Residential Status

Residence and Scope of Total Income

किसकी कौन सी इं कम पर टै क्स लगेगा depends upon Residential status of the person
First of all we will learn about residential status of an individual

Residential status for Individual

Resident in India
○ An individual is resident in India if he satisfies any one of the basic conditions.

Basic conditions
○ Individual is in India
■ For 182 days or more during the previous year or
■ For 60 days or more during the previous year and for 365 days or more during 4 years
immediately preceding the relevant previous year.

● If any individual does not comply with any of the basic conditions mentioned above, he will be considered
to be non-resident

EXCEPTION TO 60 days in 2nd BASIC CONDITION.

● In the following cases, 60 days as mentioned in the 2nd basic condition will be replaced by 182 or 120
days
○ When
■ the Indian citizen leaves India during the previous year for employment outside India or as a
member of crew (staff) of an Indian ship. (Check 182 days in the relevant previous year
and 365 days or more in 4 years immediately preceding the previous year)
■ Indian Citizen or Person of Indian origin Visits India during P.Y.& his total income (excluding
income (from foreign source) is up to ₹15 Lakhs in P.Y (Check 182 days in the relevant
previous year and 365 days or more in 4 years immediately preceding the previous year)
■ In case of an Indian citizen or person of Indian origin having total income (other than
foreign source income) of more than ₹15 lakhs then 2nd basic condition applicable and
instead of 60 days in PY, 120 days are considered. (Check 120 days in the relevant
previous year and 365 days or more in 4 years immediately preceding the previous year)
● Person of Indian origin is a person who himself or any of his parents or any of his grand-parents (both
material and paternal) was born in undivided India before 15th August 1947.
● Indian citizen means any individual who has obtained Indian citizenship.
● Employment also includes self-employment (own business or profession).

Notes (Very Important)

★ Residential status is determined for every year separately.
★ There is no condition that an individual should stay regularly or at one place in India.
★ The term “stay in India” includes stay in the territorial waters of India (i.e. 12 nautical miles into the sea
from the Indian coastline). Even the stay in a ship or boat moored in the territorial waters of India would
be sufficient to make the individual resident in India
★ Period of 24 hours is taken to be one day.

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★ If the exact time of arrival is not known then the day of arrival shall be taken as complete day. Similarly if
time of departure is not known it shall also be taken as complete day.
★ The residence of an individual for income tax purposes has nothing to do with citizenship.
★ In the case of leap years (2004, 2008 ,2012, 2016, 2020) there will be 29 days in the month of February.

Further Classification of Individuals Section 6(6).

An individual can be further classified into
○ Resident and ordinarily resident
○ If he satisfies one of the basic conditions and both the additional conditions.
Additional Conditions
1. Resident for 2 P.Y. or more in Last 10 P.Ys AND
2. Stay in India for 730 days or more in Last 7P.Ys

An Indian Citizen or a person of Indian origin whose total income from Indian sources exceeds Rs. 15 lakhs during
the previous year and who has been in India for a period of 120 days or more but less than 182 days who has
become resident as per section 6(1) (120 Days in Previous year + 365 Days in 4 years immediately preceding the
previous year ) will become RNOR

Deemed resident Section 6(1A)

An individual,
● being an Indian citizen,
● having total income, other than the income from foreign sources exceeding Rs. 15 lakhs during the previous
year
● would be deemed to be resident in India in that previous year,
○ if he is not liable to pay tax in any other country or territory by reason of his domicile or residence
or any other criteria of similar nature.
This provision will not apply in case of an individual who is a resident of India in the previous year as per section
6(1).

Deemed residents under section 6(1A) will always be considered as RNOR.

Meaning of “liable to tax”

Liable to tax, in relation to a person and with reference to a country, means that
● there is an income-tax liability on such a person under the law of that country for the time being in force.
● It also includes a person who has subsequently been exempted from such liability under the law of that
country.

