Last Updated on May 27, 2022 by Aradhana Gotur
Income tax is a type of direct tax that you pay to the Government if –
- You earn an income in a financial year
- The income is chargeable to tax
When calculating the tax that you are required to pay, your residential status is considered by the tax department.
When it comes to the residential status, the Income Tax Act, 1961 has laid down rules that categorize the said status. These rules establish your residency in India based on which your tax liability is calculated. So, let’s understand the different types of residential status described in the Income Tax Act, 1961 and the rules that determine each.
Table of Contents
Residential status – the concept
The term ‘residential status’ has been defined in the Income Tax Act, 1961 solely for the purpose of establishing whether a taxpayer resided in India in a given financial year or not. It is very different from the citizenship granted to individuals. You might be an Indian citizen but if you did not live in India for a specified minimum period in a financial year, you can become a non-resident.
The concept of residential status helps in computing the tax liability of taxpayers. It is determined based on the number of days you stay in India in a financial year. Different tax rates and rules apply to taxpayers with different residential statuses.
Different types of residential status under income tax
Here’s a quick glance at the different types of residential status that have been defined under the Income Tax Act, 1961 –
Now, let’s understand each
Resident under Section 6(1)
You would be said to be a resident of India or a resident Indian taxpayer if you satisfy any of the following conditions –
- You have stayed in India for 182 days or more in the last financial year
- You stayed in India for 60 days in the last financial year and for 365 days or more in the last 4 financial years immediately preceding the last financial year
For example, for FY 2020 – 2021, if you stayed in India for 182 days or more, you would be called a resident. If, however, your stay was for less than 182 days, you should qualify on the following parameters to be called a resident –
- You should have stayed for 60 days in FY 2020 – 2021
- In FY 2019 – 2020, FY 2018 – 2019, FY 2017 – 2018 and FY 2016 – 2017 you should have stayed for a total of 365 days or more.
If both these parameters have been met, you would be called a resident of India.
Exception to the aforementioned rule
If an Indian citizen or a person of Indian origin leaves India in the last financial year for the purpose of employment, he must be in India for 182 days or more in the last financial year to qualify as a resident.
Alternatively, if an Indian citizen or person of Indian origin comes to India on a visit and has a total income (excluding income from foreign sources) up to Rs. 15 lakh, he would be treated as a resident only if he stays in India for 182 days or more in the last financial year.
Resident and ordinarily resident under Section 6 (6)
Once a person qualifies as a resident under either of the two rules mentioned earlier, the next step is checking if the person is a resident and ordinarily resident (ROR) or a resident and not ordinarily resident (RNOR).
You would be called a ROR if you satisfy both the following conditions –
- You have been a resident of India in any 2 previous years out of the last 10 years immediately preceding the current previous year
- You have been in India for a total of 730 days or more in the last 7 previous years immediately preceding the current previous year
So, in short, if you qualify on any one condition to be a resident and then qualify on both these conditions, you would be called a resident and ordinarily resident in India.
Resident and not ordinarily resident under Section 6 (6a)
If you qualify on one condition and become a resident, but you do not qualify on the additional conditions (either or both) for ROR, you would be called a resident but not ordinarily (RNOR) resident in India.
In other words, if you are a resident but you do not meet the two conditions mentioned under ROR, you would be called an RNOR.
RNOR exceptions
Even if an individual does not qualify on the basic condition for being a resident, he would be called an RNOR, in the following two exceptions –
Exception 1 under Section 6 (1A) read with Section 6 (6) (d)
The individual would be an RNOR if the following three conditions are met –
- He is a citizen of India
- His total income (excluding income from foreign sources) exceeds Rs. 15 lakh in the current previous year
- He is not subjected to tax in any other country or territory due to his residence or domicile or any other similar reason
Exception 2 under Section 6 (6) (c) read with Explanation 1 (b) to Section 6 (1)
The individual would be an RNOR if the following four conditions are met
- He is a citizen of India or a person of Indian origin
- His total income (excluding income from foreign sources) exceeds Rs. 15 lakh in the current previous year
- He visits India in the current previous year
- He stays in India for 120 days or more but less than 182 days in the current previous year and stays for 365 days or more in the 4 previous years immediately before the current previous year
Non-resident
If you do not satisfy any of the conditions for being a resident in India, you would be called a non-resident. The additional two conditions for determining ROR and RNOR status are not applicable since the first basic condition is not met.
Things to remember in determining residential status
When determining the residential status, the following things should be noted –
- The rules of residential status apply to individual taxpayers and Hindu Undivided Families (HUFs).
- Previous year and financial year mean the same thing
- If you are a resident in India for a financial year, you cannot be a resident of any other country in the same year
- You do not need to stay at the same place in India for computing your residential status
- You should be in the territorial waters of India (air, land or water) to be deemed to be in India
- If you are present for a fraction of a day, the hours stayed in India would be considered. When the total hours equal 24 hours, one day would be considered
- If you stay in India due to your passport being impounded, the number of days stayed due to such reasons would not be considered
- A person is said to be a PIO (Person of Indian Origin) if he, any of his parents or any of his grandparents (both maternal and paternal) were born in undivided India.
The bottom line
The next time you file your income tax returns and your stay in India is interrupted, you should understand how to determine your residential status. This would, in turn, help you calculate your tax liability correctly and file your returns. Consult your tax advisor or CA before filing your taxes.
