The Income-tax Act, 1961 governs the taxation of income in India. Taxability of income in India depends upon the residential status of an individual which is categorized as:
Resident and Ordinarily Resident (“ROR”)
Resident Not Ordinary Resident (“RNOR”)
1. Who is considered as a NR per the provisions of Indian Income-tax Act, 1961 (the “Act”)?
The term non-resident is negatively defined under the Act. An individual who is not a resident under the Act is a non-resident.
The status of a person as a resident or non-resident depends on his period of stay in India. The period of stay is counted in number of days for each FY beginning from 1st April to 31st March (known as previous year under the Act). The definition of non-resident is explained in simple terms as under:
If a person who satisfies understated both the conditions of Section 6 of the Act, then he becomes a Non-Resident:
The person is not in India for 182 days or more during the relevant previous year, and
The person is not in India for 60 days or more during the previous year and the person is not in India for 365 days or more during the 4 years prior to the previous year.
Exceptions to the above rule:
The requirement of stay in India for 60 days as required in condition (b) is extended to 182 days:
In case of a NRI, who is citizen of India or Person of Indian Origin, who is on visit to India or
In case of a person, who is citizen of India, and leaves India for employment outside India or as a member of the crew of an Indian ship.
In other words, the above categorized persons are non-resident if they satisfy “condition (a)” alone.
2. Mr. Amit, an Indian citizen leaves India for the first time on 1st July, 2015 for taking up employment in Japan. He does not return to India till 31st March, 2016. What will be his residential status for the FY 2015-16?
Mr. Amit shall be a non-resident for the FY 2015-16 under the provisions of the Act, as his stay in India is not exceeding 181 days for the said FY.
3. Would the answer in the above example be different in case Mr. Amit was not an Indian citizen?
In case Mr. Amit would not have been an Indian citizen, he would not have been eligible to claim benefit of 182 days. Hence, as his stay in India in the FY 2015-16 exceeded 60 days and for the past four FY exceeded 365 days, his residential status would have been that of a ‘Resident’.
4. Who is considered as RNOR as per the Act?
A person is given a special residential status of RNOR, if he is Resident of India in the previous year and satisfies one of the following conditions:
The person is non-resident, as per the above provisions, for at least 9 out of 10 previous years prior to the previous year under consideration.
The person’s stay in India during the 7 previous years prior to the previous year under consideration should be 729 days or less.
Generally, a person who is returning to India after 9 years or more of stay outside India (and who was non-resident for each of the 9 years out of 10 years immediately preceding the year of returning to India under the Act) , may remain RNOR for the period of two years.
5. Ms. Mona, a U.K. citizen and a person of Indian origin is settled in U.K. since 2000. She comes on a visit to India in the FY 2015-16 on 1st June, 2015 and leaves India on 1st February, 2016. For all the past 13 years, her stay in India was less than 180 days per year, however her total stay for the last 7 years in India was around 1000 days. What will be her residential status for the FY 2015-16?
Ans. Ms. Mona shall be a resident for the FY 2015-16, as her stay in India for the FY 2015-16 is more than 182 days. However, she shall not be an ordinary resident inspite of her stay for the past seven years exceeding 729 days, as she has been a non-resident for all the past ten years by virtue of her stay in India being less than 182 days for the past ten years. Hence, her residential status for the FY 2015-16 shall be that of a RNOR.
6. During FY 2015-16, Mr. Rahul left India for the purposes of employment to U.K. on 1st August, 2015. He came on a visit to India on 20th January, 2016 and left back to U.K. on 1st February, 2016. What shall be his total number of days of stay in India?
Mr. Rahul’s stay in India for the FY 2015-16 will be 136 days (1st April, 2015 to 1st August, 2015- stay in India 123 days and 20th January, 2016 to 1st February, 2016- stay in India 13 days). The day of leaving India and returning to India both will be calculated as ‘stay in India’ for the purposes of counting number of days of stay in India. Normally, dates stamped on Passport are considered as proof of departure from and arrival in India.
7. Mr. Sachin, an Indian citizen is leaving India for the first time for taking-up employment in U.K. What is the best time for his departure from India?
Being the first year of leaving India for the purposes of employment, Mr. Sachin being an Indian citizen will become a resident in India only if his stay in India for the concerned FY is 182 days or more. Hence, Mr. Sachin should leave India on or before 28th September to have the status of a Non-resident Indian for that FY. If he fails to do so, by virtue of taxation of global income for residents, his foreign sourced income may also become taxable in India and hence he needs to plan his departure to avoid such a situation.
8. Ms. Pooja, who is settled in U.K. is desirous of returning to India for good to stay with her parents. What is the best time to move to India for her permanent return?
As a non-resident, Ms. Pooja should try to come back on or after February 1 (or February 2 in case of a leap year). However, if her stay in India in prior 4 previous years does not exceed 365 days, then she may return after 2nd October (or October 3rd in case of a leap year). In both the cases, she will continue to remain non-resident for that FY (i.e. April-March) ensuring her income earned outside India shall be non-taxable in India for that FY.
9. Mr. Suraj works on a ship in Indian Merchant Navy. His stay in India in the FY 2015-16 is only 140 days. He receives salary in NRE A/c. What shall be the taxability of the same in India?
Mr. Suraj shall be a non-resident as per the provisions of the Act. According to a recent court ruling, salary earned for services rendered by him while his ship was in foreign waters will not be liable to tax in India even if credited to NRE a/c. All foreign remittances as well will be exempt from tax. However, it is advisable to file his return although the entire income is exempt from tax.
10. Mr. Pankaj (the ‘Karta’) has a HUF comprising of himself, his wife, two sons and an unmarried daughter. The family is based in India, except for the Karta who resides in US for his employment purposes. He visits India once in four months and takes the financial decision on his stay in India? Will the HUF be categorized as a resident?
Yes, because the HUF will be managed partly in India. An HUF will be categorized as a Non-resident only when it is controlled and managed wholly from outside India.
11. Mr. Akshay being an Indian citizen is a member of the crew of a foreign bound ship which has left India on 1stOctober ,2015. How will his stay be calculated in India as per Income tax laws?
In respect of such voyage, Mr. Akshay’s stay shall be calculated in the manner and subject to such conditions as may be prescribed.