RESIDENTIAL STATUS- INDIVIDUALS

The taxability of a person in India depends upon its residential status in India for any particular Financial Year. The term residential status must not be confused with the citizenship. A person may be a citizen of India but may end up being a non- resident or vice versa. Also note that residential status of different types of persons like Individuals, Huf’s , Firms, Company etc. are determined differently however in this article we are discussing about the residential status of an Individual only.

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For the purposes of Income Tax in India, the tax classifies taxable person as:

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The taxability differs for each category of taxpayers. So, let us understand         how a taxpayer becomes a resident, resident but not ordinarily resident or non- resident.

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A Taxpayer would classify as resident in India if he satisfies any one of the following two conditions: –

Exceptions: –

If an Individual qualifies as a resident, the next step is to determine if he/ she is a Resident and Ordinarily Resident (ROR) or Resident but not Ordinarily Resident (RNOR). He will be a ROR if he satisfies both the conditions: –

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Therefore, there are 3 situations in which an Individual is said to be RNOR:

An Individual failing to satisfy the condition of stay in India for:

Resident and Ordinarily Resident: A resident and ordinarily resident will be charged to tax in India on his global income i.e. income earned in India as well as income earned outside India.

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Resident but not Ordinarily Resident: There is a thin line in taxability of income between resident and ordinarily resident and resident and non-ordinarily resident, on below income RNOR’s are not required to pay taxes.

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Non- Resident: A non-resident will be charged only to tax on income received in India or source of income received is from India. However, income earned outside India having no connection to India, is not taxable.

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Stay in India includes stay in territorial waters of India i.e. 12 nautical miles into the sea from the India coastline.

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The period of stay needs not to be continuous or active.

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Both the date of departure as well as the date of arrival in India are considered for counting the number of days stayed in India.

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Income from foreign source means that income earned outside India, excluding the income from a business operated or profession set up in India, which is not deemed to accumulate or arise in India.

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An Individual shall be considered as deemed to be person of Indian origin if he/ she or either his/ her parent or any of his/ her grandparent was born in undivided India.

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Non-resident Indian means an Individual who is a citizen of India or Indian origin but is not a resident.

For Income tax purposes the residence of an Individual has nothing do with its citizenship, place of birth or domicile. Therefore, an Individual can be resident in more than one country even though he has only one domicile.

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