How to determine Residential status of an individual for income tax purpose

Residential status of a person is the first and foremost thing you should find out before applying provisions of income tax act to calculate tax liability.

For every previous year relevant to the assessment year, you should determine your Residential status in order to find out whether a particular income is taxable or not.

Basic conditions to determine whether the individual is resident or nonresident

As per section 6 of income tax act 1961, an individual is said to be resident in India in any previous year if that person fulfills any one of the following two basic conditions:

  • He has been in India for 182 days or more during the previous year; or
  • He has been in India for a period or periods amounting in all to 60 days or more during the previous year and has lived in India for at least 365 days or more during the 4 years preceding that previous year.

If the individual do not satisfy both the basic conditions, then he/she will be considered as nonresident or NRI.

If any one condition is satisfied, then he/she will be considered as resident.

Additional Conditions for Not ordinarily resident

If you are a resident individual (i.e. satisfied any one of the basic conditions as mentioned above), then you need to see whether you are a “not ordinarily resident” in India in that previous year or not.

To become “not ordinarily resident”, the resident individual need to fulfill any one of the following additional conditions:

  • He has been a nonresident in India in 9 out of the 10 preceding previous year; or
  • He has been in India for a period not exceeding 729 days during the 7 preceding previous year.

If you as a resident individual (i.e. after satisfying any one of the basic conditions) satisfy any of the above additional condition, then your residential status shall be “resident but not ordinarily resident”.

After satisfying any one of the basic conditions, if the individual fails to satisfy both the additional conditions as mentioned above then his/her residential status will be considered as “resident and ordinarily resident.

While calculating your number of days stayed in india, you are required to consider the days on which you entered India as well as the days on which you left India.

Based on your residential status, you or your tax expert can determine which type of income can be taxed in India.

If the person has never travelled abroad then blindly you can say that he is a resident. If someone has travelled during the year or in any previous year, then first thing you need to find out is the number of days he/she has stayed in india.

Only the number of days of stay in India matters. It does not matter whether the individual has visited India on a tourist visa or business visa or any other visa.

Please remember, the country of origin does not matter in this case. If you satisfy conditions of section 6 then your status will be defined accordingly.

For instance, if you have travelled to USA or UK on deputation, you need to find out your residential status for tax purpose in India.

Exceptions to the above conditions

  • An individual, who is a citizen of India, leaving india in any year for the purpose of employment or as a member of the crew of an Indian ship, is considered as resident in India in that year only if he has been in India in that year for 182 days or more.
  • A citizen of India or a person of Indian origin who is residing outside india and comes to india on a visit in any previous year is required to stay in India for 182 days for being treated as resident.

A person shall be deemed to be of India origin, if he, or either of his parents or any of his grand-parents, was born in undivided India.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.