Income Tax Department to establish a taxable individual’s or company’s residence status. It is especially important during the tax filing season. In reality, this is one of the variables used to determine a person’s taxability.
Residential Status for Income Tax
An individual’s taxability in India is determined by his residential status under the income tax act in India for any given fiscal year. The phrase “residential status” was coined by India’s income tax rules and should not be confused with an individual’s citizenship in India.
An individual may be an Indian citizen but become a non-resident for a certain year. Similarly, a foreign citizen may become a resident of India for income tax purposes in a given year.
It is also worth noting that the residential status as per income tax differs to sorts of people, such as an individual, a corporation, a company, and so on, decided differently.
Resident
A taxpayer would qualify as a resident of India if he satisfies one of the following 2 conditions :
1. Stay in India for a year is 182 days or more in previous year or
2. Stay in India for the immediately 4 preceding years is 365 days or more and 60 days or more in the relevant financial year
How to Determine Residential Status?
For the purpose of income tax in India, the income tax laws in India classifies taxable persons as:
- A resident and ordinarily resident (ROR)
- A resident but not ordinarily resident (RNOR)
- A non-resident (NR)
The taxability differs for each of the above categories of taxpayers. Before we get into taxability, let us first understand how a taxpayer becomes a resident, an RNOR or an NR.
Exceptions to Residential Status
- In the event an individual who is a citizen of India leaves India as a member of the crew of an Indian ship or for the purpose of employment during the FY, he will qualify as a resident of India only if he stays in India for 182 days or more.
- Indian citizen or person of Indian origin who stays outside India comes on a visit to India during the relevant previous year. However, such a person having a total income, other than the income from foreign sources which exceeds Rs.15 lakhs during the previous year will be treated as a resident in India if –
- he stays in India during the relevant previous year for 182 days or more, or
- he stayed in India for 365 days or more during the previous 4 years and has been in India for at least 120 days in the previous year.
As mentioned as a significant amendment above, the individual will be treated as a “deemed resident of India” if a citizen of India having total income (other than foreign sources) exceeds Rs 15 lakh and nil tax liability in other countries.
Resident Not Ordinarily Resident
1.Has been a resident of India in at least 2 out of 10 years immediately previous years and
2. Has stayed in India for at least 730 days in 7 immediately preceding years
Therefore, there are 3 situations in which an individual is said to be RNOR
- if any individual fails to satisfy either or none of the above-mentioned conditions.
- If an individual is an Indian citizen or person of Indian origin having a total income more than exceeding Rs.15 lakhs (excluding foreign income), who has been in India for 120 days or more but less than 182 days during that previous year.
- If an individual is deemed to be a resident in India, by default, he will be considered as a Resident and Not Ordinarily Resident.
FAQs
Tax for Residents, NR, NROR?
For a Resident | A resident will be taxed in India on his total income, which includes money generated in India as well as income obtained outside of India. |
For NR and RNOR | Their tax burden in India is limited to the income they make in the country. They are not required to pay any tax in India on their international earnings. Also, in the event of double taxation of income, when the same income is taxed in India and overseas, one may rely on the Double Taxation Avoidance Agreement (DTAA) that India would have signed with the other nation to avoid paying taxes twice |
Non-resident?
An individual failing to satisfy the condition of stay in India for :
- 182 days or more in the previous year or
- 60 days or more in the previous year and 365 days in the 4 years preceding previous years
will be considered as a Non-Resident for that financial year.