ship by
the said individual for the
eligible voyage
and the date entered into the
Continuous Discharge Certificate
in respect of signing off by that
individual from the ship in
respect of such voyage.

Exceptions to the above rule:

In the case of an individual:

(a) being a citizen of India, who leaves India in any previous year
 as a member of the crew of an Indian ship, or
 for the purposes of employment outside India,

the provisions of Section 6(1) shall apply in relation to that year as if for the words "sixty
days", (60) occurring therein, the words "one hundred and eighty-two days" (182) had been
substituted ;

(b) being a citizen of India, or a person of Indian origin who,

 being outside India,
 comes on a visit to India in any previous year,

the provisions of Section 6(1) shall apply in relation to that year as if for the words "sixty
days", occurring therein, the words "one hundred and eighty-two days" had been substituted
and

(c) in case of such person having total income, other than the income from foreign sources,
exceeding fifteen lakh rupees during the previous year, for the words "sixty days" occurring
therein, the words "one hundred and twenty days" had been substituted.
Not Ordinarily Resident

The concept of Non Ordinarily resident is restricted only to Individuals and HUFs.

Section 6(3)
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 (729 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 under Section 6(1A).

Hindu Undivided Family (HUF)

Resident
A HUF would be resident in India in any
previous year, if the control and management
of its affairs is situated wholly or partly in
India
Non-Resident
A HUF would be non-resident in India in any
previous year, if the control and management
of the affairs is situated wholly outside India

Control and Management

 The expression ‘control and management’ referred to under section 6 refers to the central
control and management and not to the carrying on of day- to-day business by servants,
employees or agents.

 Control and management means de facto control and management and not merely having
the right to control or manage.

 The business may be done from outside India and yet its control and management may be
wholly within India

 Merely because the HUF has a house in India, where some of the members reside in the
previous year, does not constitute that place as the seat of control and management of the
affairs of the HUF unless important decisions concerning the affairs of the HUF are taken
at that place.
Ordinarily Resident vs Not Ordinarily Resident
If Karta of resident HUF satisfies both the following additional conditions (as applicable in case of
individual) then, resident HUF will be resident and ordinarily resident, otherwise it will be
resident but not ordinarily resident.
 Karta of resident HUF should be resident in at least 2 previous years out of 10 previous
years immediately preceding relevant previous year.

 Stay of Karta, in India, during 7 previous years immediately preceding relevant previous
year should be 730 days or more

Residential Status of a HUF

Is the control and management of

its affairs situated wholly or partly
in India?

YES NO

Is Karta resident in India atleast in any 2 PYs out of 10 PYs HUF is

preceding the relevant PY? Non-
resident
(+)
Is his stay in India for 730 days or more during the 7 PYs
preceding the relevant PY?

YES NO

HUF is ROR HUF is RNOR

Firms, AOPs and BOIs

Resident
A Firm, AOP or BOI would be resident in India
in any previous year, if the control and
management of its affairs is situated wholly or
partly in India
Non-Resident
A Firm, AOP or BOI would be non-resident in
India in any previous year, if the control and
management of the affairs is situated wholly
outside India
Companies

As per the provisions of Section 6(3), a company would 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

Explanation to Section 6(3) mentions "Place of effective management" to mean a place where key
management and commercial decisions that are necessary for the conduct of business of an entity
as a whole are, in substance made.

Other Persons

As per the provisions of Section 6(4), every other person is said to be resident in India in any
previous year in every case, except where during that year the control and management of his
affairs is situated wholly outside India.

Resident Non-Resident
Would be resident in India in any previous Would be non-resident in India in any
year, if the control and management of its previous year, if the control and management
affairs is situated wholly or partly in India of the affairs is situated wholly outside India

Income deemed to accrue/arise in India

Under Section 9 of the Income Tax Act, 1961, following incomes are treated as incomes deemed
to have accrued or arisen in India:

a. Capital gain arising on transfer of property situated in India.

b. Income from business connection in India.

c. Income from salary in respect of services rendered in India.

d. Salary received by an Indian national from Government of India in respect of service

rendered outside India. However, allowances and perquisites are exempt in this case.

e. Income from any property, asset or other source of income located in India.

f. Dividend paid by an Indian company.

g. Interest received from Government of India.

h. Interest received from a resident is treated as income deemed to have accrued or arisen
in India in all cases, except where such interest is earned in respect of funds borrowed by
the resident and used by resident for carrying on business/profession outside India or is
in respect of funds borrowed by the resident and is used for earning income from any
source outside India.

i. Interest received from a non-resident is treated as income deemed to accrue or arise in

India if such interest is in respect of funds borrowed by the non-resident for carrying on
any business/profession in India.

j. Royalty/fees for technical services received from Government of India.

k. Royalty/fees for technical services received from resident is treated as income deemed to
have accrued or arisen in India in all cases, except where such royalty/fees relates to
business/profession/other source of income carried on by the payer outside India.

l. Royalty/fees for technical services received from non-resident is treated as income

deemed to have accrued or arisen in India if such royalty/fees is for
business/profession/other source of income carried by the payer in India.

m. Income arising outside India, being any sum of money referred to in sub-clause (xviia) of
clause (24) of section 2, paid on or after 05-07-2019 by a person resident in India to a
non-resident.