Determining Residential status of a person is required to ascertain the tax implication under the Income-tax Act, 1961 (the Act). There are two categories – Residents and Non- residents. Residents are further classified into (a) Resident and Ordinarily Resident and (b) Resident but Not Ordinarily resident. This classification is very crucial to determine extent of compliance, taxability and disclosure requirements will need to be adhered to.
The Act lays down two alternative tests of residency for Individuals. Each of these tests depends on physical presence of an individual in India during the “previous year” which would be twelve months from 1st April to 31st March.
The definition is explained in simple words as under:
If an individual satisfies understated both the conditions of section 6 of the Income-tax Act, then he becomes a Non-Resident:
| Conditions | Status | |
| 1. | He is not in India for 182 days or more during the relevant previous year. | If yes, then he is a Non-resident. (check the next condition as well) |
| 2. | He is not in India for 60 days or more during the previous year and he is not in India for 365 days or more during the 4 years prior to the previous year. | If yes, then he is a Non-resident. |
If an individual is not satisfying any of the above conditions to become Non-resident, then check whether the following conditions helps to become a Non-resident:
The requirement of stay in India as required in condition 2 above shall not be applicable in the following cases:
– If an individual, being an Indian citizen leaving India for the purpose of employment outside India or as a member of the crew of an Indian ship.
– If an individual, being an Indian citizen or person of Indian origin, is on visit to India.
In other words, the above categorized individuals are Non-resident if they satisfy condition 1 alone.
However, if the above conditions are not satisfied, then a person becomes a Resident.
Resident but not ordinarily Resident (RNOR):
An individual 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:
| Condition | Status | |
| 1. | He is not a Resident, as per the above conditions, for at least 9 out of 10 previous years prior to the previous year under consideration. | If yes, he is RNOR |
| 2. | His stay in India during the 7 previous year prior to the previous year under consideration should not be 730 days or more | If yes, he is RNOR |
Note : Generally, an individual 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), may remain RNOR for the period of two years.
These conditions need to be tested every year for every individual as taxability of Income is dependent upon whether he is a Resident or Resident but not Ordinary resident or Non Resident.
We at GPK are of the view that it’s important to plan the residential status efficiently and be very careful about gaining & protecting client’s residential status. We make our clients fully understand the impact of compliance and taxability scope attached to their residential status.
We shall be able to assist you as follows:
- Understanding the facts and determining your Residential status
- Explaining the Impact analysis of the residential status
- Planning and suggesting the way forward to optimize the tax implication.
GPK strives to blend tax expertise with a strong focus on continually improving the client experience to provide all its clients with an unparalleled value proposition for their Indian tax matters.