What are the provisions for residential status as per the income tax laws?
“To be, or not to be, that is the question.”
This was the tragic dilemma in Shakespeare's Hamlet. Perhaps, this Catch-22 often takes its toll of many budding aspirants who wish to try their fortune abroad. One of the fundamental aspect that all of them keenly inquire about is the criteria for residency in India with regard to the payment of income tax.
As per the Indian income tax laws, everyone who is involved into any sort of economic activity in India; such as a business, a job or a profession; and earns a certain income from it, as per the prevailing income tax slab rate is subject to payment of the income tax and filing of income tax return.
#1. What are the criteria of a resident individual as per the Indian income tax laws?
If you’ve been able to settle abroad and have just begun to earn huge bucks, it’s high time for you to be updated regarding the applicability of the income tax in India on you. The criteria of a resident taxpayer are explained under section 6 of the Income Tax Act.
As per the section, an individual can be considered as a resident of India, if he has lived in India-
For 182 days or more (i.e. 6 months) in the particular year.
For 365 days or more in the last preceding 4 years to the particular year + 60 days or more in that particular year.
In any of the cases above, the individual shall be treated as Resident of India and subject to payment of the income tax in India and mandate to ITR Filing.
#2. How can the criteria of a resident individual be understood practically?
The criteria of a resident individual can be explained with help of some case studies-
Sanjay migrated from India on 1st August 2017 and lived abroad for the rest of the financial year. So, his stay in India in the FY 2017-18 was less than 182 days, thus, he won’t be treated as an Indian resident for 2017-18 and won’t have to file income tax return for 2017-18.
Later on, Sanjay’s buddy Dinesh too left India on 1st December 2017 and remained abroad for the rest of the financial year. Now, Dinesh’s stay in India was more than 182 days, so he will be treated as Indian resident and will be subject to income tax payment and ITR efiling for 2017-18.
Ravi left India in 2013. In the FY 2013-14 to 2016-17 he visited India many times and his total stay during these 4 years was 400 days. During the FY 2017-18, he visited India for only 170 days. Though he stayed in India for less than 182 days in the FY 2017-18, he will be treated as ‘resident’ as his stay in the previous 4 years exceeded 365 days and then he stayed in India for more than 60 days in FY 2017-18.
#3. Is there any relaxation in the above case?
Yes, the condition of 60 days in the preceding year as specified u/s 6 (c) of Income Tax Act is replaced to 182 days for an individual-
Who leaves India in the previous year for the purpose of employment as a member of the crew of an Indian merchant ship.
Who is of Indian origin or Indian citizen lives outside India and comes on a visit to India.
Note: An individual can be considered of Indian origin only if his/her parents were born in undivided India.
#4. What are the criteria of a resident HUF, firm or other association as per the Indian income tax laws?
A Hindu Undivided Family, firm or other association of people can be considered resident Indian only if the control and management of its affairs were located entirely outside India in any previous year.
#5. What are the criteria of a resident company as per the Indian income tax laws?
A company shall be considered as a resident of India if in any previous year-
- It is an Indian company.
- Its place of effective management is located entirely in India.
In both the cases, the company will be subject to payment of the income tax and efiling of income tax return.
#6. What if a person of Indian origin has his business outside India?
If a person is of Indian origin but has control and management of his affairs situated entirely outside India he is said to be an NRI.
#7. What if a foreign national has his business in India?
If a person is a foreign national but his source of income, that is the control and management of his affairs situated entirely in India he shall be treated as a resident of India with regard to each of his sources of income.
These are the essential criteria you need to consider for ascertaining your residential status in respect of payment of income tax and efiling of income tax return.
In case you need assistance regarding Income Tax Return filing, feel free to contact us at 8881-069-069.