It is crucial for an individual to determine their correct residential status since, in India, taxation for a particular year is dependent on the residential status for that year. The Indian tax law categorizes the residential status of an individual as ‘resident’ or ‘nonresident’ depending on the duration of stay in India.
An individual is considered to be a resident if they satisfy any of the following conditions:1
Further, in condition (b) above, the period of 60 days would be extended to 182 days in the following cases:
The Finance Act 2020, has now amended the residency rules and reduced the number of days from 182 days to 120 days for Indian citizen or a person of Indian origin who has settled abroad and where total income excluding foreign sources income, exceeds INR 1.5 million. Furthermore, a new concept of deemed residency has been introduced whereby an Indian citizen who is not liable to tax in any other country by reason of domicile, residence, etc. would be deemed to be a resident of India, and thus, their Indian income would taxable in India2 .
In the case of an Indian citizen being a member of the crew of a foreign-bound ship leaving India, the period or periods of stay in India shall, in respect of such voyage, be determined as per the rules prescribed.
An individual is classified as a non-resident if they do not satisfy either of the above conditions.
The law has further categorized the residential status of a ‘resident in India’ into ‘resident and ordinarily resident’ and ‘resident and not ordinarily resident.’ A person is said to be ‘resident and not ordinarily resident’ in India in any year if the person has:
Thus, if an individual fulfills any one of the above conditions, he would be regarded as ‘resident and not ordinarily resident’ in India for that particular financial year
The Finance Act 2020 has extended the definition of resident but not ordinarily resident to include the following two categories:-
The actual number of days an individual is present in India is generally determined on the basis of entries in the passport, taking into account the day of entry as well as exit.
An individual considered to be a resident of India as well as another country can determine his residential status as per the criteria specified under the tax treaty entered into by the Indian government with the government of that other country, if any.
|Particulars of income||Resident and ordinarily resident||Resident and not ordinarily resident||Non- resident|
|Income received or deemed to be received in India||Taxable||Taxable||Taxable|
|Income accrues or arises in or is deemed to accrue or arise in India||Taxable||Taxable||Taxable|
|Income earned outside India||Taxable||Taxable (only if earned from a business/ profession controlled from India)||Not taxable|