For the purpose of taxation, it is really important to know your residential status so that you can be aware of the slab rate, tax provisions, deductions, and exemptions applicable to you as per Income Tax Act, 1961. Through this article, we are going to explain how to determine your residential status if you are an Individual assessee, for a better understanding.
So, without further ado, let’s get started. Happy reading 🙂
Residential status of Individual
As per the Income Tax Act, an Individual assessee is classified into the following categories as per his residential status.
A) Resident – An Individual assessee will be treated as a resident in India if he satisfies any one of the following two basic conditions:-
I. Stay in India for 182 days or more in the relevant previous year, or
II. Stay in India for 60 days or more in the relevant previous year and 365 days or more in the last four previous years.
Although, the second condition stated above will not be applicable in the case of the following:-
● Indian citizens leaving India during the previous year for employment outside India.
● Indian citizens being the crew members of Indian ships which leave India during the previous year.
● Indian citizens or persons of Indian origin engaged outside India in any employment or a business or profession, and visiting India during the previous year and his total income is up to Rupees 15 lakhs in such year, excluding income from foreign sources if any.
P.S. Please note here the relevant previous year’s means year for which the assessee is filing ITR. Also, the day on which the assessee enters India, as well as the day on which he leaves India, shall be taken into account as the stay of such Individual in India for determining his residential status.
B) Resident Ordinarily Resident (ROR) or Resident Not Ordinarily Resident (RNOR) – If any individual satisfies any one of the following conditions then he qualifies as a resident, but now he needs to determine whether he will be treated as Resident Ordinarily Resident (ROR) or Resident Not Ordinarily Resident (RNOR) in India. For this purpose, he needs to check the following two conditions:-
I. He has been treated as a Resident for two previous years or more in the last ten previous years.
II. He has stayed in India for 730 days or more in the last seven previous years.
P.S. If an individual meets the above two additional conditions then he will be treated as Resident and Ordinarily Resident (ROR) in India, otherwise he will be a Resident Not Ordinarily Resident (RNOR) in India.
C) Non Resident (NR) – If an individual assessee hasn’t satisfied any one of the basic conditions stated in (A) point above then he will be treated as a Non Resident (NR) in India for the relevant previous year.
Amendment by Finance Act 2020, w.e.f Assessment Year 21-22
In case of an Indian citizen or a person of Indian origin having the total income (other than foreign source income) exceeds Rupees 15 lakhs then the second condition stated in point (A) shall be applicable but instead of 60 days or more, he needs to stay in India for 120 days or more in the relevant previous year and for 365 days or more in the last four previous years. Also, if he stays in India for 120 days or more but less than 182 days in the relevant previous year then he will be treated as a Resident Not Ordinarily Resident. In this scenario no need to check the additional conditions given in point (B).
So, in the crux, as per the recent amendment, an Indian citizen or a person of Indian origin needs to be treated as below according to his stay in India. The above-stated provisions are simplified as below for clear understanding.
Stay in India for 182 days or more (irrespective of total income) | Stay in India for 120 days or more but less than 182 days (and have a total income of more than 15 lakhs, other than foreign source income) | Stays in India less than 120 days |
If he satisfied both the additional conditions given in point (B) then he shall be treated as ROR, otherwise as an RNOR. | If he also stays in India for 365 days or more in the last four previous years then shall be treated as RNOR, otherwise as an NR. | He shall be treated as NR |
Deemed Resident
Further, a new provision of deemed resident is introduced in Finance Act 2020, according to which, w.e.f Assessment Year 21-22, in case of Indian origin having the total income (other than foreign source income), of more than Rupees 15 lakhs during the relevant previous year shall be deemed to be resident in India in that previous year if he is not liable to tax in any other country or territory by any reason such as domicile, residential status, any other criteria of similar nature and he is always treated as Resident Not Ordinarily Resident. That means, no need to check additional conditions given in point (B).
Hope, now all your doubts related to the residential status of an Individual are cleared. In case you require any assistance or have any questions feel free to reach out to our team of experts for professional help.
