Determining an individual’s residential status in India is crucial for assessing tax liability under the Income Tax Act, 1961. A person’s residency status affects whether their global income or only their Indian income is taxable.
In this blog, we will explore the residence rules, including criteria for individuals, Hindu Undivided Families (HUFs), firms, and companies.
Residential Status of an Individual
An individual is considered a resident in India for a financial year if they meet either of the following conditions:
- They are in India for 182 days or more during the financial year.
- They are in India for 60 days or more in the financial year and 365 days or more in the 4 preceding years.
Exceptions to the 60-Day Rule
The 60-day rule is extended to 182 days in the following cases:
- Indian citizens leaving India for employment or as crew members of an Indian ship.
- Indian citizens or Persons of Indian Origin (PIOs) visiting India, provided their total income (excluding foreign income) does not exceed ₹15 lakh.
- If such an individual earns more than ₹15 lakh (excluding foreign income), the 60-day rule is modified to 120 days instead of 182 days.
Deemed Residency for High-Income Individuals
An Indian citizen earning over ₹15 lakh (excluding foreign sources) is considered a resident in India if they are not liable to tax in any other country due to domicile or residency rules.
Residential Status of Other Entities
Hindu Undivided Families (HUFs), Firms, and Associations of Persons (AOPs)
- A HUF, firm, or AOP is considered a resident if its control and management is not wholly located outside India during the year.
Companies
A company is considered a resident in India if:
- It is incorporated in India (Indian company), or
- Its place of effective management (PoEM) is in India.
PoEM refers to the location where key business decisions are made.
Other Entities
Any other entity is considered a resident if its control and management is not completely located outside India during the year.
Not Ordinarily Resident (NOR) Status
A resident individual or HUF is considered “Not Ordinarily Resident” (NOR) if they meet any of the following conditions:
- They were non-residents in India for 9 out of the 10 previous years.
- Their stay in India over the past 7 years is 729 days or less.
- An Indian citizen or PIO earning more than ₹15 lakh (excluding foreign sources) has been in India for 120 days or more but less than 182 days.
- An Indian citizen deemed a resident under the deemed residency provision.
Tax Implications Based on Residential Status
Residential Status | Taxability |
---|---|
Resident & Ordinarily Resident (ROR) | Taxable on global income |
Resident but Not Ordinarily Resident (RNOR) | Taxable on Indian income + Foreign income if derived from an Indian business/profession |
Non-Resident (NR) | Taxable only on income earned or received in India |
Conclusion
Understanding your residential status is essential for tax planning. The rules differ based on whether you are an individual, a business entity, or a company. If you are an NRI, OCI, or PIO, pay close attention to the 182-day and 120-day rules to determine your tax obligations in India.
For expert assistance in tax planning and residency determination, consult a professional Chartered Accountant (CA) today!
FAQs
1. How do I check my residential status for taxation in India?
You need to verify your days of stay in India over the current and preceding years as per the conditions outlined above.
2. Can I be a resident in India and still not pay tax on my foreign income?
Yes, if you qualify as a Resident but Not Ordinarily Resident (RNOR).
3. What is the difference between ROR, RNOR, and NR?
- ROR: Taxable on global income.
- RNOR: Taxable only on Indian income + specific foreign income.
- NR: Taxable only on Indian income.
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