Particulars Indian Citizen or Stay in 4 years Income From Status

PIO Visit India For immediately Indian Sources
preceding the
previous year

Mr A. 80 Not relevant Not Relevant NR

Mr. B 125 400 ₹ 17,50,000 RNOR

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Mr. C 125 400 ₹ 14,50,000 NR

Mr. D 125 300 ₹ 17,50,000 NR

Mr. E 182 Not relevant Not Relevant R, Also check

additional conditions,
if both additional
conditions are
satisfied Then ROR

Example
Miss CHAN LEE , an American national, got married to Mr. Prem Kumar of India in the USA on 5.02.2022 and
came to India for the first time on 14.03.2022. She left for the USA on 19.9.2022. She returned to India again on
27.03.2023
Her stay in India during the previous year 2022-23 and in the preceding four years are as under:
P.Y. 2021-22
01.04.2022 to 19.09.2022 - 172 days
27.03.2023 to 31.03.2023 - 5 days
Total 177 days

Four preceding previous years

P.Y. 2021-22 - 18 days
P.Y.2020-21 - Nil
P.Y.2019-20 - Nil
P.Y.2018-19 - Nil

Total 18 days The total stay of the assessee during the previous year in India was less than 182 days and during
the four years preceding this year was for 18 days.

Therefore, due to non-fulfillment of any of the two conditions for a resident, she would be treated as non-resident
for the Assessment Year 2023-24

Would her residential status undergo any change, assuming that she is a person of Indian origin and her total
income from Indian sources is Rs. 18,00,000 and she is not liable to tax in the USA?

Residential status of Miss CHAN LEE in case she is a person of Indian origin and her total income from Indian
sources is Rs. 18,00,000

If she is a person of Indian origin and her total income from Indian sources exceeds Rs. 15,00,000 (Rs. 18,00,000, in
her case), the condition of stay in India for a period exceeding 120 days during the previous year and 365 days
during the four immediately preceding previous years would be applicable for being treated as a resident.

Since her stay in India exceeds 120 days in the P.Y.2022-23 but the period of her stay in India during the four
immediately preceding previous years is less than 365 days , her residential status as per section 6(1) would
continue to be same i.e., non-resident in India.

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Further, since she is not a citizen of India, the provisions of section 6(1A) deeming an individual to be a citizen of
India would not get attracted in her case, even though she is a person of Indian origin and her total income from
Indian sources exceeds Rs. 15,00,000 and she is not liable to pay tax in USA.

Therefore, her residential status would be non-resident in India for the previous year 2022-23.

CBDT to prescribe the manner of computation of period of stay for an

Indian citizen, being a member of the crew of a foreign bound ship leaving
India -section 6(1)
Basis for determining the period of stay in India for an Indian citizen, being a member of the crew of a foreign
bound ship leaving India (Notification No. 70/2015, dated 17.8.2015)

Explanation 2 has been inserted to section 6 (1) to provide that 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 prescribed manner and subject to the prescribed conditions.

According to Rule 126, in case of an individual, being a citizen of India and a member of the crew of a ship, the
period or periods of stay in India shall, in respect of an eligible voyage, not include the period commencing from
the date entered into the Continuous Discharge Certificate in respect of joining the ship by the said individual for
the eligible voyage and ending on the date entered into the Conditions Discharge Certificate in respect of signing
off by that individual from the ship in respect of such voyage.

The explanation to this Rule defines the meaning of the following terms:

Terms Meaning

Continuous Discharge This term has the meaning assigned to it in the merchant shipping (Continuous Discharge
Certificate Certificate-cum-Seafarer’s Identify Document) Rules, 2001 made under the Merchant
Shipping Act, 1958.

Eligible voyage A voyage undertaken by a ship engaged in the carriage of passengers or foreign in
international traffic where-
1. For the voyage having originated from any port in India, has as its destination any
port outside India; and
2. For the voyage having originated from any port outside India, has as its destination
any port in India.

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Residential Status of HUF

● Resident in India
○ If control and management of the affairs is wholly or partly situated in India during the relevant
previous year.
● Control and management is situated at that place
○ where decisions relating to the affairs of the HUF are taken, i.e.
○ where the head and brain of the business is situated.
● The place of control may be different from the usual place of running the business and sometimes even the
registered office.
○ This is because the control and management may not always be done from place of business or
registered office.
● Wholly Outside Indian Non-Resident
○ If control and management are wholly outside India, then Non- Resident .
● Resident and ordinarily resident in India
○ Karta should be resident in at least 2 out preceding 10 years and should be in India for at least 730
days in preceding 7 years.
● Resident but not ordinarily resident in India
○ If above mentioned conditions are not satisfied, then HUF will be RNOR.
● Non-Resident In India
○ If control and management of its affairs is wholly situated outside India during relevant previous
year.

