Residential Status and Tax Liability

Residential status of an assessee is important in determining the scope of income on which income tax has to be paid in India. Broadly, an assessee may be resident or non-resident in India in a given previous year.

The incidence of liability to income-tax depends in every case upon the residential status and source of income of the assessee. Residential Status is calculated for all kind of Assessee that is of

• Individual

• HUF

• AOP/BOI/FIRM

• Company

Following are the basic rules about Residential Status

• An assessee may be residential of more than one country at the same time

• Residential Status is calculated for every previous year

• Residential status may be different for every previous year.

Residential Status of an Individual

Resident of India:

Under Section 6(1) of the Income-tax Act, an individual is said to be resident in India in any previous year if he:

a) is in India in the previous year for a period or periods amounting in all the one hundred and eighty-two days or more i.e., he has been in India for at least 182 days during the previous year;

or

b) has been in India for at least three hundred and sixty-five days during the four years preceding the previous year and has been in India for at least sixty days during the previous year

Exception:

• Citizen of India, who leaves India in any previous year as a member of the crew of an Indian ship, or for the purpose of employment outside India,

• Citizen of India or Person of Indian origin engaged outside India (whether for rendering service outside or not) and who comes on a visit to India in the any previous year.

Residential Status is calculated only on the basis of first condition that is of 182 days and not on the basis of second condition that is sixty-five days during the four years proceeding the previous year and has been in India for at least sixty days during the previous year.

Stay in Territorial Waters:

If any person has stayed in Indian territorial waters, it will be considered to be stay in India. Territorial waters extend upto 12 nautical miles from the base line on the coast of India and include any bay, gulf, harbour, creek or tidal river

Person of Indian origin: 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. It may be noted that grand parents include both material and paternal grand parents.

Non Resident of India: If an individual does not satisfy any of the above condition he will be said to be NON-RESIDENT.

Resident and Ordinary Resident of India: An Individual is said to be Resident and Ordinary Resident of India if he is a resident and full fills both of the following conditions

i. He is a resident in any two out of the ten previous years preceding the previous year,

and

ii. He has been in India for 730 days or more during the seven previous years preceding the relevant previous year.

Resident But Non Ordinary Resident of India:

An Individual is said to be Resident But Non Ordinary Resident of India if he is a resident and does not full fills any or both of the following conditions:

i. He is a resident in any two out of the ten previous years preceding the previous year,

and

ii. He has been in India for 730 days or more during the seven previous years preceding the relevant previous year.

Points to remember

1. It is not necessary that the period of stay must be continuous or at the same place.

2. In computing the period of 182 days, the day he enters India and the day he leaves India should both be treated as stay in India. However, in borderline cases where stay in India is near about 182 days his stay in India has to be calculated on hourly basis and a total of 24 hours will be taken as one day. For example, if a person is in India for 82 days and 6 hours and then again he comes to India for 20 days and 20 hours, his stay in India will be taken as 103 days.

3. Meaning of ‘employment outside India’:

• Where an unemployed person leaves India for the purpose of employment outside India, he can take benefit of the exception given as above.

• An individual need not be an unemployed person who leaves India for employment outside India - British Gas India (P.) Ltd.(AAR - New Delhi).

In other words, there may be two cases, where one can take benefit of this section,

i. the unemployed person leaving India for taking employment outside India,

ii. the person employed in India who leaves India for the purpose of such current employment.

For example, Mr. Ram, an employees of a private company in Delhi, leave India for the purpose of executing some overseas projects of its employer company. So in the instant case, Mr. Ram can take benefit of the exception given as above.

Example 1

Shane Warne, the Australian cricketer comes to India for 100 days every year. Find out his residential status for the Assessment Year 2010-11.

Solution:

Checking the conditions of being Resident:

The total stay of Shane Warne in the last 4 years preceding the previous year is 400 days and his stay in the previous year is 100 days. Therefore, since he has satisfied the condition (b) of section 6(1), he is a resident.

Checking the conditions of being Ordinary Resident:

Since his total stay in India in the last 7 years preceding the previous year is 700 days, he does not satisfy the minimum requirement of 730 days in 7 years. Any one of the conditions referred in section 6(6) not being satisfied, the individual is resident but not ordinarily resident.

Therefore, the residential status of Shane Warne for the assessment year 2010-11, is resident but not ordinarily resident.

Example 2

Mr. Mickle Jackson comes to India for the first time during the P.Y.2005-06. During the financial years 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10, he was in India for 155 days, 60 days, 90 days, 50 days and 70 days respectively. Determine his residential status for the A.Y.2010-11.

Solution:

During the previous year 2009-10, Mr. Mickle Jackson was in India for 70 days and during the 4 years

preceding the previous year 2009-10, he was in India for 355 days (i.e. 155+ 60+ 90+ 50 days).

Since, he does not satisfy the conditions of section 6(1), therefore, he is a non-resident for the previous year 2009-10.

Example 3

Mr. Morimoto, a Japanese citizen left India after a stay of 10 years on 1.06.2007. During the financial year 2008-09, he comes to India for 46 days. Later, he returns to India for 1 year on 10.10.2009. Determine his residential status for the A.Y. 2010-11.

Solution:

Stay during the P.Y. 2009-10, is 173 days (i.e. 22+ 30+ 31+ 31+ 28+ 31 days).

His stay in the last 4 years is:

P.Y. 2008-09	:	46 days
P.Y. 2007-08	:	62 days (i.e. 30+31+1)
P.Y. 2006-07	:	365 days(since he left India after 10 years)
P.Y. 2005-06	:	365 days(since he left India after 10 years)
Total		838 days

Mr. Morimoto is a resident since his stay in the previous year 2009-10 is 173 days and in the last 4 years is more than 365 days.

For the purpose of being ordinarily resident, it is evident from the above calculations, that:

i. his stay in the last 7 years is more than 730 days and

ii. since he was in India for 10 years prior to 1.6.2007, he was a resident in at least 2 out of the last 10 years preceding the relevant previous year.

Therefore, Mr. Morimoto is a resident and ordinarily resident for the A.Y.2010-11.

Example 4

Mr. Dayal, an Indian citizen, leaves India on 22.9.2009 for the first time, to work as an officer of a company in Canada. Determine his residential status for the A.Y. 2010-11.

Solution:

During the previous year 2009-10, Mr. Dayal was in India for 175 days (i.e. 30+ 31+ 30+31+ 31+22 days). He does not satisfy the minimum criteria of 182 days. Also, since he is an Indian citizen leaving India for the purposes of employment, the second condition under section 6(1) is not applicable to him.

Therefore, Mr. Dayal is a non-resident for the A.Y.2010-11.