Understanding Residential Status under the Income-tax Act, 1961

Determining the residential status of an individual is pivotal in the realm of taxation under the Income Tax Act, 1961. This status categorization is as follows: 

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 Resident and Ordinarily Resident (ROR)

Resident but Not Ordinarily Resident (RNOR)

Non-Resident (NR)

Let’s delve into how one’s residential status is ascertained:

Resident Status:

An individual qualifies as a resident taxpayer by meeting either of the following conditions:

Presence in India for at least 182 days in a financial year.

Presence in India for 60 days or more in the current financial year and a cumulative total of 365 days or more in the immediately preceding four years.

For instance, let’s examine the case of Mr. D, a professional frequently traveling abroad for business. While he falls short of the first condition, he fulfills the second by having resided in India for over 365 days in the preceding four years and for 60 days in the current financial year. Thus, he is deemed a resident taxpayer.

Resident and Ordinarily Resident (ROR) vs. Resident but Not Ordinarily Resident (RNOR):

Further nuances exist within the resident status:

ROR: Requires residency in India for at least 2 out of the preceding 10 years and a total of 730 days or more in the past 7 years.

RNOR: Lacks either of the additional conditions for ROR.

In Mr. D’s case, having met both additional conditions, he qualifies as Resident and Ordinarily Resident.

Non-Resident:

Individuals failing to meet the basic residency conditions are categorized as non-residents, such as Ms. G, who spent nine years abroad for educational and professional pursuits.

Exceptions and Special Conditions:

Certain exceptions modify the basic criteria:

For Indian citizens working abroad or PIOs visiting India, a 60-day stay in the financial year extends to 182 days or 120 days if income sourced from India exceeds Rs 15 lakhs.

Indian citizens with income exceeding Rs 15 lakhs, regardless of stay duration, are classified as RNOR if not liable to tax elsewhere.

Why Residential Status Matters:

Residential status dictates the taxability of income as per Section 5 of the Income-tax Act, 1961:

ROR: Taxable on global income.

RNOR: Taxable only on income earned or accrued in India.

NR: Taxable solely on income sourced from India.

In essence, determining residential status lays the groundwork for tax obligations, ensuring compliance with the Income-tax Act, 1961.

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