Last updated: February 26th, 2021 11:53 AM

Residential Status - Indian Income Tax Regulations

Residential status of a tax payer plays an important role in the Income Tax regulations in India. As per the Income Tax Act, all taxpayers are classified into one of the following three residential status: 1) Resident and ordinarily resident in India, 2) Resident but not ordinarily resident in India and 3) Non-resident. In this article, we look at the procedure for determining the residential status of a taxpayer in India.

Residential Status of an Individual

To determine the residential status of an individual, a two step test must be adopted. The first test ascertains whether the taxpayer is a resident or non-resident. If the taxpayer is he turns to be a resident, then the next step is to ascertain whether he is resident and ordinarily resident or is a resident but not ordinarily resident.

Test 1: Test for Resident or Non-Resident

An individual will be treated as a resident in India for a year if he satisfies any of the following conditions. If an individual does not satisfy any of the above conditions then he will be treated as non-resident in India.

1. He is in India for a period of 182 days or more in that year; or
2. He is in India for a period of 60 days or more in the year and for a period of 365 days or more in immediately preceding 4 years.

Note: Condition given in 2 above will not apply to an Indian citizen leaving India for the purpose of employment or to an Indian citizen leaving India as a member of crew of Indian ship or to an Indian citizen/person of Indian origin coming on a visit to India. A person is said to be of Indian origin, if he or any of his parents or grand-parents (maternal or paternal) were born in undivided India. In other words, these persons will be resident in India only if they are in India for a period of 182 days or more during the relevant year.

Test 2: Whether Resident and Ordinarily Resident or Resident but not Ordinarily Resident

A resident individual will be treated as resident and ordinarily resident in India during the year if he satisfies both the following conditions. A resident individual who does not satisfy any of the following conditions or satisfies only one of the following conditions will be treated as resident but not ordinarily resident.

1. He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.
2. His stay in India is for 730 days or more during 7 years immediately preceding the relevant year.

Residential Status of Company

A company incorporated in India will always be considered as resident of India. A company other than an Indian company (i.e., a foreign company) will be considered resident in India, if during a year, its place of effective management, in that year, is in India. Place of effective management is the place where key management and commercial decision that are necessary for conduct of the business of an entity as a whole are in substance made. To discuss about your residential status, contact a Chartered Accountant or Lawyer through IndiaFilings