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RESIDENTIAL STATUS OF AN ASSESSEE IN INDIA

Today we discuss on the residential status of an assessee as defined in income tax act 1961. the residential status will be helpful in determining the taxable income in India. Residential status of an assessee is defined in SECTION 6 OF INCOME TAX ACT, 1961.

The residential status of an assessee is classified into two parts:

  1. Resident
  2. Non- Resident

Residential Status of an Individual and HUF

An Individual & HUF which are resident are further classified under two headings:

  • Ordinarily resident
  • Not Ordinarily resident

Now we are going to understand the residential status assessee wise.

Residential Status of an Individual

Who will be Indian Resident Individual?

According to section 6(1) of the I.T. Act, 1961 an individual can be treated as Resident Indian in the previous year if he fulfils any of the following conditions:

Condition 1 – He is in India in the previous year for a period of 182 days or more or

Condition 2 – He is in India in the preceding four years for a period of 365 days or more & he is in India in the previous year for a period of 60 days or more

Special condition for Indian Citizen – The residential status of an individual who is citizen of India rendering service outside India & who visit India during leave or vacations in the previous year  or  an individual who is citizen of India or a person of Indian origin is outside India & comes to India for visit in the previous year will be treated as resident in India if he stays in India for a period of 182 days or more in the previous year (instead of 60 days or more).

Amendment in Budget 2015

Following Clause have been inserted by Finance Bill-2015 in the case of an individual, being a citizen of India and a member of the crew of a foreign bound ship leaving India, the period or periods of stay in India shall, in respect of such voyage, be determined in the manner and subject to such conditions as may be prescribed.”

Who will non resident Individual?

 

The Individual who does not satisfies both the conditions laid down under section 6(1) then he will be treated as Non Resident Indian.

The Individual which satisfy any of the conditions mentioned under section 6(1) then he will be treated as resident Indian & he is further classified either as Ordinarily resident Or Not Ordinarily Resident.

According to section 6(6)(a) of I. T. Act, 1961 a Resident Individual will be treated as Not Ordinarily resident if he satisfies both of the following conditions:

  • He is Non resident for a period of 9 out of 10 Preceding years of the previous year or
  • He is India for a period of 729 days or less in immediately preceding 7 Years of the previous year.

The Resident Individual Who does not satisfy any of the conditions mentioned in section 6(6)(a) will be treated as Ordinarily Resident.

Example to determine residential status of an assessee

Mr. Akshay an Indian citizen Comes to visit India on 1st April, 2014 & left India on 02nd Oct, 2014.

Further he is in India for following days in following years:

2008-09: 130 days

2009-10: 150 days

2010-11: 165 days

2011-12: 158 days

2012-13: 147 days

2013-14: 49 days

In the above example the residential status of Mr. Akshay for Previous year 2014-15 is Resident but Ordinarily resident in India because he is in India in the previous year for a period of 182 days or more i.e. 185 days (1st April to 2nd Oct). & he is treated as Ordinarily resident because he does not satisfy all of the conditions mentioned under section 6(6).

 

Residential Status of an Hindu Undivided Family (HUF)

A Hindu Undivided Family will be treated as Non Resident in India if during that previous year the control & management of its affairs is situated wholly outside India. If the above condition is not satisfied then he will be treated as Resident in India.

According to section 6(6)(b) of I. T. Act, 1961 a Resident Hindu Undivided Family will be treated as Not Ordinarily resident if he satisfies both of the following conditions:

  • If the Manager of HUF is Non resident for a period of 9 out of 10 Preceding years of the previous year or
  • Manager of HUF is in India for a period of 729 days or less in immediately preceding 7 Years of the previous year.

The Resident HUF Who does not satisfy any of the conditions mentioned in section 6(6)(b) will be treated as Ordinarily Resident.

 

Residential Status of an Company:

According to section 6(3) of I. T. Act, 1961 a company is said to be resident in India if it satisfies any of following two conditions:

 

  • It is an Indian Company or
  • The control & management of company is wholly situated in India during that previous year

If both the above conditions are not satisfied then such company is treated as Non Resident Company.

Finance Budget 2015 : From 1st April, 2016 a company is said to be resident in India if it satisfies any of following two conditions:

 

  • It is an Indian Company or
  • Its place of effective management, at any time in previous year, is in India

Explanation.—For the purposes of this clause “place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made.’.

If both the above conditions are not satisfied then such company is treated as Non Resident Company.

 

Residential Status of an Firm & Other associations of Persons:

Firm & Other association of persons will be treated as Non Resident in India if during that previous year the control & management of its affairs is situated wholly outside India. If the above condition is not satisfied then he will be treated as Resident in India.

 

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