December 17, 2021

Residential Status and Incidence of Tax on Income under Income Tax Act, 1961

The residential status of a person is required to be determined for each assessment year in order to determine the scope of total income. The basis of determination of residential status in respect of each person is laid down under the provisions of section 6 which are analyzed hereinafter.

Residential Status of an Individual under Income Tax Act, 1961

Residential status of an individual for income tax purposes depends on the physical state of the individual in India. Based on the period of stay in India in a given financial year, an individual may be classified as:

  • Resident

  • Not Ordinarily Resident (NOR)

  • Non Resident (NR)

Tests of residence under the act

Residential Status and Tax on Income under Income Tax Act 1961

A. An individual is a resident in India if he stays in India for:

  • At least 182 days during a financial year

  • At least 60 days during a financial year and 365 days or more during the 4 years preceding that fiscal year.

Exceptions to the above:

  • The 60-day period mentioned above will be substituted for 182 days in case of the following persons:

  •  A citizen of India who leaves the country as a crew member of an Indian ship or for the purposes of employment outside India

  • A Citizen of India or PIO who visits India in any previous year.

B. An individual is an NOR in India if:

  • He is an NR in India in 9 of 10 financial years preceding the relevant fiscal year

  • His stay in the 7 years preceding the relevant financial year is in the aggregate 729 days or less.

C. An individual is an NR in India if:

  •  He does not satisfy any of the two conditions mentioned in A above.

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