SUMMARY AND PRACTICE QUESTIONS RESIDENTIAL STATUS
General Concept
• Income Tax Act, 1961 brings to tax the income of the persons on the basis of either their
locality in India which is residence ( for an individual, conventionally understood to be
physically present in India for the majority of the year, i.e. more than six months - 182 days) or
for their income sourced in India. • The residence of a person is determined under s. 6 for all the
persons taxable under the Act.
There are different categories of persons mentioned under s. 2(31). Person for the purpose of this
Act includes:
1. an individual,
2. a Hindu undivided family (HUF),
3. a company,
4. a firm,
5. an association of persons or a body of individuals, whether incorporated or not (AoP and BoI)
6. a local authority, and
7. every artificial juridical person (AJP), not falling within any of the preceding sub-clauses.
Important Considerations Before determining residential status, keep these considerations in
mind: 1. Residential status for the relevant previous year is determined - The residential status is
seen for the previous year immediately preceding the assessment year (relevant PY) in which the
assessment is made. Every year, the test has to be applied freshly, and previous years’ residential
status is immaterial for tax purposes.
2. Test under section 6 is conclusive - If a person is not a resident under s. 6, no other section
provides the test and for the purpose of this Act, shall be considered to be a non-resident.
3. Various categories of residents - There are broadly two categories as explained above. A
person is either resident (R) or non-resident (NR). There are two sub-categories for individuals
and HUF which are resident ordinarily resident (ROR) and resident not ordinarily resident
(RNOR).
4. Person’s citizenship is immaterial - For individuals, their citizenship is not material. What is to
be seen is if they were resident. Therefore, even foreign nationals can be brought to taxes
provided they stayed in India for the required threshold under s. 6(1).
5. Incidence of tax is provided under s. 5 - The residential status is determined under s. 6 and
incidence of it is provided under s. 5. S. 5 provides for different tax treatments for R, NR, ROR
and RNOR.
ROR is taxed for all his global income, for RNOR there are some exemptions, for NR the tax
liability is the least.
6. Same residential status for all sources of income - If an assessee is a resident in relevant PY
for one source of income he is to be considered a resident with respect to all other sources of
income mentioned under s. 14.
S.6 provides for one test for all the incomes such as salary, rental income, profits from business
etc. The scheme under s. 6 S. 6 provides for the test to determine the residential status of all the
persons mentioned above. The residential status is :
– 6(1) - of individuals
- Explanations 1(a) and 1(b) to 6(1) - provide for certain exceptions when the requirement under
6(1) is relaxed for certain classes of individuals.
- 6(1A) - individual deemed to be resident
– 6(2) - for HUF, firms and other AOPs.
–6(3) - for company
– 6(4) - for AJP etc. based on the test under 6(2) - 6(6) - ordinary residence
6.1. Residence of individuals Residence of an individual can be calculated by following these
steps: • Step 1 - To see if an individual is a resident under s. 6(1). If not, then he will be a NR.
• Step 2 - Once it has been determined that that he/she is an R, under 6(6), it will further be seen
if he has been an ROR or an RNOR.
• Step 1 - To see if an individual is a resident under s. 6(1). If no, then he will be a NR:
S. 6(1) prescribes the test for determination of residential status of an individual for the relevant
PY.
Any one of these two tests has to be fulfilled for a person to be a resident.
- Basic Condition 1: 6(1)(a) if his stay in India is an aggregate* 182 days or more in the relevant
PY. 6(1)(b) has been omitted by Finance Act, 1982.
- Basic Condition 2: 6(1)(c) if his stay in India is less than 182 days but more than 60 days
(roughly 2 months), he can be considered a resident if in the 4 preceding PYs to the relevant PY,
his aggregate stay in India was more than 365 days.
*Note - aggregate stay means, the stay in the relevant PY doesn’t have to be a continuous stay.
The days of entering in India and leaving India will also be counted. Eg. Mrs. X came to India in
April 2019 for 5 days. Then in June for 27 days. In August for 15 days. After her fourth visit, on
1st Sep., she stayed in India till 31st March 2020. Her stay in India in PY 19-20, for the purpose
of s. 6 is 5 days (first visit) +27 days (second visit) +15 days (third visit) + 211 days (fourth
visit). Her total stay is 258 days, which is more than 182 days. The stay also need not be an
active stay or at one place.
For eg. a person may visit India for vacations, without actively engaging himself in any work and
may stay at different towns in India throughout the PY.
