CHETHAN.

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Department of Management, AIGS

INCOME TAX-I
CHAPTER – 3
RESIDENTIAL STATUS AND INCIDENCE OF TAX

A. RESIDENTIAL STATUS

INTRODUCTION
Tax is charged on the Income of the assessee. Under the Income Tax Act, 1961, the total
income of every person is computed based upon his/her Residential Status. For the purpose of
determining the Residential status, assessee is classified into the following categories:

1. Individual.
2. HUF.
3. Firms.
4. Companies.
5. Any other person.
It is important for the Income Tax Department to determine the residential status of a tax
paying individual or company. It becomes particularly relevant during the tax filing season. In
fact, this is one of the factors based on which a person’s taxability is decided.

MEANING OF RESIDENTIAL STATUS OF AN INDIVIDUAL

It refers to the status of an individual, which is determined on the basis of his/her, total stay in
India.

HOW TO DETERMINE RESIDENTIAL STATUS?

1. A resident (R)
2. A Resident and Ordinary Resident (ROR)
3. A resident but not ordinarily resident (RNOR)
4. A non-resident (NR)

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Department of Management, AIGS

The taxability differs for each of the above categories of taxpayers. Before we get into taxability,
let us first understand how a taxpayer becomes a resident, an RNOR or an NR.

Resident Fulfills at least one Basic Condition

Non-Resident Fulfills none of the Basic Conditions

Resident and Ordinarily Resident Fulfills both Additional Conditions
Resident but not ordinarily Resident Fulfills one or none of the Additional Conditions

CONDITIONS
Basic Conditions 1. Individual assessee must be in India for at least 182 days or more during
[sec 6(1)] the previous year.
(OR)
2. Individual assessee must be in India for at least 60 days or more during
the P.Y and 365 days or more during 4 years immediately preceding the
previous year.

Additional Conditions 1. Resident in India for 2 years out of 10 previous years preceding the
[sec 6(6)] previous year.
(And)
2. Stay in India for 730 days or more during 7 previous years immediately
preceding the Previous year.

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Department of Management, AIGS

RESIDENT

A taxpayer would qualify as a resident of India if he satisfies one of the following 2 conditions:

1. STAY IN INDIA FOR A YEAR IS 182 DAYS OR MORE

OR
2. INDIVIDUAL ASSESSEE MUST BE IN INDIA FOR AT LEAST 60 DAYS OR MORE DURING THE
P.Y AND 365 DAYS OR MORE DURING 4 YEARS IMMEDIATELY PRECEDING THE PREVIOUS
YEAR.

In the event an individual who is a citizen of India or person of Indian origin leaves India for
employment during an FY, he will qualify as a resident of India only if he stays in India for 182
days or more. Such individuals are allowed a longer time greater than 60 days and less than 182
days to stay in India. However, from the financial year 2020-21, the period is reduced to 120
days or more for such an individual whose total income (other than foreign sources) exceeds Rs
15 lakhs.

In another significant amendment from FY 2020-21, an individual who is a citizen of India who
is not liable to tax in any other country will be deemed to be a resident in India. The condition for
deemed residential status applies only if the total income (other than foreign sources) exceeds
Rs 15 lakh and nil tax liability in other countries or territories by reason of his domicile or
residence or any other criteria of similar nature.

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Department of Management, AIGS

Exceptions Applicable for Basic Condition

Exceptions Applicable from the AY 2021-22

First exception-CATEGORY D individual is always considered to be RESIDENT

AND NOT ORDINARILY RESIDENT in India, if the following conditions are
satisfied:
1. Being the citizen of India or a person of Indian origin.

2. Having total income, other than the income from foreign sources, exceeding Rs.15 lakhs
during the P.Y.

3. He comes on a visit to India during the previous year.

4. Stay in India for 120 days or more but less than 182 days during the PY and 365 days or more
during 4 years immediately preceding the previous year.

Second exception- CATEGORY E individual is always considered to be RESIDENT

AND NOT ORDINARILY RESIDENT in India, if the following conditions are
satisfied:
1. Being the citizen of India.

2. Having total income, other than the income from sources, exceeding Rs.15 lakhs during the
P.Y.

3. He is not liable to tax in any other country by reason of his domicile or residence or any other
criteria of similar nature.

