Residential status of Assessee
Q. Why Residential Status of Assesse is essential?Ans. In India Tax on taxpayer depends upon his residential status & also on the basis of place and time of accrual or receipt of income.
Residential Status:- (2 types)
---> Resident
---> Non-Resident
Resident
---> Resident and ordinary resident;
---> Resident but not ordinary resident.
An individual is said to be Resident in India, if he satisfy any one of the following basic conditions.
BASIC CONDITIONS:-
(a) He is in India in the Previous Year for a period of 182 days or more,
(b) 60 days or more in Previous Year + 365 days or more during four immediately preceding previous year.
ADDITIONAL CONDITIONS:-
(a) Resident in India at least 2 years out of 10 Previous Years immediately preceding the relevant previous year.
(b) 730 days or more during 7 years immediately preceding the relevant Previous year.
Rule of residential status
● Non-Resident:-
• satisfy none of basic conditions, and thus additional conditions are irrelevant.
● Resident:-
• satisfy at least one basic condition.
Resident status is two types:-
(a) Resident and Ordinary Resident (R&OR)
◆ Conditions for R&OR
● satisfy at least one basic condition
+
● satisfy both additional condition
(b) Resident but not Ordinary Resident (R but not OR)
◆ Conditions for R but not OR
● satisfy at least one basic condition
● may satisfy one or none additional condition
Exceptions:-
Basic condition (b) is not taken in consideration in fallowing two cases:-
(1) An Indian citizen Leaving India during previous year for employment outside India or he is member of crew of Indian ship.
(2) It covers an Indian citizen or a person of Indian origin who comes on a visit to India during the previous year.
Rule of determination of person of Indian Origin (POI)
if ●Myself, or
● My parents, or
● My Grand Parents (maternal & paternal both)
---> Born in Undivided India
Residential Status of Hindu Undivided family (HUF)
●control & management is situated at a place where the Head (Karta), seat & directing power are situated.
* Only Resident of Karta is not enough
Condition to Resident & ordinary Resident of HUF
- Satisfy both additional Conditions. (see above)
Residential status of Firm & Association of person [Section 6(2)]
◆Resident - When Control & Management of their affairs are wholly or partly situated in India during previous year.
◆Non-Resident - when Control & Management of their affairs are wholly situated outside India.
Residential Status of Company [Section 6(3)]
*Place of Effective Management (POEM) means a place, where key management and commercial decisions are made.
Types of Income and their Tax treatment
(1.) Indian Income - Following incomes are considered as Indian Income:-
(a) Received or deemed to received in India in previous year and accrue or deemed to accrue or arise in India during previous year.
(b) Received or deemed to be received in India during previous year but it accrue or arises outside India.
(c) Received outside India during the previous year but it accrue or arises or deemed to be accrue in India during previous year.
(2) Foreign Income:-
(a) Income not received or deemed to be received in India; and
(b) Income does not accrue or arise or deemed to accrue or arise in India.
TAX TREATMENT
◆ Indian income is always taxable in India irrespective of Residential status of the Tax payer.
◆ Foreign income taxable on the basis of Residential Status:-
● In case of Firm, Company, Association of Person etc. --> Resident --> Taxable
● In case of Individual & HUF --> R&OR --> Taxable
Exceptions:-
Foreign Income taxable in the hands of Resident but not Ordinary Resident if:-
( I ) such income is business income and business is controlled wholly or partly from India.
(ii) It is income from profession which is setup in India.
NOTE: Other foreign income like salary, rent, interest, etc. are not taxable in India if Assessee is Resident but not ordinary Resident.
