Residential Status Under Income Tax Act

Under Section 6(1) of the Income Tax Act, an individual’s residential status is determined based on their stay in India during a financial year. An individual is classified as a resident if they stay in India for 182 days or more during the year, or if they stay for 60 days or more in a year and have been in India for a total of 365 days or more in the preceding four years. The residential status of a taxpayer is significant as it determines their tax liability, as residents are taxed on their global income, while non-residents are only taxed on income earned in India. Understanding this status is crucial for compliance with the Income Tax Act and to ensure accurate tax filing.

• Section 6(1) of the Income Tax Act defines an individual's residential status.
• An individual is a resident if they stay in India for 182+ days in a year, or 60+ days in the current year and 365+ days in the last 4 years.
• Residents are taxed on their global income, while non-residents are taxed only on income earned in India.
• Understanding residential status is crucial for accurate tax filing and compliance.
• The residential status determines the tax obligations of an individual.

Residential status, as defined under the Income Tax Act, refers to an individual's classification based on the duration of their stay in India during a financial year. It determines whether an individual is considered a resident, resident but not ordinarily resident, or non-resident. The status is primarily determined by the number of days an individual spends in India, as specified in Section 6(1) of the Act.

The importance of residential status lies in its impact on tax obligations. Residents are liable to pay tax on their global income, while non-residents are taxed only on income earned in India. This distinction makes residential status essential for taxpayers to ensure accurate filing and compliance with the law. Furthermore, various exemptions, deductions, and tax benefits are available depending on an individual’s residential status, influencing their overall tax liability. Hence, understanding one's residential status is key to making informed financial and tax decisions.

The Residential status of an individual is a key factor in determining their tax liability in India. It defines whether an individual is considered a resident or a non-resident for tax purposes, based on the duration of their stay in the country during a financial year. According to Section 6(1) of the Income Tax Act, the status is determined by the number of days an individual stays in India. The residential status can also influence the eligibility for certain tax exemptions and deductions.

1. Resident: If an individual stays in India for 182+ days during the financial year, or for 60+ days in the current year and 365+ days in the previous four years.
2. Non-Resident: Individuals who do not meet the criteria for residency are considered non-residents.
3. Resident but Not Ordinarily Resident (RNOR): This category applies to individuals who meet the residency criteria but have not been a resident in India for nine out of the previous ten years.
4. Global Income Taxation: Residents are taxed on their global income, while non-residents are only taxed on income sourced from India.
5. Tax Benefits and Deductions: Understanding your residential status helps in availing specific tax exemptions, deductions, and rebates available under the Income Tax Act.

The residential status of an individual plays a crucial role in determining their tax liability in India. It decides whether an individual will be taxed on their global income or just income sourced within India. The Income Tax Act, 1961, outlines specific criteria under Section 6(1) to establish the residential status, which depends on the duration of stay in India during a financial year. The status impacts the individual's eligibility for various tax exemptions, deductions, and rebates.

1. Resident: If an individual stays in India for 182+ days in a financial year or 60+ days in the current year and 365+ days in the last four years combined.
2. Non-Resident: Individuals who do not meet the above criteria are classified as non-residents and are taxed only on income sourced from India.
3. Resident but Not Ordinarily Resident (RNOR): Individuals who meet the residency criteria but have been in India for less than 9 out of the last 10 years are classified as RNOR.
4. Taxation of Global Income: Residents are taxed on both their Indian and global income, while non-residents are taxed only on income earned in India.
5. Eligibility for Tax Benefits: Tax exemptions and deductions, such as those under sections like 80C, may be available based on residential status, influencing an individual's overall tax burden.

Determining an individual's residential status in India is crucial for assessing tax liability, as it dictates the scope of income subject to taxation. The Income Tax Act, 1961, outlines specific criteria to classify an individual's residential status.

Key criteria for determining residential status

1. Basic Conditions:

• Stay in India for 182 days or more: An individual is considered a resident if they are physically present in India for at least 182 days during the relevant financial year.
• Stay for 60 Days in the current year and 365 days in the preceding four years: Alternatively, if an individual is in India for at least 60 days in the current financial year and has accumulated 365 days or more over the four preceding years, they qualify as a resident.
  Exception: For Indian citizens or persons of Indian origin who visit India, the 60-day requirement extends to 182 days if their total income, excluding foreign sources, exceeds Rs. 15 lakh during the financial year.

2. Additional conditions for 'Resident and Ordinarily Resident' (ROR):

• Resident in 2 Out of 10 preceding years: The individual must have been a resident in India for at least two out of the ten preceding financial years.
• Stay of 730 days in the preceding seven years: The individual should have been in India for a total of 730 days or more during the seven years preceding the current financial year.
  1. Failing to meet these additional conditions classifies the individual as 'Resident but Not Ordinarily Resident' (RNOR).

3. Non-Resident (NR):

• If neither of the basic conditions is satisfied, the individual is classified as a Non-Resident.

Implications of residential status:

• Resident and Ordinarily Resident (ROR): Global income is taxable in India.
• Resident but Not Ordinarily Resident (RNOR): Income earned or accrued in India is taxable; foreign income is generally not taxable unless derived from a business controlled in India.
• Non-Resident (NR): Only income earned or accrued in India is taxable.

Residential status is a crucial factor in determining the tax liabilities of individuals under the Income Tax Act. It is based on the number of days an individual stays in India during a financial year and the preceding years. According to Section 6(1) of the Income Tax Act, residential status determines whether an individual will be taxed on their global income or just income earned within India.

1. Resident: Individuals who stay in India for 182 days or more in a financial year or 60+ days in the current year and 365+ days over the last four years.
2. Non-Resident: Individuals who do not meet the residential criteria and are only taxed on income earned in India.
3. Resident but Not Ordinarily Resident (RNOR): These individuals satisfy residency conditions but have not been a resident in India for 9 out of the last 10 years.
4. Impact on taxation: Residents are taxed on their global income, while non-residents are taxed only on income sourced from India, which can significantly affect their overall tax burden.

Understanding the residential status under the Income Tax Act is essential for determining an individual’s tax obligations in India. It directly impacts whether a person will be taxed on their global income or only on income sourced within the country. With categories like resident, non-resident, and resident but not ordinarily resident (RNOR), the status ensures that taxpayers are taxed fairly based on their presence in India. Properly assessing residential status helps individuals comply with tax regulations and avail themselves of eligible tax exemptions and deductions, ultimately leading to accurate tax filing.