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Department of Management, AIGS

RESIDENT NOT ORDINARILY RESIDENT

If an individual qualifies as a resident, the next step is to determine if he/she is a Resident
ordinarily resident (ROR) or an RNOR. He will be a ROR if he meets both of the following
conditions:

1. HAS BEEN A RESIDENT OF INDIA IN AT LEAST 2 YEARS OUT OF 10 YEARS IMMEDIATELY

PREVIOUS YEARS

AND

2. HAS STAYED IN INDIA FOR AT LEAST 730 DAYS IN 7 YEARS IMMEDIATELY PRECEDING
YEARS

Therefore, if any individual fails to satisfy even one of the above conditions, he would be an
RNOR.

From FY 2020-21, a citizen of India or a person of Indian origin who leaves India for employment
outside India during the year will be a resident and ordinarily resident if he stays in India for an
aggregate period of 182 days or more. However, this condition will apply only if his total income
(other than foreign sources) exceeds Rs 15 lakhs. Also, a citizen of India who is deemed to be a
resident in India (w.e.f FY 2020-21) will be a resident and ordinarily resident in India.

NOTE: Income from foreign sources means income which accrues or arises outside India
(except income derived from a business controlled in India or profession set up in India).

NON-RESIDENT

An individual satisfying neither of the conditions stated in (a) or (b) above would be an NR for
the year.

TAXABILITY

Resident (R): A resident will be charged to tax in India on his global income i.e., income earned
in India as well as income earned outside India.

NR and RNOR: Their tax liability in India is restricted to the income they earn in India. They need
not pay any tax in India on their foreign income. Also note that in a case of double taxation of
income where the same income is getting taxed in India as well as abroad, one may resort to
the Double Taxation Avoidance Agreement (DTAA) that India would have entered into with the
other country in order to eliminate the possibility of paying taxes twice.

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Department of Management, AIGS

PROBLEMS ON RESIDENTIAL STATUS

PROBLEM-01
What is the residential status of Mr. Robert (Foreign Citizen) for the Assessment Year
2024-25, who was in India as follows?

Previous Year Presence in India

2023-2024 182 Days
2022-2023 55 Days
2021-2022 28 Days

PROBLEM-02
Mr. Peter, a foreign cricketer comes to India for 100 days every year since the financial year
2014-15. Find out his residential status for the Assessment year 2024-25.

PROBLEM-03 (w.e.f. Finance Act 2020)

Mr. Ramesh is a Citizen of India comes to India on 20-3-2023. On 01-09-2023, he left India and
went to Nepal on a Business trip. Again, he comes back to India on 10-03-2024 on a visit.
Determine his residential status for the Assessment year 2024-25, if his taxable Indian Income
for the Previous year is Rs.18,00,000 and he was in India for 1,108 days during 4 P.Y. Preceding
the P.Y.

PROBLEM-04
Mrs. Mangala, a citizen of India went to England on 2-10-2017 for higher studies for a
period of two years. After she came back, she was employed in a multinational company in
India. The company sent for 6 months training to Germany on 1-03-2020.

She was transferred to the company’s head office in New York on 15-08-2021. However, she
left India on 2-10-2021 and reported for duty on 5-10-2021. She visited India during the months
of November and December 2022. The company transferred her back to her original post in
India and she returned to India on 26-01-2024.

Determine her Residential status for the Assessment Year 2024-25.

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Department of Management, AIGS

PROBLEM-05 (w.e.f. Finance Act 2020)

Mr. Eshwar an Indian citizen leaves India for the first time in the last 20 years on November 20 th,
2021. During the calendar year 2022 he comes to India on 1st September and stays for a period
of 30 days. During the calendar year 2023, he does not visit India at all but comes to India on
January 16th, 2024, and stays for 70 days. Determine his residential status for the assessment
year 2024-25, if his taxable income other than foreign income for the P.Y. is Rs.20, 00,000
and he is not liable to pay tax in any other country.

PROBLEM-06
Mr. Kishore went to England for studies on 5-08-2023 and came back to India on 25-02-2024.
He had never been out of India before. What is his residential status for the A.Y.2024-25?

PROBLEM-07
Mr. Prakash a foreigner came to India from Poland for the first time on 1-4-2017. He stayed here
continuously for 3 years and went to France on 1-4-2020. He however returned to India on 1-7-
2020 and went to Poland on 1-12-2021. He again came back to India on 25-1-2024 on a service
in India. What is his residential status for the A.Y. 2024-25.

