Taxability in India based on Residential Status of Individuals

Conditions to determine the residential status as per Income Tax Act & taxability thereon

Taxability in India based on Residential Status of Individuals
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There are certain conditions to determine the residential status of an individual as per Income Tax Act in India. In this article, these conditions are brought forth and the taxability based on residential status.

Under the provisions of the Act, the scope of total income of an individual depends upon his residential status and also on the place and time of accrual or receipt of income.  An individual in India can either be a resident or a non-resident.  Resident of India is further categorized into resident & ordinary resident and resident but not ordinary resident. 

The following depicts the method of determining the residential status of an individual under the Income Tax Act-

  • An individual Stays in India for 182 days or more in a tax year (Apr to Mar) or 60 days in a tax year and 365 days or more in previous four years – If yes, he is a resident. If not, he is a non-resident
  • If he is resident, then, there are two sub categories - Resident and ordinary resident & Resident and Not ordinary resident
  • If an individual is Resident for 2 out of 10 preceding tax years and stays in India for 730 days or more in 7 preceding tax years, then he is a Resident and ordinary resident. If this condition fails, then, he is a Not ordinary resident

Based on the residential status, the incidence of tax on an individual is as follows:

  • Resident and ordinarily resident is taxable on his worldwide income.
  • Resident but not ordinary resident is taxable in respect of Indian sourced income and income from foreign business controlled from India.
  • Non-resident is taxable in India only in respect of Indian sourced income.

In other words, if an individual satisfy the following two conditions then his world wide income is liable to tax in India:

  • His stay in India exceed 182 days in the Indian tax year ; and
  • His stay in India exceed 182 days in the Indian tax year at least 2 out of 10 preceding Indian tax years and his aggregate stay in India for 730 days or more in 7 preceding India tax years

Let us understand the above discussion with the help of the following illustration:

Sl. No.

Tax Year

Stay in India (days)

1

April 1, 2018 to March 31, 2019

185

2

April 1, 2017 to March 31, 2018

300

3

April 1, 2016 to March 31, 2017

300

4

April 1, 2015 to March 31, 2016

145

5

April 1, 2014 to March 31, 2015

15

6

April 1, 2013 to March 31, 2014

-

7

April 1, 2012 to March 31, 2013

-

8

April 1, 2011 to March 31, 2012

-

9

April 1, 2010 to March 31, 2011

-

10

April 1, 2009 to March 31, 2010

-

11

April 1, 2008 to March 31, 2009

-

In the above example, an Individual is satisfying both conditions of the Para 1.4  i.e. his stay in India exceed 182 days (refer Sl. No.

1) in the Indian tax year and his stay in India exceed 182 days in the Indian tax year at least 2 out of 10 preceding Indian tax years (refer Sl. No. 2 and 3 out of Sl. No. 2 to 11) and his aggregate stay in India for 730 days or more in 7 preceding India tax years (760 days being the sum of Sl. No. 2 to 8).  As a result, for the tax year April 1, 2018 to March 31, 2019 individual’s world wide income would taxable in India.

However, India-source income is taxable irrespective of the residential status of an Individual.  The following are considered as India-source income:

  • Income accrued or arises in India during the tax year (i.e. April 1st to March 31st) irrespective of where the money is received.
  • Income received in India at the first occasion, (i.e. when the recipient gets the money under his control for the first time), during the tax year irrespective of the place of accrual or arise of income.
  • Income deemed to accrue or arise in India during the tax year i.e. if the services are rendered in India.

 


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