Residential Status and Incidence of tax in India under Income Tax Act

Updated on 29-02-2018, Akshay Kshirsagar.

Residential Status

Residential Status – There are two types of taxpayers- resident in India and non-resident in India. Indian income is always taxable in India.

Index

DETERMINING RESIDENTIAL STATUS

To determine residential status all taxable entities are divided into :-

  1. an Individual.
  2. a Hindu undivided family
  3. a firm or an association of persons.
  4. a joint stock company and
  5. every other person.

Resident in India is further divided into resident and ordinarily resident or resident but not ordinarily resident.

According to Budget 2020, Finance Minister proposes changes in Ordinarily resident and not ordinarily resident. 

  1. An Individual is resident if, he is in India in the previous year for a period of 120 days or more. OR he is in India for period of 60 days or more during the previous year and 365 days or more during 4 years 
  2.  An Individual is treated as ordinarily resident if he is in India for at least  4 out of 10 previous years. 

If an individual satisfy both the conditions i.e 1 and 2 then he is resident and ordinarily resident. But if he do not satisfy 2 condition then he is resident but not ordinarily. And if he do not satisfy either of the condition the he is non resident.

RESIDENTIAL STATUS FOR HUF, FIRM AND ASSOCIATION OF PERSON AND COMPANY

Residential Status

HINDU UNDIVIDED FAMILYA Hindu undivided family is resident. when the control and management of the affairs is wholly in India or partly in India and party outside. A resident Hindu undivided family is ordinarily resident if karta is resident in India in at least 4 out of 10 previous years. 

FIRM AND ASSOCIATION OF PERSON / COMPANIES  – A Firm / an association of persons can be resident in India. if the control and management of the affairs of a firm/association of persons is wholly in India or partly in India and partly outside India. And non-resident in case wholly outside India.

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INCIDENCE OF TAX

Indian Income is always taxable in India irrespective of the residential status of taxpayer.

Whereas, foreign income is taxable in hands of resident or resident and ordinarily resident in India. Foreign income is not taxable in the hands of non resident in India.

Also, foreign income taxable in hands of a resident but not ordinarily resident in India. if it is the business income and business is controlled wholly or partly from India. And If it is income profession which is setup in India.

Residential Status

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