Residential Status Advisory
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The residential status of an individual, HUF, or company is an important factor in determining their tax liability under the Income Tax Act, 1961. It affects the scope of their taxable income, i.e., whether they are liable to pay tax on their global income or only their income in India.
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1. Residential Status Under Income Tax Act, 1961
Under the Income Tax Act, 1961, the residential status of a person is determined based on the duration of their stay in India during a particular financial year. The rules vary for individuals, Hindu Undivided Families (HUFs), and companies.
- Resident
- Non-Resident (NR)
- Resident but Not Ordinarily Resident (RNOR)
The criteria for determining the residential status are as follows:
1.1. Resident (R)
- Condition 1: The individual must be in India for at least 182 days or more during the previous year (April to March).
- Condition 2: The individual must have been in India for 60 days or more during the previous year and at least 365 days during the 4 years preceding the previous year.
However, the 60-day condition is extended to 182 days if the individual is a citizen of India or a person of Indian origin and is employed or on a business trip outside India.
1.2. Non-Resident (NR)
1.3. Resident but Not Ordinarily Resident (RNOR)
- They are Resident (as defined above) but do not satisfy the conditions to be treated as a Resident and Ordinarily Resident (ROR).
- A person can be treated as RNOR if:
- They were non-resident in 9 out of the 10 preceding years, or
- They have been in India for less than 730 days during the 7 preceding years.
- Residential Status for Hindu Undivided Families (HUF)
- HUF is considered a Resident if the control and management of its affairs are situated in India.
- If the control and management of its affairs are outside India, the HUF is considered a Non-Resident.