Residential status under the Income Tax Act

Course: IPCCSubject : Income TaxLecture on : Residential StatusNeed to determine residential statusDefinitions1.2.RESIDENTIAL STATUSUNDER INCOME TAX ACT , 1961Residentialstatus3.Course: IPCCSubject : Income TaxLecture on : Residential Status2Needto determine residential statusWHY DO WE NEED TO DETERMINE THE RESIDENTIAL STATUSGlobalization of economies and movement of talent/resourcesAll countries want to tax assesses in respect of income derived by them from sources within those countries RESIDENTIAL STATUS IS ONE OF THE KEY BASIS OF TAXATIONWork in two countries, tax may be payable in both countriesFor Indian IT purpose can either be a(a)Resident (b)Non residentResident individual/HUF can further be ROR or RNORCourse: IPCCSubject : Income TaxLecture on : Residential Status3Residential Status in respect of individual –Section 6He has been in India in previous yearfor a period of 182 daysor more, Days mean 24 hours.. Broken time added for hoursExact time not known –Both arrival and departure days takenHe has been in India for 60 daysor more during the previous year and for 365 days or more during four years preceding the previous year;ExceptionsBasic ConditionsIndian citizen who leaved during PY as a Member of crew of an Indian ShipFor the purpose of employment outside India –Individual need not necessarily be unemployed when leaving India –Small period visitsIndian citizen/person of Indian originWho being outside India –Should have settled outside IndiaComes on a visitto India during the previous yearPeriod of 60 days is substituted for 182 daysExceptionsIn case the individual does not satisfies either of basic conditions,He is a non residentCourse: IPCCSubject : Income TaxLecture on : Residential Status© Commerce & Accounts Guru4Residential Status in respect of individual –Additional Conditions -Section 6 (6) to become RORROR –1 basic and 2 additionalRNOR –1 basic and not more than 1 additionalResident in India in at least 2 out of 10 PYimmediately preceding PYIn India for 730 days or more during 7 years immediately preceding the relevant PYNotes•Place, purpose of stay and whether the stay has been continuos or broken does not matter;•India includes territorial waters of India –stay on yacht moor in India territorial waters is stay in India •In respect of broken days, number of hours of stay in India would need to be summed •In case the details are not available, both the day of arrival and departure includedANDIn case the individual satisfies one of the basic conditions and none/one of theadditional conditions, he is RNORCourse: IPCCSubject : Income TaxLecture on : Residential StatusBasic Rules in respect of residential statusPerson cannot have two residential status for the same yearResident in respect of one year for any source of income shall be treated as resident for all source of income. Eg –Individual coming to India on September 16 starts a business on September 20 and also joins part time employment on October 5. He shall be a resident for all source of income;Person can have different residential status for different yearAn individual can be a resident both in India and other country during a particular yearEg an individual who stays in India for more than 60 days, say till May 15 shall be in India for more than 60 days . Since he has been in UK for more than 182 days (assuming same criteria shall also be a resident in UK).Course: IPCCSubject : Income TaxLecture on : Residential StatusResidential Status in respect of HUF -Section 6 (2)Control or Management is situated in India, Wholly Or PartlyResidentControl or Management is situated wholly outside IndiaNon residentNotes To determine whether or not the HUF is a resident, tax status of Karta is not relevant Control and Management -De facto control and Management and not merely the right to manageControl and management is situated where, the Head, the Seat and the directing Power are situatedMere absence of Karta from India or house of HUF in Indian wherein certain HUF member live shall not affect the residential status of HUFCourse: IPCCSubject : Income TaxLecture on : Residential StatusResidential Status in respect of Firm and AOP -6 (2)Control or Management is situated in IndiaWhollyPartlyResidentControl or Management is situated wholly outside IndiaNon residentNotes Control and management in case of a firm is vested in partners whereas in the case of an AOP, itsvested with the principal officerControl and Management -De facto control and Management and not merely the right to manageControl and management is situated where, the Head, the Seat and the directing Power are situatedHead and Brain are situated wherein vital decision concerning business are taken such as Raising finance, expansion/extension of business or appointment or removal of staff (San Paulo Brazilian Railway Co.)Course: IPCCSubject : Income TaxLecture on : Residential StatusResidentialStatus in respect of Company -6 (3)Indian CompanyFor a foreign company, control or Management is situated wholly in IndiaResidentIn case of foreign company, if the control or Management is partly or wholly outside IndiaNon residentControl and ManagementNot necessarily at the registered office of the companyGenerally control and management is situated wherein the meetings of the Board of Directors take place. C&M refers to Central C&M and not management of day to day operationsCourse: IPCCSubject : Income TaxLecture on : Residential StatusResidentialStatus in respect of Every Other person -Section 6 (4)Control or Management is situated in IndiaWhollyPartlyResidentControl or Management is situated wholly outside IndiaNon resident