Resident status of Company

● Under section 6(3), conditions to be satisfied by a company, to be a resident in India for a previous year
are provided.
○ A company is said to be resident in India in any previous year, if-
■ It is an Indian company; or
■ Its place of effective management, in that year, is in India.

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Explanation to section 6(3) defines “Place of effective management” to mean a place where key management and
commercial decisions that are necessary for that conduct of the business of an entity as a whole are, in substance,
made.

A set of principles to be followed in determination of POEM would be issued for the guidance of the taxpayers as
well as, tax administration.

Residential status of firms and association of persons

● Resident
○ A firm and an AOP would be resident in India if the control and management of its affairs is
situated wholly or partly in India.
● Non-resident
○ Where the control and management of the affairs is situated wholly outside India, the firm and AOP
would become a non-resident.

Residential status of local authorities and artificial juridical persons

● Resident
○ Resident in India if the control and management of its affairs is situated wholly or partly in India.
● Non-resident
○ Where the control and management of the affairs is situated wholly outside India.

Scope of Total Income - Section 5

Section 5 provides the scope of total income in terms of the residential status of the assessee because the
incidence of tax on any person depends upon his residential status.

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Some important points related to Section 5

Must be first received in India.
○ To be treated as received in India the income should be first received in India.
○ If an income is received first outside India and then sent (repatriated/ remitted) to India, then it
shall be treated as received outside India.

Past Untaxed Profits

Any past untaxed foreign profits shall not be considered to be the income of the current year in any status i.e.,
ROR, NOR or NR.

Exempt Income
Any income which is exempt under the Income Tax Act, 1961 will not be taxable for ROR, RNOR or NR, unless
otherwise specified.

Taxed Once
It must be noted that income that has been taxed on an accrual basis cannot be assessed again on a receipt
basis, as it will amount to double taxation.

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Miscellaneous
Income by way of salary, received by non-resident seafarers, for services rendered outside India on a foreign going
ship (with Indian flag or foreign flag) and received into the NRE bank account maintained with an Indian bank
shall not be included in the total income.

Section 9 - Income deemed to accrue or arise in India

Brief Summary
1. Income through or from property, asset or source of income in India
2. Income through or from transfer of a capital asset situated in India
3. Income which falls under the head "Salaries", if it is earned in India.
4. Income chargeable under the head "Salaries" payable by the Government to a citizen of India for service
outside India
5. A dividend paid by an Indian company outside India
6. Income by way of interest.
7. income by way of royalty.
8. Income by way of Fees for technical services.
9. Any sum of money paid by a resident Indian to a non-corporate nonresident or foreign company
10. Income through or from any business connection.

1. Income through or from property, asset or source of income in India

2. Income through or from transfer of a capital asset situated in India.

○ Through” shall mean and include and shall be deemed to have always meant and include “by means
of”, “in consequence of” or “by reason of”.
○ An asset or a capital asset being any share or interest in a company or entity registered or
incorporated outside India shall be deemed to be and shall always be deemed to have been situated
in India, if the share or interest derives, directly or indirectly, its value substantially from the assets
located in India.
○ Declaration of dividend by a foreign company outside India does not have the effect of transfer of
any underlying assets located in India. Dividends declared and paid by a foreign company outside
India in respect of shares which derive their value substantially from assets situated in India would
NOT be deemed to be income accruing or arising in India.

3. Income which falls under the head "Salaries", if it is earned in India.

○ Salary payable for service rendered in India would be treated as earned in India.
○ Further, any income under the head “Salaries” payable for rest period or leave period which is
preceded and succeeded by services rendered in India, and forms part of the service contract of
employment, shall be regarded as income earned in India.

