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Residential Status of an Individual for Income Tax

The Determination of residential status of a person is essential for the purpose of levy of income tax, as income tax is levied based on the residential status of the taxpayer. There are different taxable incomes and some exceptions regarding the residential status in India.

How to determine Residential Status?

For the purpose of income tax in India, the Residential status of the taxpayer can be classified as:

Resident

The residential status of an individual will be determined based on the period of stay of the assessee or the taxpayer in India. The residential status is computed separately for each financial year or previous year in the terminology of the income tax law. An individual is said to be resident in India if he satisfies any one of the following two conditions:

  • He is in India for a period of 182 days or more in that year; or
  • He is in India for a period of 60 days or more in the year and for a period of 365 days or more in 4 years immediately preceding the relevant previous year.

Exception to the rule of Residential Status

  • In the event an individual leaves India for employment during an FY, he will qualify as a resident of India only if he stays in India for 182 days or more. This otherwise means, condition (b) above of 60 days would not apply to him
  • In case of an Individual, who is a citizen of India, or is a person of Indian origin, who has been residing outside India, visits the country (India) during a particular financial year, then the second condition specified above will be nullified, and only the first one will be valid.

Let’s understand this more

  • In computing the period of stay in India, it is not necessary that the stay should be for a continuous period. What is to be seen is the total number of days’ stay in India during the relevant previous year.
  • It is also not necessary that the stay should be only at one place. e.g., he may stay at Bombay for 90 days and then go out of India. On return in the same previous year, he may stay at Delhi for 120 days during the same previous year. His total stay in India will be 210 days for that previous year.
  • In computing the period of 182 days, the day the individual enters India and the day he leaves India should both be treated as stay in India.
  • Place and purpose of stay in India is immaterial. Presence in territorial waters of India would also be regarded as presence in India.

Resident Not Ordinarily Resident

If an individual qualifies as a resident, the next step is to determine if he/she is a Resident ordinarily resident (ROR) or a Resident not ordinarily resident (RNOR).

A Person shall be not ordinarily resident (i.e. RNOR) in India if he satisfies any one of the following conditions:

  • He has been a non resident in 9 out of 10 years immediately preceding the financial year or
  • He has been in India for a period of 729 days or less in 7 previous years immediately preceding the financial year.

Therefore, if he fails to satisfy both of the above conditions, he would be considered as Resident Ordinarily Resident (ROR).

Non-resident (NR)

An individual satisfying neither of the conditions stated above would be an NR for the year.

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