What is Residential Status in India?

What is Residential Status in India?


Our government can collect taxes only from the income generated in India or the income generated from or through the people of India.
Most of the people believe that they are residents of India because they were born here. But, many of them travel outside of India for work. Similarly, people from all over the world come to India.
So, from tax liability point of view, it becomes very confusing whether a person should pay taxes to the Indian Government or Foreign Government. To rest all these confusions , the Income Tax Department has made a standard rules for collection of taxes. These depend on the “Residential Status” of a person.

From income tax point of view, there are normally two categories of residential status in India:

  1. Resident
  2. Non-Resident

Resident is further classified into two sub parts,

  1. Ordinary Resident
  2. Not Ordinary Resident

Depending upon the residential status, the tax department collect taxes from the person. Since the Residential Status may differ from year to year, it is important to be determined every year.

Before, we get into details of understanding the tax liability. Let’s first understand the residential status in detail.

Understanding the Residential Status :
  • Resident Indian

When does a person becomes Resident in India?
Upon fulfilling “ANY ONE” of the following two conditions (known as basic conditions), you are said to be the resident in India for the concerned Financial Year (1, April-31st March of next year). These conditions are:

  1. You have stayed in India for 182 days or more during the relevant financial year;

  2. Or
  3. You have stayed for 60 days or more during the financial year and a total of 365 days or more during 4 years immediately prior to that financial year.
Example to Explain Residential Status in India:-

i) Bill Gates stayed in India from 01st April 2017 to 31st July 2017 and again from 01 September 2017 to 30 November 2017. Is he a Indian resident for the financial year 2017-2018?
Solution: Total no of days = 30 (april) + 31 (may) + 30 (june) + 31 (july) + 30 (sept) + 31 (Oct) + 30 (Nov) = More than 182 .Since Mr. Bill gates stayed in India for more than 182 days he is said to be Resident in India for financial year 2017-18.

Bill Gates stayed in India from 01 April 2017 to 31 July 2017 and from

  • 01 September 2013 to 30 November 2013
  • 01 September 2014 to 30 November 2014
  • 01 September 2016 to 31 March 2017

Is he a Indian resident for the financial year 2017-2018?

Solution:

Mr Bill gates stayed in India : In F.Y. 2017-18 Period of Stay= 122 days(30+31+30+31) and Prior Financial Years =

Prior Financial Years Period Of Stay No of Days Stay
F.Y. 2016-17 01 September 2016 to 31 March 2017 30+31+30+31+31+28+31 =212 Days
F.Y. 2015-16 No Stay =0
F.Y. 2014-15 01 September 2014 to 30 November 2014 =30+31+30 =91 Days
F.Y. 2013-14 01 September 2013 to 30 November 2013 =30+31+30 =91 Days
TOTAL =30+31+30 =91 Days

Condition (i) = 122 Days (You have stayed for 60 days or more during the financial year)
and
Condition (ii) = 394 Days( A total of 365 days or more during 4 years immediately prior to that financial year)
Thus, he is said to be Resident in India for financial year 2017-18
But, in some cases the 2nd condition mentioned above (60 days & 365 days) doesn’t apply.

Exception to the Second Condition in case of Resident Indian :

The 2nd condition mentioned above (60 days & 365 days) doesn’t apply in case of

  1. An Indian citizen who has left India for the purpose of employment in foreign or a crew member of an Indian ship, OR
  2. An Indian Citizen or person of Indian origin who comes to visit India
  3. “Thus in these cases, only if you stay in India for a period of 182 days or more in the Financial year, you are said to be the Resident of India”

Examples of residential status of an individual

Miss Priyanka Chopra went to work outside India for first time.

  • She stayed in India from 01 April 2017 to 31 October 2017.
  • She stayed in India from 01 April 2017 to 31 May 2017

Is she an Indian resident for the financial year 2017-2018?

Solution:
  1. Miss Priyanka Chopra stayed in India for 214 Days(at least 182 days ),she is said to be Resident in India for financial year 2017-18.
  2. Miss Priyanka Chopra stayed in India for 61 Days(at least 60 days ),she is NOT said to be Resident in India for financial year 2017-18 , since she left India for work . Therefore,
  3. only the first condition for determining the residential status would be applied.
  4. Non Resident Indian(NRI)

When does a person becomes NRI in India?

If “NONE” of the above-mentioned basic conditions (365 or 60 days) are fulfilled, then you are said to be Non-resident in India.
Example:- Bill gates came to visit India on 26 January 2018, the republic day ceremony in India.
Solution: Bill Gates will be Non resident for India because he stayed for less than 182 days and does not even satisfy 60 days condition.

Conclusion :
Residential Status 2 Basic Conditions
Residential Status 2 Basic Conditions
Resident Any 1
Non Resident NO

Once our residential status is decided. Next comes in queue the relevance of residential status on our tax liabilities.

How income is taxed according to different residential status in India?
Particulars Particulars Particulars Particulars
Resident Non-Resident
Ordinarily Resident Not-Ordinarily Resident
Income received or deemed to be received in India yes Yes Yes
Income accrued or deemed to be accrued in India yes Yes Yes
Income accruing outside India yes No No

Important Points

  1. Income received outside India, but subsequently sent to India subsequently, does not amount to receiving of income in India. 1st receipt is important for consideration;
  2. Person of Indian origin means a person who himself, either of his parents or either of his grandparents were born in Undivided India.

Now that we know the difference between Resident and Non-Residents.Let’s get in details and see you are are ordinary resident or non-ordinary resident to understand your tax liability in India.

Understanding Not ordinary Resident and Ordinary Resident Who is Ordinary Resident (OR) and Not- Ordinary Resident (NOR) in India?

Once you are clear about your residential status between resident and non-resident. For further understanding about OR [Ordinary Resident] and NOR [Not ordinary Resident ] we need to first learn the additional conditions.

Ordinary Resident (OR)

You will be known as Ordinary resident if you fulfill
Any one of the two basic conditions of 182 or 60 days
+
Both or all two additional conditions of 2 years & 730 days
The additional conditions are:-

  1. You were resident for at least 2 years out of 10 years preceding immediately to the financial year we are talking about;

  2. OR
  3. You were in India for 730 days or more in 7 years immediately preceding to the financial year we are talking about;

Example:- Mrs Madhuri Dixit Nene born and bought in India. She went outside india for 2 months of feb 2018-march 2018 Solution: Since she satisfy any one basic condition of 365 or 60 days and all additional conditions. She will be known as Ordinary resident of India.

Not- Ordinary Resident (NOR)

Person other than OR will be called as NOR. Which means you will be called NOR if you satisfy

Any one of the two basic conditions of 182 or 60 days
+
Any or none of two additional conditions of 2 years & 730 days

Example:- Mr Atif Aslam came to India during 01 July 2017 to 28 Feb 2018 for the first time.

Solution: Since Mr. Atif Aslam came to india for first time in last year and stayed for 243 days(31+31+30+31+30+31+31+28) (at least 182 days), he is resident Indian. But since he Does not satisfy any additional condition of 2 years or 730 days he will be termed as – Not ordinary resident of india.

Conclusion:
Saying in Income Tax:
“An Indian Citizen may not be resident Indian, but A Foreign Citizen may be resident Indian.”

Non-understanding of correct residential status creates an air of confusion about the tax liability in India.

Residential Status

Residential Status 2 Basic Conditions 2 Additional Conditions
Resident Any 1 --
Not Ordinary Resident Any 1 No or Any 1
Ordinary Resident Any 1 All 2
Non Resident NO --

While computing the period of stay in India, both the day of entering in India and the day of leaving India shall be counted in the period of stay in India.

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