How to determine the residential status and what are the different residential status

The tax structure of India is very complex in nature. It depends upon the nature of persons, age, residential status, nature of income etc.

The taxability of an assessee in India depends upon his residential status in India for any particular financial year. An individual may be a citizen of India but may end up being a non resident for that particular year. Residential status of different categories of taxpayers are assessed differently.

Types of Residential status

For the purpose of Income tax computation in India, the income tax laws classifies taxable person as

1. Residents:

A resident can be classified into two types

• Resident Ordinarily Resident
• Resident Not Ordinarily Resident

2. Non Resident

DETERMINATION OF RESIDENTIAL STATUS UNDER DIFFERENT SCENARIO

1. In case of an individuals:

To specify that the individual is a resident in India, He needs to specify any one of conditions

• He should be in India for a minimum of 182 days in a year, or
• He should be in India for a minimum period of 365 days in the immediately preceding four years and for a minimum of 60 days in the current assessment year.

If none of the above conditions are met, the individual should be considered as the Non resident.

Once he satisfies any of the above conditions he again need to specify both of the following conditions for the individual to become resident and ordinary resident. He should meet:

• He should be resident in India for at least 2 out of 10 immediate previous years.
• He should be resident in India for at least 730 days in seven immediately previous years.

If any one conditions is not met, or both the conditions are not met then the individual is considered to be resident non ordinarily resident.

2. IN CASE OF COMPANY: A company is resident in India if its place of effective management (POEM), during the relevant previous year, is in India. For this purpose, the place of effective management means a place where key management and commercial decisions that are made. A company is always a resident in India.

IN CASE OF HUF:  A Hindu Undivided Family (HUF) is considered as resident in India if the control of effective management is situated wholly or partly within India during the relevant previous year

A HUF is treated as Resident and ordinarily resident in India if the Karta satisfies both of the following conditions-

(i) he has been resident in India in at least 2 out of 10 years immediately preceding the relevant year

(ii) he has been in India for a period of 730 days or more during 7 years immediately preceding the relevant year.

IN CASE OF PARTNERSHIP FIRM:  A Partnership firm is considered as resident in India if the control of effective management is situated wholly or partly within India during the relevant previous year.

IN CASE OF ASSOCIATION OF PERSONS (AOP) OR BODY OF INDIVIDUALS: An association of person or body of individuals is considered as resident in India if the control of effective management is situated partly or wholly in India

Author- Adv.Shivam Kumar
Legal and content Executive, Taxblock India Pvt. Ltd