Determination of Residential Status as per Income Tax Act.

Residential status refers to a person’s status with reference to the question of how long the person has stayed in India for the past five years. The income tax liability of a taxpayer is based on the residential status in the financial year, and four years preceding the financial year. Also, while filing income tax returns, the taxpayer must declare the applicable residential status in the tax return. Under the Income Tax Act, taxpayers are divided into three categories of residential status, namely:

• Resident but not ordinarily resident.

• Ordinarily resident.

• Non-resident.

Let us understand how a residential status of the person can be identified

RESIDENT

A resident taxpayer is an individual who satisfies any one of the following conditions:

• Resides in India for a minimum of 182 days in a year, or

• Resides in India for a minimum period of 365 days in the immediately precceding four years and for a minimum of 60 days in the current financial year. 

For example, consider the case of Mr. veer, who is Marketing executive of a private company. Mr. veer was born and brought up in India. He has to travel to various locations outside India for business purposes. He has spent 215 days abroad in the current financial year. Also, he has been travelling abroad from the past two years and has stayed out of India for about 430 days in this period.

Let us evaluate whether Mr. veer was resident in India for the current financial year.

Condition I (Resides in India for a minimum of 182 days in a year) – Not satisfied

To figure out the resident status of Mr. veer, you will understand that he has only spent 150 days in India during the current financial year. Hence, he does not satisfy the first condition.

Condition II (Resides in India for a minimum of 365 days in the immediately preceding four years and for a minimum of 60 days in the current financial year) – Satisfied

However, It is given that Mr. Veer has been travelling only from the past two years. Also, it is said that he has travelled for 400 days in the past two years. That means, in the past four years, Mr. veer has stayed in India for more than 365 days (1061 days).
Hence, Mr. veer has resided for atleast 60 days in the current financial year and for more than 365 days in the immediately preceding four financial years. Therefore, Mr. veer satisfies the second condition.
 

Hence, if any one of the above two condition is satisfied he is a resident taxpayer.

Resident and Ordinarily Resident (ROR) and
Resident but Not Ordinarily Resident (RNOR)

There is a further classification under the resident status – Resident and Ordinarily Resident (ROR) and Resident but Not Ordinarily Resident (RNOR).
In addition to the basic conditions, if both the below conditions are met, he will be a ROR:

• He has resided in India for at least 2 out of 10 immediate previous years.

• He has resided in India for at least 730 days in seven immediately previous years.

In above example Mr. Veer has satisfed as resident of India. Let us further classify whether Mr. Veer is ROR or RNOR

If both the additional conditions are satisfied then Mr. Veer is ROR
Considering the example, Mr. Veer was travelling out of India since past 2 years only. Hence, the first condition is satisfied as he resided in India for atleast 2 years out of the immediate previous 10 years. Also, he has fulfilled the criteria of residing for at least 730 days in seven immediately preceding years. Therefore, he can be considered as Resident Ordinarily Resident.

If any one of the additional conditions is satisfied then Mr. Veer is RNOR.
Alternatively, consider that he had to work from the headquarters of his company, located in Germany, for the past seven years. He has only visited his india for a week, twice a year during this time. That means, he has resided in India for 449 days in the past seven years and the same applies for the current financial year too. In this case, first condition is satisfied but not the second. Therefore, Mr. veer is Resident Not Ordinarily Resident.

Non-Resident

An individual who does not satisfy the basic conditions of resident can be considered as a non-resident.

For example, Mr. Vijay went to USA to join a reputed university for a graduation course (three years), after completing graduation he resided ther to complete post graduation(two years), after completing studies he has joined for a Job in USA and completed 5 Years. Now for current financial year he has some rental Income from Inherited property then he will be considered as Non resident as he has not satisfied any of the basic conditions.

Note:
The condition of minimum 60 days stay in the current financial year will get extended to 182 days in all the cases if:

• A person is a citizen of India and he leaves India for the purpose of employment during the current financial year.

• A person who stays outside India, being a citizen of India or a Person of Indian Origin (PIO), and comes on a visit to India during the year.

Above cocept can be summarized in the following flow chart.

Author CA. Satyam Patidar can be reached at:

Mail id: Castyampatidar@gmail.com

Contact No: +91 8462903454