Income Tax: Section 6(1) Residential Status

Chapter 2: Residential Status

• An assessee's total income is computed after their residential status is determined for the previous year, since income tax rules vary for residents and non-residents.
• Citizenship differs from residential status
• An individual can be a citizen of India but a non-resident for income tax purposes.
• Residential status must be determined for each previous year and a person can be considered a resident in one year and a non-resident in another.

Residential Status of Individuals: Section 6(1) / 6(6)(a)

• According to Section 6(1), an individual is considered a resident if they meet either of these basic conditions:
  • Staying in India for 182 days or more during the relevant previous year (RPY)
  • Staying in India for 60 days or more in the RPY, along with 365 days or more during the four years preceding the RPY
• The period of stay in India does not need to be continuous to qualify for residential status.
• Both the date of departure and arrival count toward the total stay in India.
• According to Section 6(6), an individual is a resident and ordinarily resident if they meet both conditions:
  • Being a resident in at least 2 out of the 10 previous years
  • Totaling a stay in India of 730 days or more within the last 7 years
• Only the first basic condition applies for Indian citizens leaving India for employment purposes, or as a crew member of an Indian ship
• The date of joining and signing off, as per the continuous discharge certificate, is considered outside India for crew members on foreign-bound ships.

Special Category 2

• Indian citizens or persons of Indian origin visiting India are categorized

• If stay in India during RPY is 182 days or more, they are considered residents.

• If stay in India during RPY is less than 182 days, other conditions are examined

  • If conditions (a) Stay In RPY is 120 days or more (b) Stay In Last 4 PY is 365 days or more, and (c) Indian Income exceeds 15 Lakhs are satisfied, they are considered Resident But Not Ordinarily Resident.
  • Otherwise, they are classified as Non - Resident.

• An individual is considered of Indian origin if they, their parents, or any of their grandparents were born in undivided India.

• Indian income includes foreign business income, where control is in India, or foreign professional income with setup in India.

Deemed Resident: Section 6(1A)

• An individual is designated as Not Ordinarily Resident (NOR) if they satisfy all conditions:
  • They are an Indian citizen
  • Their Indian income exceeds 15 Lakh
  • They do not pay tax in any other country because of their domicile, residence, or similar status
• Indian income includes foreign business income controlled in India, or foreign professional income set up in India.

Residential Status of HUF: Section 6(2)/6(6)(b)

• Under Section 6(2), a Hindu Undivided Family (HUF) is a resident in India if the control and management (C&M) of its affairs are wholly or partly situated in India.
• Otherwise, it's considered a non-resident.
• Section 6(6)(b) dictates that an HUF is Resident and Ordinarily Resident (ROR) if the Karta satisfies both additional conditions, otherwise it is NOR.

Residential Status of Partnership Firm or BOI or AOP: Section 6(2)

• A partnership firm, Body of Individuals (BOI), or Association of Persons (AOP) is a resident if its control and management are wholly or partially in India; otherwise, it is a non-resident.

Residential Status of Company: Section 6(3)

• Indian companies are always considered residents.
• Foreign companies are residents if their Place of Effective Management (POEM) is in India.

Scope of Total Income or Tax Incidence: Section 5

• The taxability of income depends on the residential status and where the income is earned or received:

• Income earned and received in India is always taxable for all types of residents (ROR, NOR, and NR)

• Income earned outside India but received in India is taxable for ROR and NOR, but not for NR.

• Income earned and received outside India is taxable for ROR, but not for NOR or NR.

• There are exceptions for certain foreign incomes, which are taxable even for NOR and NR:

• Business income is controlled from India

• Professional income is set up in India

Income Deemed to Accrue or Arise in India: Section 9

• Any income accruing or arising, directly or indirectly, to an assessee from any place outside India may be deemed to accrue or arise in India.
• Income can be accrued through or from any business connection in India, property, asset, or source of income in India

Activities Not Considered a Business Connection in India

• Purchase of goods for export
• Collecting news in India for transmission outside India
• Shooting films in India by foreign citizens or firms, provided they do not have Indian citizen partners, residents, or shareholders.

Diamond Mining Exception:

• Engaged in mining who display uncut and unassorted diamonds in any special zone notified by CG