Residential Status In India
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Sometimes you may find yourself in difficult situations and not be able
to defuse the situation without going to court.
As per the Income Tax Act 1961 the residential status of an individual, company or firm has been defined under section 6 of the Income Tax Act, 1961. The residential status of individual is often confused with Citizenship. These are two different terms defined under the Act. An individual is termed as a Citizen of a Country based on birthplace or if anyone has opted for citizenship of a particular country by right. The citizen of a particular country enjoys political and civil rights which are not available to foreign citizens.
On the other hand, taxation of an individual is based on residential status which is dependent on various factors specific to an individual. The taxation of the individual is not based on citizenship of the country. For example, Mr. A could be Citizen of India but is not a Resident of India as he does not qualify the residential status conditions in India under the Income Tax Act.
Further, there are different concepts of residential status under the FEMA Act and Income Tax Act but we shall analyse the concepts seperately.
Residential Status Under the Income Tax Act, 1961 –
The Income Tax Act in India defines residential status in three categories which are –
1. Resident (ROR),
2. Not Ordinarily Resident (RNOR) and
3. Non-Resident (NR).
Between the status of being a Resident and a Non-Resident (NRI) the Income Tax Act takes care of people who are in the transition face from becoming Non-Resident to Resident or from becoming Resident to Non-Resident. The term Not Ordinarily Resident (RNOR) has been defined under the Income Tax Act to ensure that the tax in India does not rise all of a sudden for Non-Resident taxpayer in India. The Income Tax Act defines the term Residential status for different categories of persons such as Individuals, Hindu undivided family, firm, or other association, company, and every other person.
How to check if an Individual is “Resident” in India?
An individual person whether citizen of India or foreign citizen – is said to be Resident in India, for the year, if he:
(a) is in India in that year for a period or periods amounting in all to 182 days or more: OR
(b) i. having within the four years preceding the year under consideration been in India for a period or periods amounting in all to 365 days or more AND
ii. is in India for a period or periods amounting in all to 60 days* or more in the year under consideration: OR
(c) being a citizen of India, having total income, other than the income from foreign sources, exceeding Rs. 15 lakhs during the year and is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.
Exceptions to the condition of 60 days
(A) The condition of 60 days shall be raised to 182 days in following cases:
(i) in case of a person being a citizen of India, who leaves India as a member of the crew of an Indian ship, or for the purposes of employment outside India, and
(ii) in case of a person being a citizen of India or a person of Indian origin who, being outside India, comes on a visit to India.
(B) The condition of 60 days shall be raised to 120 days in case of the citizen or person of Indian origin has total income, other than the income from foreign sources, exceeding Rs.15 lakhs during the year.
Q. How do you define Income from foreign sources under Income Tax Act?
Answer-Income from foreign sources is define as Income which accrues or arises outside India.
Q. How to check if an individual is “Non-Resident” in India?
Answer- An individual who does not meet any of the conditions laid for a “Resident” shall be treated to be a “Non-Resident” under the Income Tax Act.
Q. How to check if an individual is “Not Ordinarily Resident” in India?
An individual is said to be “Not Ordinarily Resident”, RNOR, in India if he:
| (i) | has been a Non-Resident in India in nine out of the ten years preceding the year under consideration; OR |
| (ii) | has during the 7 years preceding the year under consideration been in India for a period of, or periods amounting in all to, 729 days or less: OR |
| (iii) | is a person referred to in point (c) of “Resident” criteria or point (B) of “Exceptions to the criterion of 60 days” of “Resident” criteria above. |
As per the provisions of Section 6 of the Income Tax Act, 1961 an individual is said to be Resident in India in any previous year, if she—
| a. | Is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more: or |
| b. | Having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year. |
The period of 60 days shall be substituted for 182 days in case of a citizen/ person of Indian origin who leaves India for employment during a FY.
However, from the financial year 2020-21, the period is reduced to 120 days where the total income (excluding income from foreign sources) exceeds Rs 15 lakhs.
The change in Income Tax Act was brought in to cover Indian citizens who manage their stay in such a way so that they don’t qualify to be Tax Resident of any country and accordingly had minimal or NIL tax liability in India and the rest of the world.
This amendment under Income Tax Act has led to increase in tax net and has covered a lot of Indian citizens who were employed overseas particularly those in Dubai, Oman, Qatar, UAE, and other regions in the Middle East, where there is no personal income tax. The change is even more taxing for Indian citizens working in Tax Heaven of the World such as British Virgin Islands, Cayman Islands, Switzerland, Luxembourg, Bermuda, Netherlands etc.
Further Residential Status of an Individual has to be evaluated for each financial year separately.
Concept of deemed Resident under Section 6(1A) of the Income Tax Act, 1961
Under the Income Tax Act, an Individual, being an Indian citizen, not being a Resident as per the conditions mentioned above, shall be deemed to be an Indian Resident, if
| (i) | Total income (excluding income from foreign sources) exceeds Rs. 15 lakhs during the relevant year; And |
| (ii) | if she is not liable to pay tax in any other country or territory by reason of her domicile or residence or any other criteria of similar nature. |
Therefore, an Indian citizen having India-sourced taxable income exceeding Rs. 15 lakhs during the relevant tax year will be deemed to be a Resident of India if he is not liable to tax in any other country by reason of domicile or residence or any other criteria of similar nature.
Q. Mr. Ashok is an Indian Citizen but in financial year 2022-23, he was residing in Dubai which is outside India for 130 Days. His rental Income in India along with Income from Bank Interest is Rs.20 Lakhs. What would be his Residential Status as per Income Tax Act in India.
