Resident has been defined under Indian Fiscal Law (Income Tax Act, 1961) and Foreign Exchange Act (FEMA, 1999)

Indian Resident as per Income Tax Act, 1961

In India, the tax incidence & imposition of tax is dependent upon the residential status of a person. Therefore, the identification & classification of the residence of a person is one of the important aspect in taxing any person in India. In this article, we will discuss the provision of Section 6 of the Indian Income Tax Act, 1961 that governs the residential status of a person. Under the Act, taxpayers are classified into three categories:

  • Resident
  • Resident and not ordinarily resident (RNOR)
  • Non Resident (NR)

Features:-

General Provision:
An individual is said to be resident in India in Previous Year, if he satisfies any one of the following conditions:

  • He has been in India during the Previous Year for a total period of 182 days or more; or
  • He has been in India during the 4 years immediately preceding the Previous Year for total period of 365 days or more & has been in India for at least 60 days in the Previous Year.

Exception:

However, certain categories of individuals are to be treated as resident in India only if the period of their stay during the relevant Previous Year amounts to 182 days or more. In other words, only first condition is applicable on such individuals. Such individuals are:

  •  Indian citizens, who leave India during the previous year as a member of the crew of an Indian ship or for the purposes of employment outside India; or
  • Indian citizen or a person of Indian origin, who, being outside India, comes on a visit to India during the Previous Year.

Amendment to the exception (b) has been brought up by the Finance Act, 2020 in which if an Indian citizen or a person of Indian origin has specified total income1 exceeding Rs. 15 Lakhs, he is treated as resident during the Previous Year, if any one of the following conditions are satisfied:

  • He has been in India during the Previous Year for a total period of 182 days or more; or
  • He has been in India during the 4 years immediately preceding the Previous Year for total period of 365 days or more & has been in India for at least 120 days in the Previous Year.

Deemed Resident:

Clause (1A) to Section 6 has also been inserted by Finance Act, 2020, whereby an Indian citizen having specified total income1 of more than Rs. 15 lakhs & not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature will be deemed to be resident in India during the Previous Year.

Resident / Resident and not ordinarily resident (RNOR):

Scope of total income depends upon whether person is ordinarily resident or not ordinarily resident. Thus, classification of individual as Resident & RNOR is an important criterion. An individual is said to be “not ordinarily resident” in India in any previous year:

  •  If such individual has been non-resident in India in any 9 out of 10 years preceding the Previous Year; or
  •  If such individual has during the 7 years preceding the Previous Year been in India for a period of 729 days or less; or
  • If a citizen of India or person of Indian origin has specified total income1 exceeding Rs. 15 lakhs & who has been in India for a period of 120 days or more but less than 182 days [i.e. resident as per amended exception (b)]; or
  • If such citizen of India is deemed to be resident in terms of clause (1A).

1Specified total income here means the total income, other than the income from foreign sources. Here, income from foreign sources means income which accrues or arises outside India (except income from foreign source derived from a business controlled in or a profession set up in India).

Note: This total income does not include income that is exempt in India. Eg: Interest on NRE Account.

Having discussed the provisions relating to Resident & RNOR it is important to mention the scope of total income in different statuses of an individual:

Status Resident Resident and not ordinarily resident (RNOR) Non-resident (NR)
Scope of Total income
(Income on which tax is payable in India)		 All income
(An individual resident & Ordinary Resident is liable for Income Tax on his total global income, irrespective of country in which it is earned)		 Income accrue or receive in India; and
Income accruing outside India from business controlled from India or profession setup in India		 Income accrue or receive in India
(An NR is only liable to pay tax on Indian income)

Dual Residency:

There may be cases where an individual is a resident of two countries during a previous year. In such cases, tie-breaker provisions as contained in the Double Taxation Avoidance Agreement (DTAA) entered into by India with various countries comes into play & residency is to be determined accordingly.

Implications of Amendments:

As discussed above, there are two major amendments that are brought up by the Finance Act, 2020 related to residential status of Indian citizens (NRI):

Reduction of period to 120 days for certain citizens:

Prior to the amendment, individuals who are citizen of India or of Indian origin who visits India is termed as resident in India only if their stay in India during the previous year is 182 days or more.

Now, an Indian citizen or person of Indian whose total income (inclusive of Indian income & foreign income earned from business controlled from India or profession setup in India) is more than Rs. 15 lakhs during the previous year, he shall also be resident in India if he stays for 120 days or more in Previous year & 365 days in 4 years preceding Previous Year.

However, if a person is treated as resident in term of above provisions but he stays for less than 182 days, he shall be treated as not ordinarily resident & not liable to pay taxes on global income in India. Only tax is leviable on income accrued or received in India or income accrue outside India from a business controlled from India or from a profession that is setup in India.

