The taxability of a person in India depends upon its residential status in India for any particular Financial Year. The term residential status must not be confused with the citizenship. A person may be a citizen of India but may end up being a non- resident or vice versa. Also note that residential status of different types of persons like Individuals, Huf’s , Firms, Company etc. are determined differently however in this article we are discussing about the residential status of an Individual only.
Different types of Residential Status?
For the purposes of Income Tax in India, the tax classifies taxable person as:
A Resident and ordinary resident (ROR).
A Resident but not ordinarily resident (RNOR).
A Non-resident (NR).
The taxability differs for each category of taxpayers. So, let us understand how a taxpayer becomes a resident, resident but not ordinarily resident or non- resident.
Who is a Resident?
A Taxpayer would classify as resident in India if he satisfies any one of the following two conditions: -
Stay in India for a year is 182 days or more in previous financial year, OR
Stay in India for the immediately 4 preceding years is 365 days or more and 60 days or more in the relevant financial year.
Exceptions: -
In the event an Individual who is a citizen of India leaves India as a member of a crew of an Indian ship or for the purpose of employment during the F.Y., he will qualify as a resident of India only if he stays in India for 182 days or more.
Indian citizen or person of Indian origin who stays outside India comes on a visit to India during the relevant previous year. However, such a person having a total income, other than income from foreign sources which exceeds Rs. 15 Lakhs during the previous year will be treated as a resident in India if: -
Stay in India for a year is 182 days or more in previous financial year, or
Stay in India for the immediately 4 preceding years is 365 days or more and 120 days or more in the relevant financial year.
An Individual who is a citizen of India shall be deemed to be resident of India, only if the total income other than income from foreign source exceeds Rs. 15,00,000 and has nil tax liability in other countries.
Who is Resident but not Ordinarily Resident?
If an Individual qualifies as a resident, the next step is to determine if he/ she is a Resident and Ordinarily Resident (ROR) or Resident but not Ordinarily Resident (RNOR). He will be a ROR if he satisfies both the conditions: -
Has been a resident of India in at least 2 out of the 10 Immediately previous years and
Has stayed in India for at least 730 days in 7 immediately preceding previous years.
Therefore, there are 3 situations in which an Individual is said to be RNOR:
If an Individual Fails to satisfy either or none of the above-mentioned conditions.
If an Individual is an India citizen or a person of Indian origin having a total income exceeding Rs. 15 Lakhs (excluding foreign income), who has been in India for 120 days or more but less than 182 days during that financial year.
If an Individual is deemed to be a resident in India, by default, he will be considered as a Resident and Not Ordinarily Resident.
Who is a Non-resident?
An Individual failing to satisfy the condition of stay in India for:
182 days or more in the previous year or
60 days or more in the previous year and 365 days in the 4 preceding previous years will be considered as Non-resident.
Taxability?
Resident and Ordinarily Resident: A resident and ordinarily resident will be charged to tax in India on his global income i.e. income earned in India as well as income earned outside India.
Resident but not Ordinarily Resident: There is a thin line in taxability of income between resident and ordinarily resident and resident and non-ordinarily resident, on below income RNOR’s are not required to pay taxes.
Income earned outside India as well as received outside India.
Non- Resident: A non-resident will be charged only to tax on income received in India or source of income received is from India. However, income earned outside India having no connection to India, is not taxable.
Important Points.
Stay in India includes stay in territorial waters of India i.e. 12 nautical miles into the sea from the India coastline.
The period of stay needs not to be continuous or active.
Both the date of departure as well as the date of arrival in India are considered for counting the number of days stayed in India.
Income from foreign source means that income earned outside India, excluding the income from a business operated or profession set up in India, which is not deemed to accumulate or arise in India.
An Individual shall be considered as deemed to be person of Indian origin if he/ she or either his/ her parent or any of his/ her grandparent was born in undivided India.
Non-resident Indian means an Individual who is a citizen of India or Indian origin but is not a resident.
For Income tax purposes the residence of an Individual has nothing do with its citizenship, place of birth or domicile. Therefore, an Individual can be resident in more than one country even though he has only one domicile.