- Relaxation of 60 days requirement for certain individuals - Explanations (a) and (b) to clause
(1) provide for certain exceptional situations in which an individual will not be considered
resident in India for a stay as short as 60 days. The legislature, understanding that an individual
with personal ties in India (such as an NRI) has reasons to stay in India, come on vacation for
longer than 60 days. If they are treated under 6(1)(c), then they will be considered residents and
brought to taxes in India which would be unfair to them. Therefore, their 60 days requirement is
relaxed to 182 days for computing their total stay, making them not taxable in India just because
they visited India for an aggregate of 60 days or more. 60 days will be deemed to be 182 days
(only condition under cl(a) will apply) - Under Explanation (a) for –
A. Indian citizen who leaves India in relevant PY for the purpose of employment.
B. Indian citizen who is a crew member of Indian ship.
Under Explanation (b) for
- C. Indian citizen or person of Indian Origin* visiting India from abroad.
* A person is said to be of Indian origin if he or either of his parents or either of his grandparents
were born in undivided India. 60 days will be deemed to be 120 days under Explanation (b)
(W.e.f. 1st Apr. 2021)
- D. Indian citizen or person of Indian Origin having total income sourced in India in the relevant
PY amounting to more than 15 lakh. In this case, the second basic condition of 365 days in
preceding 4 years still applies along with 120 days in relevant PY.
• Step 2 - If the individual who has been found to be a resident under step 1 is ROR or an
RNOR. S. 6(6)(a) prescribes for the test to determine if the R is RNOR. If he is not an RNOR
under 6(6)(a) then he is an ROR and will be treated accordingly under s. 5 for tax incidence.
Both these requirements have to be met under these two additional conditions.
Additional Condition 1: Resident for at least 2 years out of last 10 PY immediately preceding to
relevant PY AND Additional Condition 2: Physically present for 730 days or more in 7
preceding PY to relevant PY If an individual fulfils the requirements of both the additional
conditions above, he will be considered to be a ROR otherwise he will still remain a resident but
as an RNOR.
Deemed to be resident Under s. 6(1A), W.e.f. 1st April, 2021, any individual will be deemed be
a resident even if he was not physically present in India for even a single day, if:
A. He is an Indian citizen, and
B. His total income other than foreign sourced income has been more than Rs. 15 lakh for the
relevant PY, and
C. He is not liable to tax in any country or territory because of his domicile status, residential
status etc.
Note - Persons falling under s. 6(1A) are considered as RNOR. Persons falling under
Explanation 1(b) to 6(1)(c), having income sourced in India more than 15 lakh will also be
deemed to be RNOR.
Practice question 1 Mr. Keiron Pollard, a West Indian national is a cricketer playing in Indian
Premier League. He has an active contract with Mumbai Indians to stay in India for 100 days
each year, since 2010 for playing matches and engaging in promotional activities.
Determine his residential status for PY 2020-21.
Solution: Step 1 - If Pollard is an Indian resident during relevant PY 2020-21.
Check if falls under any of the basic conditions - Basic Condition 1- If he has stayed in India for
182 days during PY 2020-21.
No, he has stayed during relevant PY 2020-21 for 100 days. OR
Basic Condition 2 - Has stayed in India in relevant PY 2020-21 for more than 60 days and a total
of 365 days during PY 2019-20, 2018-19, 2017-18 and 2016-17.
Yes, he has stayed for 100 days in PY 2020-21 and a total of 400 days in preceding 4 years.
Kieron Pollard is a resident.
Step 2 - Is Pollard a ROR. Check if he meets both the requirements of additional conditions 1
and 2. Additional Condition 1- If physically present for 730 days or more in 7 preceding years.
No, his stay in preceding 7 years is for a total of 700 days.
As he does not meet one additional condition, there is no need to check if he meets the second
additional condition. Kieron Pollard is a resident not ordinarily resident.
Practice Question 2 Mr. Masaki Yamada, a Japanese citizen left India after a stay of 8 years on
1st June, 2016. During FY 2019-20, he comes to India for 76 days. Later, he returns to India for
1 year on 10th July, 2020. Determine his residential Status for the A.Y. 2020-21.
PQ 2
Step 1
Condition 1 - Mr. Yamada was in India for relevant PY 2019-20 for 76 days. His stay after 31st
March, 2020 is irrelevant for AY 2020-21.