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4. Income chargeable under the head "Salaries" payable by the Government to a citizen of
India for service outside India.
○ However, allowances and perquisites paid or allowed outside India by the Government to an Indian
citizen for services rendered outside India is exempt.

5. A dividend paid by an Indian company outside India.

○ Taxable at normal slab rate.

6. Income by way of interest payable by

○ the Government;
○ a person who is resident in India;
■ Exception: Where money borrowed is used for making or earning any income from any source
outside India, it will not be deemed to accrue or arise in India.
■ Mr. A took loan from Mr John from USA, Mr. A used the money for doing business outside
India. Interest payable by Mr A to Mr. John is not Deemed to accrue or arise in India.
○ a person who is a non-resident, when it is payable in respect of any debt incurred or money
borrowed and used for the purpose of a business or profession carried on in India by him.
■ Mr. John, a non-resident borrowed money from another Non-resident Mr. Cena of USA. Mr.
John used that money for business or profession carried on in India. Such interest payable
by Mr. John to Mr. Cena will be deemed to accrue or arise in India.
■ Exception: Interest on moneys borrowed by the non-resident for any purpose in India other
than a business or profession, will not be deemed to accrue or arise in India.
● Example - Non-resident ‘PK’ borrows money from a non-resident ‘Boomer’ and
invests the same in shares of an Indian company, interest payable by ‘PK’ to
‘Boomer’ will not be deemed to accrue or arise in India.

7. Income by way of royalty payable by

○ the Government
○ a person who is a resident in India
■ Exception: where it is payable in respect for the transfer of any right or the use of any
property or information used or for the utilization of services for the purposes of a business
or profession carried on by such person outside India or for the purposes of making or
earning any income from any source outside India
○ a person who is a non-resident, only when the royalty is payable in respect of any right, property or
information used or services utilised for purposes of a business or profession carried on in India or
for the purposes of making or earning any income from any source in India.

Lump Sum royalty not deemed to accrue arise in India:

Lump Sum royalty payments made by a resident for the transfer of all or any rights (including the granting of a
licence) in respect of computer software supplied by a non-resident manufacturer along with computer hardware
under any scheme approved by the Government shall not be deemed to accrue or arise in India.

Meaning of Royalty
The term ‘royalty’ means consideration (including any lump sum consideration) for

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● the transfer or use of all or any rights (including the granting of licence) in respect of a patent, invention,
model, design, secret formula or process or trade mark or similar property.
● It includes Consideration for sale, distribution or exhibition of cinematographic films.

8. Income by way of Fees for technical services payable by

○ the Government
○ a person who is resident in India
■ Exception: Where the fees are payable in respect of technical services utilised in a business
or profession carried on by such person outside India or for the purpose of making or earning
any income from any source outside India.
○ a person who is a non-resident, only where the fees are payable in respect of services utilised in a
business or profession carried on by the non-resident in India or where such services are utilised for
the purpose of making or earning any income from any source in India.
○ Fees for technical services mean any consideration (including any lumpsum consideration) for the
rendering of any managerial, technical or consultancy services (including providing the services of
technical or other personnel).

NOTE FOR Income by way of Interest, Royalty, Fees For Technical Know-How
Income deemed to accrue or arise in India to a non-resident by way of interest, royalty and fees for technical
services to be taxed irrespective of territorial nexus

Income by way of interest, royalty or fees for technical services which is deemed to accrue or arise in India shall
be included in the total income of the non-resident, whether or not
● the non-resident has a residence or place of business or business connection in India; or
● the non-resident has rendered services in India

9. Any sum of money paid by a resident Indian to a non-corporate nonresident or foreign

company.
Gift of money by Indian resident to any person outside India is chargeable to tax under section 56(2)(x) i.e., if
the aggregate of such sum received by a non-corporate nonresident or foreign company exceeds Rs. 50,000

10. Income through or from any business connection

Only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise
in India

Business connection’ shall include any business activity carried out through a person acting on behalf of the
non-resident.

