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written by | September 8, 2022

Residential Status for Income Tax – Individuals & Residents

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You must be proficient with the issue of residence status for income tax purposes. Your tax liability will be significantly simpler to authenticate as a result. 

The calculation of taxes must take into account your residential status, which has a significant impact on the amount you pay or receive as refunds. During the current tax filing process, this is especially important. In fact, it is one of the criteria used to assess a person's tax deductibility for a specific fiscal year. 

Why Residential Status is important? 

The taxability of a person is determined by his place of residence in the nation during any given financial year. Even if they are an Indian citizen, certain people are granted non-resident identity for a certain fiscal year. The same is true for foreign nationals who wish to get residential status in the country for the duration of a specific fiscal year. Different sorts of entities have their residential status determined independently. 

How to Determine an Indian Resident?

An individual who has never left India is perpetually and normally a resident of India. If a person meets at least one of the following criteria, they are considered to be a resident of India. 

  1. He/she spends at least 182 days in India in a particular year. 
  1. He/she spends at least 365 days in India over the course of the four years that directly preceded the last year, as well as at least 60 days within the year. 

If an Indian citizen leaves the country during the year in order to work outside of India or if an Indian citizen needs to leave India during the year in order to serve on the deck of an Indian ship, the aforementioned 60-day term is increased to 182 days. For this aim, departing India for professional purposes is necessary. 

If an Indian citizen or someone of Indian descent pays a visit to India, the previously mentioned 60-day term is also prolonged to 182 days. If an individual, either themselves or any of their parents or grandparents were born in India He/she is considered to be an Indian resident. 

A person is not a resident if they do not meet any of the aforementioned two requirements. 

Also Read: What is Alternative Minimum Tax?

Determining Whether Somebody is Ordinarily Resident or Not Ordinarily Resident 

If a person meets the prerequisites for resident status as listed above as well as the two following requirements, they are considered a resident and ordinarily resident of India. 

  1. He/she has resided in India for at least two out of the ten years that have passed before the relevant fiscal year. 
  1. He/she has spent at least 730 days in India throughout the seven years immediately before the applicable year. 

The individual who does not meet both of the aforementioned requirements is a resident however not ordinarily resident. 

Tax Planning as per the Residential Status: 

Depending on the assessee's residency status, an income stream may or may not be subject to income tax. People who spend a significant amount of time outside of India during the current year and the previous year should keep a few things in mind so that, assuming they are able to change their schedules, they could save a significant amount of tax. 

  • For non-resident designation, visitors to India for work or in any other capacity should not remain for longer than 181 days in a financial year and no longer than 364 days in the 4 years prior. 
  • A person should avoid residing in India for a further over 59 days in a fiscal year if they spent more than 364 days there in the 4 years prior. If he/she wishes to stay longer than 59 days, they may do so by arriving after February 2 and departing before May 29, which will ensure that no more than 59 days are covered throughout the course of both years. 
  • An individual of Indian descent or a citizen of India must schedule their travel so that no more than 181 days overlap in a single year. 
  • Even if the firm is run entirely from India, a non-resident shouldn't be paid directly in India. To avoid paying taxes on such revenue, one should first collect it outside of India before remitting it back to India. 
  • Similar to this, the non-ordinary resident should collect their earnings from a firm that is operated outside of India that is received outside of India. 

Also Read: Online Professional Tax Registration in India

Residential Status Of HUF 

A Hindu Undivided Family (HUF) is considered to be a resident of India if all or a portion of its control and administration are located there. 

A resident HUF is considered to be a resident and regular citizen in India if the Karta meets both of the following criteria: 

  • He/she has lived in India for at least two of the ten years before the eligible year. 
  • He/she has spent at least 730 days in India throughout the seven years immediately before the pertinent year. 

Karta is considered a resident but is not ordinarily resident if none of the aforementioned requirements is met. 

If HUF's administration and control are located entirely outside of India, it is regarded as a non-resident. 

Residential Status of a Firm or Association of People 

A partnership business or group of people is deemed to be a resident of India if, throughout the pertinent prior year, the management and control of its operations were entirely or partially located inside India. Nonetheless, if the entirety of its management and control is located outside of India, it is classified as non-resident in India. 

Residential Status of Company 

An Indian company is always a resident in India. 

Residential Status of Foreign Company from the Financial Year 2016-17. 

If an international firm's place of effective management (POEM) for the pertinent prior year was in India, that organization will be considered a resident of India. The term "site of effective management" refers to a location where crucial managerial and business choices that are essential to the operation of an organization, in general, are made.

Also Read: Income tax Calculator - Calculate Your Taxes For FY 2021-22 Use Tax Calculator Online

Conclusion: 

Is your current residence in India sufficient to prove that you are a citizen of the country permanently? No, not always. You will be referred to as a non-ordinarily resident or even a non-resident if you don't comply with the conditions for identifying residents. Your home status significantly determines the amount of tax you must pay. It is, therefore, crucial to fully comprehend the rules as well as the residence status. 

Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: Why is the residential status important for income tax calculation?

Ans:

The extent of tax liability for a fiscal year in India, and therefore the amount of tax due, are significantly influenced by the taxpayers' residence status. The only factor that affects a person's residence status is whether or not they were physically present in India at any point throughout the fiscal year.

Q: What is the difference between a resident individual and a person of Indian origin?

Ans:

They must possess an Indian passport, or they may be spouses of Indian citizens, or they may be children or grandchildren of Indians. A person must stay in India for at least 182 days within a fiscal year to qualify as a resident. PIO cardholders need not require a VISA to go to India.

Q: Who is a non-resident individual in income tax?

Ans:

If the person spent at least 60 days in India during the year prior and at least 365 days there within the four years that passed just before the previous year. Anyone who doesn't meet both of the aforementioned requirements will be considered a non-resident for the preceding year.

Q: What is the difference between resident and non-resident?

Ans:

No matter where the money is generated or where it has been collected for the resident taxpayer, it will all be subject to Indian taxation. However, for non-residents, any income that is earned or originates outside of India is not subject to Indian taxation.

Q: What are residential status and tax incidence?

Ans:

Any assessee’s tax liability is based on the Act's definition of residency. An assessee's residence status must be determined in relation to each prior year. A person may change from being a resident to becoming a non-resident in the course of one year.

Q: How is the residential status of an individual determined for the assessment year 2021 or 2022?

Ans:

The need to replace "60 days with 182 days" has been amended from "60 days to 120 days." [Starting with the Assessment Year 2021–2022] The length of time a person spends in India determines his or her residency status.

Q: Who is a resident individual in India?

Ans:

An Indian citizen who earns a total income of more than Rs. 15 lakhs (except foreign entities) in Assessment Year 2021–2022 would thus be assumed to be a resident of the nation if they are not required to pay taxes in any other nation.

Q: Who is a residential individual?

Ans:

If a person is physically residing in India for at least 182 days throughout the tax year, they are considered to be a resident.

Q: How does residential status affect income tax?

Ans:

The income produced in India as well as the revenue accrued outside of India from a company operated from India or from a vocation established in India must be taxed if the individual comes underneath the Resident but Non-Ordinarily Resident (ROR) category.

Q: What is the residential status of an individual in income tax?

Ans:

A person's position in relation to the inquiry of how long they have resided in India during the previous five years is referred to as their residential status. The residency status of a taxpayer during the tax year and the 4 years before the tax year determines their income tax burden.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.