Section 6 of the Income Tax Act, 1961 states how will the income depend upon the residential status. There are broadly three categories on which a person’s residential status are classified–
- Resident and ordinary resident
- Resident but not ordinary resident
- Non-resident
The residential status is divided based on individual, HUF, Firm, AOP, Local Authority or Company.
As per Section 6(1), which states the conditions who will be considered as a resident in India for an individual. For an individual only ONE condition is to be satisfied from the following two conditions–
- (i) An individual has stayed in India for at least 182 days in the previous year
- An individual has stayed in India for at least 365 days in the 4 years immediately preceding the previous year or 60 days in the previous year
If any ONE condition is satisfied, the individual shall be considered as a resident. But if no condition is satisfied, the individual shall be considered as a non- resident.
There are two exceptions which are also checked. Firstly, whether an individual leaves India as a crew member of an Indian ship or any purpose of employment outside India. Secondly, whether an Indian citizen engaged in the business outside India comes to India. In both cases, the second condition i.e., at least 365 days, shall not be checked for the same. Only the condition of 182 days stay in India shall be considered.
For the calculation of staying in India, the day of departure and the day of arrival is counted as a stay in India.
If an individual is a member of a crew of the Indian Ship. In such a case, the date on the “Continuous Discharge Certificate” is excluded i.e., on the day of commencing and ending. An individual shall be a citizen of India.
When an individual is a resident. The individual is determined if he is an ordinary resident or a resident but not an ordinary resident. The additional TWO conditions should be satisfied to be an ordinary resident –
- An individual shall be a resident for two previous years out of 10 previous years from the current previous year
- An individual shall stay in India for at least 730 days in total for 7 years during the current preceding year
If one condition is satisfied, he shall be considered as resident but not an ordinary resident. If both the conditions are satisfied, he shall be an ordinary resident.
In the case of Hindu Undivided Family (HUF), the conditions are completely different. If the control and management of a HUF is completely or partially from India, the HUF is considered to be a resident. In the other case, if the control and management of a HUF is completely or partially outside India, the HUF is considered to be a Non Resident.
The control and management means that the key strategic decisions are taken in India which are engaged in business.
For the determination of a HUF being an ordinary resident or not an ordinary resident. If the Karta (head of the family) is an ordinary resident, the HUF shall be an ordinary resident and vice-versa.
In the case of a firm, Association Of Person (AOP), Body Of Individuals (BOI), Local Authority or Artificial Judicial Person. The control and management of a firm is completely or partially from India, and it has an Indian Costing, the firm is considered to be a resident. On the other case if the effective management (necessary decisions for conducting a business) is outside India, the firm will be considered to be Non-Resident.
As per Section 5 of the Income Tax Act 1961, any income which is received, will be received, accruing or will be arising in India shall be Taxable for all of the three categories mentioned above.
If the income is accruing or rising outside India, the amount which will be brought in India shall be taxable in the case of Resident and Ordinary Resident. In the case of Resident and Non-Ordinary Resident, the income shall not be taxable except when the business is controlled or managed from India. As per the case of Non Resident, any income outside India is not taxable in India.
If any past income which is brought to India by any of the three categories, the income shall not be taxable for them. As per the case of any income which is exempt in India shall not be taxable for a resident as well as an non-resident.
A summary of the Section 5 is as follows –
|
INCOME |
RESIDENT AND ORDINARY RESIDENT |
RESIDENT AND NON ORDINARY RESIDENT |
NON RESIDENT |
|
Income received or which is to be received in India |
Taxable |
Taxable |
Taxable |
|
Income which accrued or will be accrued in India |
Taxable |
Taxable |
Taxable |
|
Income accrued outside India |
Taxable, if it is brought in India |
Non taxable (except when the business is controlled in India) |
Not taxable |
|
Past untaxed income to India |
Not Taxable |
Not Taxable |
Not Taxable |
|
Any income which is exempt in India |
Not Taxable |
Not Taxable |
Not Taxable |
As per Section 7 of the Income Tax Act 1961, these are some income which are deemed to be received in India –
- Employer’s Contribution to recognise provident fund more than 12% of salary shall be treated as income.
- Interest to recognised provident fund more than 9.5% per annum shall be treated as income.
- Any contribution under pension scheme shall be treated as income.
- Any amount transferred of unrecognised provident fund to recognised provident fund shall be treated as income.
These are some examples of income which shall be treated as income which are deemed to be received in India.
Section 9 of the Income Tax Act 1961 states which income shall be deemed to arise in India which may have arose outside India. Some of the examples are –
- Dividend paid by an Indian Company outside India.
- Salary earned from services rendered in India.
- Fees for any technical services which was provided by the government.
- Royalty payable by a non-resident.
- Any property source of income in India.
A person shall pay taxes according to the residential status to avoid any legal disputes. An individual shall who is a resident. This will help an individual to calculate the estimation of tax which will arise.
Author’s Name: Kriti Kathuria (Bennett University, Greater Noida)