As the period of stay is reduced to 120 days there may be cases where he can be resident of other country as well. In such a situation, provisions relating to dual residency as contained in DTAA is to be applied in determining the residential status.

Example:

Suppose an Indian citizen is residing in China & visits India during the previous year for a period of 135 days. Further, his total income earned in India & foreign income earned from business controlled from India is, say, Rs. 25 lakhs. If he is present in India during previous 4 years immediately preceding the previous year for more than 365 days, he will be treated as Not ordinarily resident in India. Let’s suppose, he is resident of China as per their tax laws. Then, such a case being a dual residency case, his residency shall be determined in accordance with the Article 4 of India-China DTAA.

In scenario one, if the Indian Citizen is determined resident in India, then he would not be liable to Indian Income tax on his incomes earned in China.

In scenario two, if the Indian Citizen is determined resident in China, then he would be a non-resident in India from treaty perspective and his Indian Income shall be liable to Indian Income tax as per the treaty.

Deemed Resident:

A new concept of deemed resident has been introduced according to which an Indian citizen whose specified total income1 is more than Rs. 15 lakhs during the previous year & who is ‘not liable to tax’ in any other country shall be deemed to be resident in India.

Further, ‘not liable to tax’ is not same as ‘exemption from tax’ or ‘non-payment of tax’ or ‘being subject to tax’. Expression ‘not liable to tax’ does not necessarily imply that person ‘should not pay tax’; a person is deemed liable to tax if other contracting state has subjected such person to tax, whether or not tax is actually payable.

Example:

Suppose an Indian citizen is having a salary Income is Dubai which is not liable to tax in Dubai and is having total Indian income of Rs. 10 Lakhs & also having a foreign professional income of Rs. 6 Lakh from profession that is setup in India. In such a case, such individual is treated as resident in India even if he is not present in India for a single day during the previous year. However, such person is termed as not ordinary resident therefore he is liable to pay tax only on the income accrue or received in India & foreign income from business controlled from India or profession setup in India.

Due to the Covid-19 pandemic several travel restictions are imposed in the country which causes lot of harships to individuals. To mitigate such diffculties Circular No. 11/2020 has been issued, according to which, for the purpose of determining residential status for PY 2019-20, individual who has come to India on visit before 22 March, and:

  • unable to leave india before 31st March, then his period of stay between 22 to 31 March 2020 shall not be taken into account.
  • has been in quarantine in India on or after 01 March, then his stay upto 31st March 2020 shall also be not taken into account.
  • has departed on evacuation flight on or before 31st March, hen his period of stay between 22 March to his date of departure shall not be taken into account.

As per section 6(2), A Hindu Undivided Family (HUF) is said to be resident in India if control and management of its affairs is wholly or partially in India during the relevant previous year.

A Partnership Firm or an Association of Persons are said to be resident if control and management of its affairs is wholly or partially in India during the relevant previous year.

As per section 6(3), An Indian company (incorporated under Companies Act, 2013) is always resident in India. A foreign company is resident in India only if its place of effective management during that year is in India.

Place of Effective Management means a place where key management and commercial decisions that are necessary for the conduct of business are, in substance made.
For more on Place of Effective Management (POEM), please read here:

Every other person {Sec 6(4)} is resident in India only if during the previous year, control and management of its affairs is wholly in India.

There is no condition that the stay should be continuous. The day of arrival as well as the day of departure shall be considered to be the day of stay in India.

Indian Resident as per Foreign Exchange Management Act, 1999

SECTION 2(v) provides that a person residing in India for more than 182 days during the preceding financial year is a person resident in India.

Further it states in case a person comes to India for:

  • Taking up employment
  • For carrying on business or vocation or
  • For any other purpose-

if the circumstances show that he has an intention to stay in India for an uncertain period, he will be considered as resident in India for such financial year.

Further it provides any person or body corporate registered or incorporated in India shall be a resident of India.

An office, branch, or agency in India owned or controlled by a person resident outside India shall also be considered as a resident.

An office, branch, or agency outside India owned or controlled by a person resident in India shall also be considered as a resident.

An Indian citizen who stays abroad for employment or for carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay is not covered under the definition of resident.

The term financial year is not defined under FEMA, but it is defined in The General Clauses Act, 1897 under Sec 3(19). Under The General Clauses Act, 1897, “financial year” shall mean the year commencing on the first day of April and ending on the 31st day of March. The definition under General Clauses Act shall prevail under the absence of a definition under FEMA, 1999.

The firm attempts to update its articles as and when any legal changes occur in the article.
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Indian Resident Definition