Condition 2 - He was in India for more than 365 days in PY 2018-19, 2017-18, 2016-17 and
2015-16 as in 2015-16 alone he was here for 365 days. Therefore, he is a resident.
Step 2 - Additional Condition 1 - He was also physically present for more than 730 days, as
evident from his stay in 2015-16 for 365 days and 365 days in 2014-15 too.
Additional Condition 2 - He was also a resident in 2 years out of ten preceding 10 years as he
was present for more than 182 days in PYs 2015-16 and PY 2014-15. Therefore, he is ROR.
Practice Question3: Professor Rahim, an Indian Citizen and a Professor in JGLS, India, left
India on September 15, 2020 for France to join Sciences Po in Paris as a Professor or Law.
Determine his residential status for the AY 2021-22.
AQ3: Prof. Rahim being a citizen of India and who has gone out of the country for employment,
will be governed by 182 days test only and therefore the second condition under section 6(1), i.e.
60 days during relevant previous year shall not be applicable. Dr. A stayed in India for 168 (viz.
30 + 31 + 30 + 31 + 31 + 15, for April, May, June, July, August and 15 days in September,
respectively) days only in the relevant previous year. Hence, Prof. Rahim shall be a non-resident
in India for the assessment year 2021-22 as condition of stay of 182 days in relevant PY is not
satisfied.
Practice Question 4: Mr. Praveen, an Indian citizen and a software engineer moved to New
York from India. This was his first trip abroad. He visited India and stayed in India in Aug. 2021
for 18 days, in Sep. 2021 for 22 days, Oct. 2021 for 17 days, Nov. 2021 for 11 days, Dec. 2021
for 18 days. From 12th Jan, 2022, he stayed in India till 31st March, 2022. On 2nd March, 2022
he sold software to Godrej Group, an Indian conglomerate for 27 lakh Rs. What would be the
residential status of Praveen for PY 2021-22. Would your answer differ if he had sold the
software for 13 lakh Rs. instead? Note - Praveen did not earn any other income which accrued in
India.
PQ4
Step 1 - His total stay in India is for 165 days. It is less than 182 days. Before 2020 amendment,
he would have been declared an NR as he did not meet the condition of 182 days. However, his
total earning from Indian sources exceeds 15 lakh Rs. Therefore, the requirement of 60 days
would now be 120 days.
Step 2 - As facts mention that he moved to NY for the first time, it can safely be assumed that he
was there in India before that. Therefore, he will be physically present for 365 days or more in
past 4 years too. Hence, Mr. Pravin would be an RNOR. (Read Section 6(6)(c)).
If he had sold the software for Rs. 13 lakhs instead, his income would not exceed 15 lakhs. The
condition of 120 days will not apply, and 60 days will be substituted for 182 days. As his total
stay is for 165 days, he will not be a citizen of India.
Practice Question 5: Mr. Kishore Kumar, a citizen of India, lives in the British Virgin Islands.
He visited India in the year 2021-22 from 15 June 2021 to 14 July 2021. Thereafter, Mr. Kumar
visited India again for a period of 15 days during the year 2021-22. Mr. Kumar earned Rs.
15,60,000/- from Indian sources in the year 2021-22.
Please note: the British Virgin Islands does not impose any income tax liability on its residents.
a) Determine the residential status of Mr. Kishore Kumar under the Income-tax Act 1961 for
the Assessment Year 2022-23.
b) Instead of living in the British Virgin Islands; if Mr. Kishore Kumar lives in Hong Kong,
would your answer to question a) change? If yes, then how? Please note that Hong Kong levies
income tax on its residents but exempts tax on income earned outside Hong Kong.
Answer 5 a) You are expected to discuss the period of stay of Mr. Kumar in India and how it
does not satisfy the conditions provided in Section 6(1)(a) and (c). Thereafter, expected to
discuss in detail Section 6(1A) to hold that Mr. Kumar is a deemed resident of India. Discuss the
thresholds mentioned in Section 6(1A) of the ITA.
b) Discuss the difference between “subject to tax” and “liable to tax”. Mr. Kumar is liable to tax
in Hong Kong but not subject to tax due to the provisions of Hong Kong Tax Code. Considering
the above, discuss the Section 6(1A) with respect to “liable to tax” and hold that Mr. Kumar is a
tax resident of India. Students are required to discuss the provisions of Section 6(6)(d) to hold
that irrespective of period of presence of Mr. Kumar, he will be a resident not ordinary resident
because he is a deemed resident.
