Residential status of an assesses and scope of total income

Residential Status: determination of residential status of a Company, scope of total income on the basis of residential status.

1. ODMBA–422T: Corporate Tax Law and Planning TOPICS TO BE COVERED:( L-2)(UNIT-A) Residential Status: determination of residential status of a Company, scope of total income on the basis of residential status. Prepared by: Amandeep Assistant Professor https://www.linkedin.com/in/amandeep-thakur-7a81942a

2. Residential Status The taxability of an individual in India depends upon his residential status in India for any particular financial year. The term residential status has been coined under the income tax laws of India and must not be confused with an individual’s citizenship in India. ‘ An individual may be a citizen of India but may end up being a non-resident for a particular year. Similarly, a foreign citizen may end up being a resident of India for income tax purposes for a particular year. Also to note that the residential status of different types of persons viz an individual, a firm, a company etc is determined differently .

3. For the purpose of income tax in India, the income tax laws in India classifies taxable persons as: A resident A resident not ordinarily resident (RNOR) A non-resident (NR) How to Determine Residential Status

4. UNDER SECTION 6, THE RESIDENTIAL STATUS OF AN INDIVIDUAL IS DIVIDED INTO THE FOLLOWING CATEGORIES :

5. BASIC CONDITIONS [SEC. 6(1)] Resident A taxpayer would qualify as a resident of India if he satisfies one of the following 2 conditions : 1. Individual assesse must be in India in the previous year for a period atleast 182 days or More days or Individual assesse must be in India in the previous year for a period atleast 60 days or More and 365 days or more during 4 years preceding the Previous Year.

6. EXCEPTION TO BASIC CONDITIONS U/S 6(1)B In the following cases, an individual has to stay in India for a period of 182 days or more in order to become resident in India during Previous Year: An Indian citizen who leaves India during the previous year for the purpose of taking employment outside India An Indian citizen leaving India during the previous year as a member of the crew of an Indian ship An Indian citizen or a person of Indian origin who comes on visit to India during the previous year. (a person is said to be of Indian origin if either he or any of his parents or any of his grand parents was born in undivided India)

7. : In case of an Indian citizen or a person of Indian origin comes on a visit to India during the previous year, modified condition (ii) of sec. 6(1) is applicable: Case I Assesse total income, other than the income from foreign sources, exceeds 15 lakhs during the previous year- Assesse is in India for a period of 120 days or more (but less than 182 days) during the previous year and for 365 or more days during 4 previous years immediately preceding the relevant previous year Case II Assesse total income, other than the income from foreign sources, does not exceed `15 lakhs during the previous year- Assesse is in India for a period of 182 days or more during the previous year and for 365 or more days during 4 previous years immediately preceding the relevant previous year

8. 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 an RNOR. He will be a ROR if he meets both of the following conditions: Has been a resident of India in at least 2 out of 10 years immediately previous years and Has stayed in India for at least 730 days in 7 immediately preceding years Therefore, if any individual fails to satisfy even one of the above conditions, he would be an RNOR.

9. CONDITIONS TO BE SATISFIED Both Additional conditions satisfied → Individual assesse is Resident and Ordinary Resident None or one of the Additional conditions → He is Resident but not Ordinary Resident.

10. HINDU UNDIVIDED FAMILY (HUF) [SEC. 6(2)] An HUF can be either a resident or non-resident in India. Again, a resident HUF can further be classified as ‘Ordinarily resident’ and ‘Not ordinarily resident’. 11

11. Resident HUF When the control & management1 of affairs of HUF is wholly or partly situated in India during the relevant previous year, then it is treated as resident in India. Control & management means – ● controlling & directive power; ● actual control & management (mere right to control & manage is not enough); ● central control & management and not the carrying out of day to day affairs. The place of central control & management is situated where the head, the seat & the directing power is situated. 12

12. Non-resident HUF: An HUF is non-resident in India if the control & management1 of its affairs is wholly situated outside India. Ordinarily resident in India: If the ‘ karta ’ or manager of a resident HUF satisfies both additional conditions given u/s 6(6), HUF is said to be an ordinarily resident. If the ‘ karta ’ or manager of a resident HUF do not satisfies both additional conditions given u/s 6(6), HUF is said to be a not-ordinarily resident. 13

13. COMPANY [SEC. 6(3)] Resident Company : An Indian company is always a resident in India. A non-Indian company is said to be a resident in India, if its place of effective management, in that year, is in India. “Place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole, are in substance made.’ Non-Resident Company : If place of effective management, in that year, is not in India, the said company is non- resident in India for the relevant previous year. Tax point: In case of company, there is no sub-division like ‘Ordinarily resident’ or ‘Not ordinarily resident’. 14

14. FIRM OR AN ASSOCIATION OF PERSONS (AOP) OR BODY OF INDIVIDUALS (BOI) [SEC. 6(4)] Resident: A firm or an AOP or BOI is said to be a resident in India, if control & management of its affairs are wholly or partly situated in India during the relevant previous year. Control & management is vested in hands of partners in case of firm and principal officer in case of an AOP/BOI. Non-resident: If control & management of its affairs are situated wholly outside India, then it is a non-resident in India. 15

15. ANY OTHER PERSON Resident : Any other assessee will be treated as resident in India if the control & management of its affairs is situated wholly or partly in India. Non-Resident: If control & management of affairs of the assessee, are situated wholly outside India, it is a non-resident in India. 16