25/06/2024, 04:53 What are the Different Types of Residential Status Under Income Tax Act and What

Income Tax Act and What is their Relevance?

What are the Different Types of Residential

Status Under Income Tax Act and What is their
Relevance?
By Uzair Ahmad Khan - December 16, 2019

Image Source: https://bit.ly/2PLE0sE

This article is written by Avinash Kumar, pursuing a Certificate Course in Advanced

Corporate Taxation from LawSikho.com. Here he discusses “What are the Different Types
of Residential Status Under Income Tax Act and What is their Relevance?”.

Introduction
Section 6 of the Income Tax Act 1961 talks about the Residential Status. Residential
status of a person means that whether the particular person is entitled to pay the income
tax in India or not?

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25/06/2024, 04:53 What are the Different Types of Residential Status Under Income Tax Act and What is their Relevance?

Residential status of a person plays a vital role in the purpose of the levy of income tax
because the Income Tax department takes the tax based on the residential status of the
person. If a person is a citizen of India but at the end of the day, he can be a non-
resident for a financial year.

This can be also a vice versa like a foreigner can be a citizen of that particular country
and if he is living in India for a particular time period and that time period is fulfilling the
criteria for the Resident of India then he can be taxable in India.

While the residential status of the individual, company, a firm is determined in a different
way. Each one has a different time period for the determination of Resident in India.

Why Residential Status is Important?

We are living in such a society where we don’t like the concept of sharing. We only think
about the individual while we should think of society for the large.

That’s why we try all possibilities to not share own hard money to the government.
However, it is a very important duty to pay the tax for the growth of the nation. Because
the money which we are paying in the form of tax that is directly or indirectly connected
to our own development.

At the time of filing of tax return, the residential status of the individual is very
important. Because the Income Tax Department calculate tax according to the residential
status of the individual.

Residential Status of the individual, company, a firm is necessary because they are
commencing their business in India and for their business, they are using the resources
of the particular country and while using the resources they are earning money. So
Residential status of the particular person plays an important role while at the time of
paying taxes.

Burden of Proof
One of the important questions arises that if any dispute arises in a calculation of
residential status of the individual, company or firm then the burden of proof will be on
the assessee. This is the question of the fact that assessee is a resident or non-resident
and it is the duty of the assessee to produce all the necessary facts to the Income Tax
department to prove the resident or non-resident.

Classification of Residential Status

As per the depending stay of the individual in India, Income Tax Law has classified the
residential status into three categories.

Residential status of an individual will cover the financial year of an individual and as well
as his/her previous years of stay.

There are the following categories which classified the residential status of an individual.

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25/06/2024, 04:53 What are the Different Types of Residential Status Under Income Tax Act and What is their Relevance?

1. Resident (ROR)

2. Resident but Not Ordinarily Resident (RNOR)

3. Non Resident (NR)

1. Resident and Ordinarily Resident (ROR)

Under Section 6(1) of the Income Tax Act an Individual is said to be resident in India if
he fulfils the condition:

If he/she stay in India for a period of 182 days or more in a financial year, or He/ She is
in India for a period of 60 days or more in a financial year and If he/she stays in India for
a period of 365 days or more during the 4 years immediately preceding the previous
year.

As per section 6(6) of Income Tax Act, 1961 there are following two conditions when an
individual will be treated as the “Resident and Ordinarily Resident” (ROR in India.

1. If He/ She stays in India for a period of 730 days or more during the 7 years of
preceding previous year.

2. If He/ She stays in India for at least 2 out of 10 previous financial years which is
preceding the previous years.

If the individual doesn’t satisfy either of the condition, then he is no eligible to qualify as
Resident and Ordinarily Resident (ROR).

Points which are essential while calculating ROR

It is not mandatory that assessed should stay at the same place and it is not
mandatory that stay should be a continuous period of time which means it shouldn’t
be on a regular basis.

Territorial of India includes territorial water, continental shelf, and airspace which is up
to twelve nautical miles.

When any person visits India then their calculation of resident in India will be counted
through their physical presence in India. And these physical presences will be counted
on an hourly basis. If any dispute arises while calculating their physical presence, then
the day on which he comes to India and the day on which he leaves India shall be
taken into consideration while calculating the Residential status.

Let’s understand the ROR with an example:

Suppose Mr. Nayar who is a resident of India who went to another country in October
2018 while he had stayed in India during the financial year (2018-19) is for a period of
250 days which is exceeding the 182 days and his stay in previous 7 financial years is
more than 730 days then he is eligible for paying the tax in India. That’s why the income
of Mr. Nayar will be taxable in nature because he is fulfilling the condition of ROR.

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Click Above

2. Resident but Not Ordinarily Resident (RNOR)

An individual will be treated as RNOR when an assessee fulfill the following basic
conditions:

In a financial year if an individual stays in India for a period of 182 days or more; Or He/
she stays in India for a period of 60 days in a financial year and 365 days or more during
the 4 previous financial years.

However, an Assesse will be treated as a Resident but Not Ordinarily Resident (RNOR) if
they satisfy one of the basic condition which is as follows:

1. If He/ She stays in India for a period of 730 days or more during the 7 preceding
financial year or;

2. If He/ She was a resident of India for at least 2 out of 10 in the previous financial
year.

Let’s understand Resident but Not Ordinarily Resident with an example:

Suppose Mr. Nayar who is in the Financial year 2017-18 stayed in India for a period pf
192 days so he was fulfilling the condition No 1 but He didn’t stay in India for more than
730 days during the period of 1st April 2010 to 31st March 2011 which was immediately
preceding the Financial Year 2017-18. So in this situation, Mr. Nayar will be qualified for a
Resident but Not Ordinarily Resident (RNOR).

3. Non – Resident (NR)

An individual will be qualified for Non Resident (NR) if He/ She satisfies the following
conditions which are as follows:

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25/06/2024, 04:53 What are the Different Types of Residential Status Under Income Tax Act and What is their Relevance?

1. In a financial year if an Individual stay in India for less than 181 days and

2. In a financial year If an Individual stay in India for not more than 60 days

3. If an Individual stay in India which exceed 60 days in a financial year but doesn’t
exceed the 365 days or more during the 4 previous financial years.

What are the steps required to Calculate the Residential

Status of an Individual?
First, we check whether the Individual is falling under the category of exceptions for
the basic conditions or not?

After that, we check that whether they are satisfying the basic condition of 182 days
of more or not? if they are satisfying then he will be treated as a resident otherwise he
will be non–resident.

If an Individual is not fulfilling the above condition, then we apply both the condition and
if he satisfies any of the basic condition takes then he is said to be a Resident.

Conclusion
Origin, Nationality, place of birth, domicile doesn’t play a vital role in the calculation of
Income Tax. If a person who is an Indian citizen can be non- resident and the person
who is not a citizen of India and if they are residing in India, and if they are fulfilling the
criteria of Resident then as an eye of Income Tax they can be resident of India and they
will be taxable in nature.

A resident will be charged to tax in India on his global income i.e. income earned in India
as well as income earned outside India.

While calculating the residential status of an individual we check the physical stay in
India and the physical stay of an individual is checked by their physical stay of the
previous years. However, the residential status of an individual is change year to year.

Like a person who can be resident for this year they can’t be resident for the next year if
they are not fulfilling the resident criteria. That’s why once a taxpayer can’t be a
taxpayer for next year.

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