Levy of Income Tax of an assessee depends on his residential status as per Indian Income-tax Act, 1961. In the case of Indian citizen, whether an income earn by a person outside India, is taxable in India depends upon the residential status of the person in India. Similarly, whether an income earned by a foreign national in India (or outside India) is taxable in India depends on the residential status of the individual and not on his citizenship. Therefore, determining the residential status of a person is very significant in order to find out person’s tax liability.
Residency Test of the Individual
The Person’s status as a resident or non-resident depends on his period of stay in India. The period of stay is counted in number of days for each financial year beginning from 1st April and ending on 31st March.
If an
individual who satisfies ANY ONE of
the conditions out of the two, then he becomes a Resident.
| Condition No. |
Condition |
| 1 | He is in India for 182 days or more during the relevant previous year OR |
| 2 | He is in India for *60 days or more during the previous year and he is in India for 365 days or more during the 4 years prior to the previous year. |
* The period of 60 days is considered as 182 days for Indian citizen or person of Indian Origin
If an Individual is failed to satisfy both the conditions, then he will be non-resident.
Once we find the person becomes the resident in India, as per conditions mentioned above, and then we have to check whether the person is Ordinary Resident or Resident but not Ordinary Resident.
To become ordinary resident of India the person required to satisfy BOTH the conditions given below:
| Condition No. |
Condition |
| 1 | He is a resident, as per the above provisions, for at least 2 out of 10 previous years prior to the previous year under consideration AND |
| 2 | His stay in India during the 7 previous years prior to the previous year under consideration is 730 days or more |
Some of important points to note
- Residential status is always determined for the Financial Year (From 1st April to 31st
March) - Residential status of the person is required to be determined in respect of each financial
year. - A person is said to be of Indian Origin if he or either of his parents or any of his grandparents was born in undivided India
- To calculate the number of days stay in India, both the Day of Arrival into India and the Day of Departure from India are counted as the days of stay in India.
- Dates stamped on Passport are normally considered as proof of dates of departure from and arrival in India.
- Presence in territorial waters in India would also be known as stay in India.
- It is not necessary that the stay should be at one place.
- It is not necessary that stay should be for continuous period.
- Official tours abroad in connection with employment in India shall not be regarded as employment outside India.
- A person may be resident of more than one country for any Previous Year.
Citizenship of a country and residential status of that country are two separate concepts. A person may be an Indian national / Citizen but may not be a resident in India and similarly any person may be Foreign National / Citizen but may be resident in India.
The following Flow Chart help you to understand the concept in short time
what’s the difference between the first and second basic condition for an indian citizen? if both require 182 days of stay then whats the importance of having the second condition after writing ‘OR’ in caps?
The conditions of 182 days applicable for Indian citizen or person of Indian Origin, for others the condition is 60 days applicable.
I read it in my book which is quite un- understandable, but after read your explanation i understood the whole concept.
Brief , simple and wonderful explanations! i feel like I’m sitting in a class room