Residential Status under Income Tax Act, 1961

Introduction:Tax incidence of any person under the Income Tax Act shall be determined on the basis of hisResidential status. Residential status under the income tax act has been classified under thefollowing categories:1. Resident: which is also sub categorised in two partsa. Resident and ordinarily resident (ROR).b. Resident but not ordinarily resident (RNOR).2. Non Resident (NR).Individual or HUF could be ROR/RNOR/NR but Firms, AOP, BOI, Companies, etc can only be eitherResident or Non Resident.Section 6 determines the residential status of an assessee. Under the income tax act, residentialstatus must be calculated for each previous year separately because it could be possible that oneperson is resident this year and become non resident in another previous year. Now we will discusscriteria to determine residential status of various categories of assessee in this article.

For Individuals:Section 6(1): An individual shall be considered as resident in India in any previous year, if he hassatisfies any one of the following conditions:a) He has been in India during that previous year for atleast 182 days.b) He has been in India during 4 immediately preceding years for 365 days or more and hasbeen in India for 60 days or more in that previous year.

Exception to above rule:Few categories of person shall be considered as resident only if they follow condition (a) during theprevious year. It means even if they are falling in condition (b) mentioned above and not completing182 days during that previous year, that person shall not be considered as resident. Following arethose two categories:i) Indian citizens who leaves India during the relevant previous years as a member ofcrew of Indian ship or for purpose of employment outside India, orii) Citizen of India or person of Indian origin who are engaged outside india in businessor profession or in any employment or in any other vocation, who comes on a visitto India in any previous year.

How to determine Individual/HUF are ROR or RNOR?As said earlier, only Resident Individual and HUF can be ROR and RNOR, So an individual shall said tobe Resident and ordinarily resident if he satisfied BOTH the following two conditions:i) He is resident of India in any 2 out of last 10 previous years, andii) In preceding 7 years from relevant previous year, his total stay in India is 730 days ormore.

If any of conditions mentioned above failes, the individual shall be RNOR.For HUF:A HUF shall be a resident if its control and management of affairs is situated wholly or partly in Indiaand if its control and management of affairs is situated wholly outside India then it shall beconsidered as Non Resident.A HUF is ROR or RNOR shall depend upon the status of its Karta. If Karta is ROR then HUF is alsoROR and if Karta is RNOR, HUF shall also be considered as RNOR.For Firms and Association of Persons (AOP):A Firm or AOP shall be a resident if its control and management of affairs is situated wholly or partlyin India and if its control and management of affairs is situated wholly outside India then it shall beconsidered as Non Resident.For Local Authorities and Artificial Judicial Persons:It shall be considered as resident if its control and management of affairs is situated wholly or partlyin India and if its control and management of affairs is situated wholly outside India then it shall beconsidered as Non Resident.

For companies:A company shall be considered as resident of India if:- It is an Indian company, or- It’s Place of effective Management (POEM) in that previous year is in India.Explanation to Section 6(3) ‘’Place of Effective Management’’ is the place where key managementand commercial decisions to conduct necessary business activities are taken.So, In this manner Residential status of an assesse shall be determined in every previous year andaccordingly income shall be taxed for such assessee.

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