Ans Mr. Ashok is fulfilling both the conditions as he residing in Dubai which is a Tax-Free Country for Individuals and secondly, he has incomes accruing in India for more than Rs.15 Lakhs. Therefore, he shall be a deemed Resident in India as his stay In India is more than 120 Days in the financial year.
Incomes Taxable in India
The Taxation of Incomes is determined under Section 5 of the Income Tax Act. The following table classifies incomes which shall be taxable in India depending upon the Residential status of an Individual:
| S.N. | Residential Status | Incomes Received or is Deemed to be Received in India |
Incomes which Accrues or Arises or is Deemed to Accrue or Arise in India |
Incomes which Accrues or Arises Outside India |
| 1 | Resident | Taxable | Taxable | Taxable |
| 2 | Not ordinary Resident | Taxable | Taxable | Non-Taxable |
| 3 | Non-Resident | Taxable | Taxable | Non-Taxable |
After the amendments have been carried out in the Income Tax Act a lot of Indian citizens who were categorise as Non-Resident would be now categorised as not ordinary Resident in India. However, they will still be away from the classification as a Resident.
The taxation of such Non-Resident Indians shall increase to a large extent specially when they earn income derived from a business controlled in or a profession set up in India.
Further, the disclosure requirements in the Income Tax Return Form – ITR Form as prescribed under the Income Tax Act of filing Schedule FA – for foreign assets and Schedule AL – for assets and liabilities (except for Indian assets) shall not apply to not ordinary Resident in India.
Analysis of Residential Status of Individual as per FEMA – Foreign Exchange Management Act, India
As per Section 2(v)–
“Person Resident in India” means—
| (i) | a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include— | ||||
| (A) | a person who has gone out of India or who stays outside India, in either case— | ||||
| (i) | for or on taking up employment outside India, or | ||||
| (ii) | for carrying on outside India a business or vocation outside India, or | ||||
| (iii) | for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;” | ||||
| (B) | a person who has come to or stays in India, in either case, otherwise than— | ||||
| (i) | for or on taking up employment in India, or | ||||
| (ii) | for carrying on in India a business or vocation in India, or | ||||
| (iii) | for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period; | ||||
Residential status under FEMA for a particular financial year is examined with respect to the period of stay in India during the preceding financial years. However, the exceptions carved out in sub-clauses (A) and (B) of clause (v) of Section 2 of FEMA stipulates exceptions to the general rule. On the bare reading of the three clauses or exceptions indicate that the intention to stay for an uncertain period is an essential factor for the individual to be considered as a Person Resident in India.
As per the exception, an individual shall become a “Person Resident Outside India” from the date he leaves India for the purposes of employment outside India.
Foreign exchange laws of India, therefore, determines the residential status at a point of time rather than for the entire year. The residential status, thus, needs to be evaluated at the point of time when a cross-border transaction is entered into by the individual.
Such cross-border transactions are evaluated on the basis of Residential Status and in light of the relevant FEMA provisions – inference –
| a. | FEMA provisions shall be applicable when the Individual is an Indian Resident, and the transaction is with respect to his assets and liabilities outside India, or with a Person Resident Outside India. |
| b. | When the Individual is a Resident outside India, and the transaction is with respect to Assets and Liabilities in India, or with a Person Resident in India. |
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What We Do
We at Sunil K Khanna & Co. handle Property Tax matters such as Property Tax Return Filing and Property Tax Payment online. The property tax is levied on all residential and commercial properties by Municipal Corporation in Delhi and Haryana.
In Delhi Assessment and Collection Department of MCD is entrusted with the task of collection of property tax under Section 113 of the Delhi Municipal Corporation Act, 1957. The Municipal Corporation is divided into two zones MCD-Municipal Corporation of Delhi and NDMC- New Delhi Municipal Corporation. The MCD is further divided into North, South, East & West zones. There are two components of property tax, namely – (a) a building tax; and (b) a vacant land tax.
In Haryana the Municipal Corporation is divided into City Zones such as MCG – Municipal Corporation of Gurgaon, MCF – Municipal Corporation of Faridabad etc.
The municipal corporation requires all property owners to self-assess their property tax and submit their property return tax on an annual basis.
Due Dates of Depositing Property Tax Return.
The Property Tax is deposited in advance every year. The due date for depositing property tax on annual basis is 30th June. In case the property tax is deposited before or up to 30th June the property owner is eligible for a rebate of 15 percent on the total tax payable. Beyond 30th June there is no rebate available to the property owner.
Property Tax Return
The property tax return is required to be filed on an annual basis. The property tax payment can be done only when a property tax return is filed. Therefore, the due date for filing property tax return is
30th June every year but a belated return can also be filed up till 31st March of the year.
Property Tax Amnesty Scheme / Samriddhi Scheme
The property tax arrears for earlier years can be filed with interest and penalty. However, in the past years the Municipal corporation has introduced many Amnesty scheme where in the interest and penalties are waived off to enable the property owners to deposit their property tax arrears without interest and penalty. These schemes are usually introduced in the month of February and march to promote collection of property taxes.
How Can We Help You In Property Tax
We manage Property Tax Compliance of Non-Resident Indians who are Property Owners and not able to comply with annual Property Tax Returns. We have helped over 213 Non-Resident Property Owners in handling their Property Tax matters online. We also help in updating Property Tax arrears of previous years and claiming benefits of Rebate, waiver of interest and penalties. Our expertise is in handling Property Tax matters of Delhi, Haryana and Uttar Pradesh.
- Free Compliance Check of your Property Tax Return
- Property Tax Calculation
- Property Tax Return Filling
- Property Tax Payment
- Claim Rebate of Annual Property Tax
- Representation to Municipal Corporation against Notice Received
- Claim Benefit under Amnesty Scheme
- Update Property Tax Arrears
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