Residential Status under Income Tax Act, 1961:-
Section 6 of the Income Tax Act, 1961 deals with the residential status of the assesse.
Why the determination of residential status is mandatory:-
By determining residential status of any person we conclude that whether a person is a resident of India or a non-resident of India. If any person become resident then his whole income earned in any part of the world become taxable in India but if any person become non-resident then only income earned in India become taxable in India.
1. Residential Status of Individual [Section 6(1) of Income Tax Act, 1961]:-
As per Section 6(1) of the Income Tax Act, 1961 if any individual satisfies any of the following basic conditions, then he is a Resident in India other-wise non-resident.
Basic Conditions are as follows:-
a) He is stay in India for a period of 182 days or more in the previous year,
OR
b) He is stay in India for a period of 60 days or more in the previous year and 365 days or more in the preceding 4 years.
However, in the following cases only first basic condition is applicable for determination of residential status and second basic condition should be ignored:-
a) Citizen of India, leaves India during the previous year as a crew member of Indian Ship as defined in Section 3(18) of the Merchant Shipping Act, 1958.
b) Citizen of India, leaves India during the previous year for the purpose of employment outside India.
c) Citizen of India or Person of Indian Origin visits India during the previous year and his total income, other than foreign source income, is upto Rs 15 Lakhs in the previous year.
[Amendment through Finance Act, 2020 w.e.f. AY 2021-22] In case of Indian Citizen or Person of Indian Origin having total income, other than foreign source income, is exceeding Rs 15 Lakhs in the previous year, then second basic condition applicable and instead of 60 days in previous year 120 days are considered.
[Amendment through Finance Act, 2020 w.e.f. AY 2021-22] In case of Indian Citizen or Person of Indian Origin having total income, other than foreign source income, is exceeding Rs 15 Lakhs in the previous year, who has been in India for a period or periods amounting in all to 120 days or more but less than 182 days then he will be treated as resident but not ordinary resident.
Deemed Resident [Section 6(1A) of Income Tax Act, 1961]
Individual being a Citizen of India having total income, other than foreign source income, exceeding Rs 15 Lakhs during the previous year shall be deemed resident in India, if he is not liable to tax in any other country/territory by reason of his domicile or residence or any other criteria. However, he will always be treated as resident but not-ordinary resident.
Ordinary and not-ordinary resident:
If any individual become the resident of India as per above provisions then we have to check the additional conditions, as provided in the Section 6(6) of Income Tax Act, 1961, whether that such person is resident and ordinary resident OR resident but not-ordinary resident in India.
If individual satisfied both the below additional conditions then he will be treated as resident and ordinary resident otherwise resident but not-ordinary resident in India:-
a) Resident in India in previous two years or more in the last ten previous years,
AND
b) He is stay in India for 730 days or more in last seven previous years.
2. Residential Status of Hindu Undivided Family (HUF), Firm and Association of Person (AOP) [Section 6(2) of Income Tax Act, 1961]:-
a) Control and Management of its affairs is wholly outside India – Non-resident
b) Control and Management of its affairs is wholly or partly in India – Resident
If Karta of HUF is satisfying both the additional conditions as per Section 6(6) then the HUF treated as Resident and Ordinary Resident otherwise Resident but Not-ordinary Resident.
3. Residential Status of Company [Section 6(3) of Income Tax Act, 1961]:-
a) Indian Company – Always resident
b) Other than Indian Company – Resident only if its Place of Effective Management is in India