Person acting on behalf of the non-resident

■ must have an authority,
● which is habitually exercised in India, to conclude contracts on behalf of the
non-resident or
● habitually plays the principal role leading to conclusion of contracts by that
non-resident and such contracts should be

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a. in the name of the non-resident; or

b. for the transfer of the ownership of, or for the granting of the right to
use, property owned by that non-resident or that non-resident has the right
to use; or
c. for the provision of services by that non-resident, or
■ In a case, where he has no such authority, but habitually maintains in India a stock from
which he regularly delivers on behalf of the non-resident, or
■ habitually secures orders in India, mainly or wholly for the non-resident.
■ Further, there may be situations when the person acting on behalf of the nonresident
secures order for other non-residents. In such situation, business connection for other
non-residents is established if
● such other non-resident control the non-resident.
● such other non-resident is controlled by the non-resident or
● such other non-resident is subject to the same control as that of non-resident.

Agents having independent status are not included in Business Connection

Business connection, however, shall not be established, where the non-resident carries on business through a
broker, general commission agent or any other agent having an independent status, if such a person is acting in
the ordinary course of his business.

Significant economic presence

Significant economic presence of a non-resident in India shall also constitute business connection in India
Significant economic presence means

Nature of transaction Condition

1. Transaction in respect of any goods, services by a Aggregate of payments arising from such
non-resident with any person in India including transactions or transactions during the previous
provision of download of data or software in India year should exceed ₹ 2 crores.

2. Systematic and continuous soliciting of business The number of Users should be at least 3
activities or engaging in interaction with users in India lakhs.

Further, the above transactions or activities shall constitute significant economic presence in India, whether or
not,—
1. the agreement for such transactions or activities is entered in India;
2. the non-resident has a residence or place of business in India; or
3. the non-resident renders services in India:

However, where a business connection is established by reason of significant economic presence in India, only so
much of income as is attributable to the transactions or activities referred in the above table shall be deemed to
accrue or arise in India.

For the removal of doubts, it is hereby declared that the income attributable to the operations carried out in
India, shall include income from-
● Income from advt. targeting customers residing in India or accessing advt. through Internet Protocol
Address located in India. (Paying FB For Targeting Customers in India or People Clicking on advt. on
websites through Indian IPA, Google is earning from it)

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● Income from sale of data collected from persons residing in India or using IPA located in India. (FB
collected data from us and is selling that data)
● Income from sales of goods and services using data collected from persons residing in India or using
IPA located in India. (FB starts selling us certain goods or services with the help of data collected)

No Business Connection
● In the case of a non-resident, the following shall not, however, be treated as business connection in India
○ Purchase of goods in India for export
○ Collection of news and views in India for transmission out of India
○ Shooting of cinematograph films in India
■ if such non-resident is :
● an individual, who is not a citizen of India or
● a firm which does not have any partner who is a citizen of India or who is resident
in India; or
● a company which does not have any shareholder who is a citizen of India or who is
resident in India.
○ Activities confined to display of rough diamonds in SNZs
■ In case of a foreign company engaged in the business of mining of diamonds, from the
activities which are confined to display of uncut and unassorted diamonds in any special
zone notified by the CG.

Miss Balachandran paid a sum of 10,000 USD to Mr. Malinga, a management consultant practising in Patong
(Thailand), specializing in project financing. The payment was made in Patong. Mr. Malinga is a
non-resident. The consultancy is related to a project in India with possible Thailand collaboration. Is this
payment chargeable to tax in India in the hands of Mr. Malinga, since the services were used in India?

A non-resident is chargeable to tax in respect of income received outside India only if such income accrues or
arises or is deemed to accrue or arise to him in India.

The income deemed to accrue or arise in India under section 9 comprises, inter alia, income by way of fees for
technical services, which includes any consideration for rendering of any managerial, technical or consultancy
services. Therefore, payment to a management consultant relating to project financing is covered within the
scope of “fees for technical services”.

Provisions of Section 9 clarifies that income by way of, inter alia, fees for technical services, from services
utilized in India would be deemed to accrue or arise in India in case of a non-resident and be included in his
total income, whether or not such services were rendered in India or whether or not the non-resident has a
residence or place of business or business connection in India. (Please refer class discussion)

In the instant case, since the services were utilized in India, the payment received by Mr. Malinga, a
non-resident, in Patong is chargeable to tax in his hands in India, as it is deemed to accrue or arise in India.

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