STATE SIGNIFICANCE OF RESIDENTIAL STATUS

AND INCIDENCE OF TAX UNDER INCOME TAX.

Kavyashree I
4th BALLB
30520231021
INTRODUCTION :
 Section 5 of income tax Act the incidence of tax depends upon
as is determined with reference to the residential status of an
assessee in the previous year.
 For example in the case of an individual ordinarily resident in
India. The foreign income s liable to be included in the total
income assessable. However if the individual is not ordinarily
resident foreign income is not so included unless it is derived
from a business controlled in or a profession set up in India.
 RESIDENTIAL STATUS
 The tax liability under income tax is determined on the basis
of residential status of an assessee but not according to the
citizenship hence it becomes necessary that firstly the
residential status of an assessee should be determined.
Section 6 of the income tax Act divides taxable entities
on the basis of their residence in the following 3
categories.
1. Residents in India
2. Not ordinarily residents in India
3. Non – Residents.
RESIDENTIAL STATUS OF AN
INDIVIDUAL.
Resident and ordinarily resident
Basic conditions. ( Part I) Section 6(1) .
An individual is said to be resident in India in any
precious year if ;
(a) He is in India in that year for period/periods
amounting in all to 182 days Or more.
(b) He has been in India for a period/ periods amounting
in all to 365 days Or more during the 4 years
proceeding that year that is the accounting year and
has been in India for 60 days Or more in that year.
 EXCEPTIONS TO THE
BASIC CONDITIONS
 a) In the case of an individual being ‘Citizen of India’, if he
leaves India during the previous year as a member of the crew
of an Indian ship or for the purpose of employment outside
India, he shall fulfil the basic condition No (ii) only where he is
in India for at least 182 days instead of 60 days.
 b) In the case of an individual who is a ‘Citizen of India’ or a
person of ‘Indian Origin’, if he is already outside India and
comes on a visit to India during the previous year, he shall
fulfil the basic condition No (ii) only when he is in India for at
least 182 days instead of 60 days.
ADDITIONAL CONDITIONS.
(PART II) SECTION 6(6)
(A)
 a) If he has been resident in India for at least 2 out of the 10
years preceding the previous year.
 b) He has been in India for a period or periods amounting in all
to 730 days or more during 7 previous years preceding the
previous year.
NOT ORDINARILY RESIDENT . NON-
RESIDENT
 If an individual satisfies  If an individual does not
anyone of the two satisfy anyone of the basic
conditions of Part I, or basic conditions or conditions of
condition but does not Part I, he is said to be non-
satisfy both the conditions resident in that previous
or fulfils only one of the two year whether he satisfies
additional conditions of Part one or both conditions of
II, he is said to be resident Part II or additional
but not ordinarily resident conditions.
or simply stated, he will be
a “not ordinarily resident”.
 HINDU UNDIVIDED FAMILY
1. SEC: An6(2).
Resident HUF will be assessed as resident in India if :
(a)Management and control of the business is wholly/partly
situated in India.
(b)“Karta” of the HUF satisfies the two additional conditions.
 a) He has been resident in India at least 2 out of 10 years
preceding the previous year.
 B) He has been in India for a period or periods amounting in all to
730 days or more during the 7 years preceding the previous year.
2. Not Ordinarily Resident : An HUF will be assessed as NOR if:
a) Management and control of the business is wholly/partly
situated in India but, b) Karta of HUF does not satisfy the two
additional conditions.
. Non Resident: An HUF will be assessed as non resident if
control and management of the HUF is wholly situated outside in
India.
Firm or other
association of persons.
Company
 Resident : A firm or AOP will  Resident : A company will
be assessed as Resident of be assessed as resident in
India If it is control and India if;
management is wholly/ 1. It is an Indian company.
partially Situated in India.
2. It is controlled and managed
 Non resident : A firm or AOP
wholly within in India.
will be assessed as non
 Non resident : A company
resident in India if it is wholly/
partially controlled and which is neither an Indian
managed from out side India. company nor it is wholly/
partly controlled and managed
from outside India.
ANY OTHER PERSON
SECTION 6(4).
 A) Resident: Every other person (local authority, artificial
juridical person e.g.: Statutory Corporations) is said to be
resident in India in any previous year, if the control and
management of its affairs is partly or wholly situated in India.
 B) Non-Resident: Every other person is said to be non-resident
if control and management of its affairs is situated wholly
outside India.
INCIDENCE OF TAX
 Resident and Ordinarily Resident
The total income of any person, who is resident in the relevant
previous year, includes all income from whatever sources derived
which:
 a) Is received, or deemed to be received in India in such year by him
or on his 42 behalf during the previous year; or
 b) Accrues or arises or is deemed to accrue or arise to him in India
during the previous year; or
 c) Accrues or arises to him outside India during such year.
 Not Ordinarily Resident
If the assessee is ‘not-ordinarily resident’, the total income of
the relevant previous year includes all incomes from whatever
sources derived which:
 a) Is received or is deemed to be received in India in such year
by or on behalf of such person during the previous year; or
 b) Accrues or arises or is deemed to accrue or arise to him in
India during the previous year; or
 c) Accrues or arises to him outside India during such year but
derived from business controlled (wholly or partly) in India or a
profession set up in India.
 Non-Resident
If the assessee is a non-resident in India, the total income of
the relevant previous year includes all income from whichever
sources derived which:
 a) Is received or is deemed to be received in India in such year
by or on behalf of such person during the previous year, or
 b) Accrues or arises or is deemed to accrue or arise to him in
India during such year.
CONCLUSION
 Residential status and tax incidence should help one classify if
they are under the resident or non-resident categories in a
financial year. They must then follow the relevant rules to pay
taxes and contribute to the country's development.