PROBLEM-08
Mr. Tom Cruise a foreign national and a person of Indian origin comes for the first time on 22-8-
2019 and left for Tokyo on 5-5-2022. He once again arrived in India on 26-1-2024 and left for
Australia on 30-3-2024. Determine his residential status for the assessment year 2024-25.

PROBLEM-09
Mr. Sathish an employee of PQR Co Ltd. Mysore, has left India for the first time on 16-7-2023 for
higher training in U.K. calculate his residential status for the assessment year 2024-2025.

PROBLEM-10
Mr. Clinton an American came to India for the First time on 01-01-2020. He stayed here
continuously for 2 years. He went back to New York on 01-01-2023. Again, he came to India on
02-02-2024 on a two years job Assignment with a multinational company in India.

Determine his Residential status for the previous year’s 2023-24.

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Department of Management, AIGS

B. INCIDENCE OF TAX

Tax is levied on total income of a person. The total Income is based on the residential status of an
assessee. Section-5 provides the scope of total income, which varies on the basis of status.

Relationship between Residential Status and Incidence of Tax

In order to understand the relation between residential status and tax liability, one must
understand the meaning of Indian income and foreign income.

INDIAN INCOME: ANY OF THE FOLLOWING THREE IS AN INDIAN INCOME –

 If income is received in India during the previous year and at the same time it accrues in

India during the previous year.

 If income is received in India during the previous year but it arises outside India during the

previous year.

 If income is received outside India during the previous year but it arises or deemed to

arises in India during the previous year.

FOREIGN INCOME: ANY OF THE FOLLOWING TWO CONDITIONS ARE SATISFIED THEN SUCH
INCOME IS FOREIGN INCOME.

 Income is not received in India.

 Income does not arise or does not deemed to arise in India.

II = Indian Income,

CI = Controlled Income,

El = Exempted Income,

Fl = Foreign Income and

NI = Nature of Income

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Department of Management, AIGS

CHART SHOWING INCIDENCE OF TAX

Sl. Different Kinds of Incomes Nature Different Types of Status
of
No Ordinarily Not Ordinarily Non-
Income
resident Resident Resident
(NR)
(R & OR) (R but NOR)

1 Income earned or deemed to be earned in India but II Taxable Taxable Taxable

received outside India.

2 Income earned or deemed to be earned outside India II Taxable Taxable Taxable

but received in India

3 Income earned and received in India or Income II Taxable Taxable Taxable

deemed to be earned and received in India.

4 Income earned or deemed to be earned and received FI Taxable Not Taxable Not Taxable
both outside India.

5 Income earned and received outside India from a CI Taxable Taxable Not Taxable
business controlled or profession setup. In India
income may or may not be remitted to India.

6 Income earned and received outside India from a FI Taxable Not Taxable Not Taxable
business controlled or profession Set up outside India.

7 Past untaxed foreign income brought into India during EI Not Taxable Not Taxable Not Taxable
the relevant previous year Note: Gift is not an income,
if it is less than Rs.50,000. (If gift is received by an
individual from a relative or at the time of marriage or
by will, it is tax free).

8 Gift from a friend exceeding Rs.50,000 received in II Taxable Taxable Taxable

India is an income. Therefore taxable.

9 Dividend from an Indian company II Taxable Taxable Taxable

10 Dividend from co-operative societies II Taxable Taxable Taxable

11 Dividend from foreign company received in India II Taxable Taxable Taxable

12 Share of profit from HUF EI Not Taxable Not Taxable Not Taxable

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Department of Management, AIGS

PROBLEMS ON INCIDENCE OF TAX

PROBLEM-11

PROBLEM-12

PROBLEM-13

ACHARYA INSTITUTE OF GRADUATE STUDIES, BENGALURU 560 107 10

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Department of Management, AIGS

PROBLEM-14

PROBLEM-15

ACHARYA INSTITUTE OF GRADUATE STUDIES, BENGALURU 560 107 11

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Department of Management, AIGS

PROBLEM-16

PROBLEM-17

ACHARYA INSTITUTE OF GRADUATE STUDIES, BENGALURU 560 107 12

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Department of Management, AIGS

PROBLEM-18

PROBLEM-19

ACHARYA INSTITUTE OF GRADUATE STUDIES, BENGALURU 560 107 13

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Department of Management, AIGS

PROBLEM-20

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ACHARYA INSTITUTE OF GRADUATE STUDIES, BENGALURU 560 107 14