In India, determining an individual’s income tax liability hinges significantly on their residential status. This complex subject has several categories and conditions that determine whether someone is considered a resident or non-resident for tax purposes. To unravel this intricate web, we’ll delve into each category in detail.
1. Indian Citizens Visiting India with Income Less than Rs. 15 Lakhs:
If an Indian citizen’s stay in India during the current year is 182 days or more, they are classified as residents. However, there are additional conditions for sub-classification:
- Resident and Ordinarily Resident: If the individual’s stay in India is 729 days or less in the past 7 years, they fall into this category.
- Resident but Not Ordinarily Resident: This category applies if the individual is a non-resident in 9 out of 10 preceding years.
2. Indian Citizens Visiting India with Income Greater than Rs. 15 Lakhs:
Similar to the previous category, if the individual’s stay in India during the current year is 182 days or more, they are residents. The sub-classification criteria remain the same:
- Resident and Ordinarily Resident: If the individual’s stay in India is 729 days or less in the past 7 years.
- Resident but Not Ordinarily Resident: If the individual is a non-resident in 9 out of 10 preceding years.
3. Indian Citizens with Specific Stay Duration:
This category applies when an Indian citizen’s stay in India during the current year is 120 days or more but less than 182 days. Additionally, they should have a stay of 365 days or more in the last 4 years. In this case, the individual is always deemed to be a not-ordinary resident, provided they are not liable to tax in any other country due to domicile, residence, or similar criteria.
4. Persons of Indian Origin (PIO) Visiting India with Income Less than Rs. 15 Lakhs:
For PIOs, similar conditions apply as for Indian citizens. If their stay in India during the current year is 182 days or more, they are considered residents. The sub-classification criteria are also identical:
- Resident and Ordinarily Resident: If the individual’s stay in India is 729 days or less in the past 7 years.
- Resident but Not Ordinarily Resident: If the individual is a non-resident in 9 out of 10 preceding years.
5. Persons of Indian Origin (PIO) Visiting India with Income Greater than Rs. 15 Lakhs:
This category is divided into two parts:
- (a) If the individual’s stay in India during the current year is 182 days or more: They are considered residents. The sub-classification criteria are the same as mentioned earlier.
- (b) If the individual’s stay in India is 120 days or more but less than 182 days in the current year and 365 days or more in the last 4 years: In this case, they are always deemed to be not-ordinary residents.
6. Indian Citizens Leaving India with Income Less than Rs. 15 Lakhs:
For Indian citizens leaving India, two scenarios exist:
- (a) As a member of the crew of an Indian ship, or (b) For employment purposes outside India: If their stay in India during the current year is 182 days or more, they are considered residents. The sub-classification criteria are the same as for Indian citizens visiting India.
7. Indian Citizens Leaving India with Income Greater than Rs. 15 Lakhs:
Similar to the previous category, two situations apply:
- (a) As a member of the crew of an Indian ship, or (b) For employment purposes outside India: If their stay in India during the current year is 182 days or more, they are residents. The sub-classification criteria are the same as mentioned earlier. However, if such an individual is not liable to tax in any other country due to domicile, residence, or similar criteria, they are always deemed not-ordinary residents.
8. Any Other Individual:
This category covers individuals who do not fit into the previous categories. Here are the conditions:
- (a) If the individual’s stay in India during the current year is 182 days or more, they are considered residents.
- (b) If the individual’s stay in India is 60 days or more but less than 182 days in the current year and 365 days or more in the last 4 years: In this case, they are considered residents. The sub-classification criteria remain the same as for Indian citizens.
Notes:
- It’s essential to note that an individual is considered a non-resident in India if they fail to meet the conditions required to become a resident.
- In cases not covered above, any Indian citizen with income exceeding Rs. 15 lakhs will be deemed a resident if they are not liable to tax in any other country due to domicile, residence, or similar criteria.
For entities other than individuals:
Hindu Undivided Family (HUF):
- A resident HUF may further be classified as ‘Resident but not Ordinarily Resident’ based on specific criteria:
- (a) If the period of stay of the Karta (head) in India is 729 days or less in the last 7 years, or
- (b) If the Karta is ‘non-resident’ in 9 out of 10 preceding years.
Indian Companies:
- Indian companies are always treated as residents in India.
Foreign Companies:
- Whether a foreign company is considered a resident or non-resident in India depends on the Place of Effective Management (POEM) of the foreign company.
- If the POEM of the foreign company is in India, it is considered a resident; otherwise, it is classified as a non-resident.
Firm/Association of Persons (AOP)/ Body of Individuals (BOI), etc.:
- The classification of these entities depends on the location of control and management:
- If the control and management of the entity are situated in India, it is considered a resident.
- If the control and management of the entity are situated wholly outside India, it is classified as a non-resident.
In conclusion, understanding residential status for income tax purposes in India is essential for both individuals and entities. The classification as a resident or non-resident, and any subsequent sub-classifications, can significantly impact tax obligations and liabilities. Therefore, it is crucial to carefully assess and adhere to the criteria outlined in the Income-tax Act to determine the correct residential status and fulfill tax obligations accordingly.
This comprehensive overview serves as a valuable reference for navigating the intricate landscape of residential status in India’s income tax regime.
