Introduction
Determining residential status under the Income Tax Act, particularly Sections 6 and 6A, is pivotal for assessing an individual's tax liability in India. This guide provides an exhaustive analysis of the conditions, tax implications, disclosure requirements, and differentiation between Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), and Deemed Resident categories.
1. Verbatim Text of Sections 6 and 6A
Section 6: Residential Status
For Individuals:
- An individual is considered a resident in India if during the previous year they:
- Stayed in India for 182 days or more, or
- Stayed in India for 60 days or more and 365 days or more in the 4 years immediately preceding the previous year.
- Exceptions apply for Indian citizens and Persons of Indian Origin (PIOs) concerning the duration of stay requirements.
For Hindu Undivided Families (HUFs):
- A HUF is deemed a resident in India if its control and management, wholly or partly, are situated in India during the relevant year.
Exceptions:
- Specific conditions apply for Indian citizens leaving India for employment or as crew members of an Indian ship.
Section 6A: Deemed Resident
- Deemed Resident: An individual who is a citizen of India or a PIO, whose total income other than income from foreign sources exceeds ₹15 lakh during the previous year, and who is not liable to tax in any other country due to residence or domicile therein, shall be deemed to be a resident in India.
2. Analytical Overview of Residential Status Categories
Resident and Ordinarily Resident (ROR)
Additional Conditions for ROR:
- Must have been resident in India for at least 2 out of the 10 immediately preceding years.
- Stayed in India for at least 730 days during the 7 years preceding the previous year.
Taxation:
- RORs are taxed on their worldwide income, necessitating comprehensive disclosure of all global income, foreign assets, and bank accounts in Indian tax returns.
Resident but Not Ordinarily Resident (RNOR)
Criteria for RNOR:
- Does not meet both additional ROR conditions.
Taxation:
- Taxed on income earned in India, income received in India, and income from businesses controlled or set up in India. This status provides transitional benefits for individuals returning to India or those with global income exposure.
Non-Resident (NR)
Basic Conditions:
- Does not satisfy either of the conditions mentioned under Section 6.
Taxation:
- Taxed only on income received or deemed to be received in India, ensuring NRs are not taxed on global income, promoting ease of compliance and international mobility.
Deemed Resident under Section 6A
Criteria for Deemed Resident:
- Indian citizen or PIO.
- Total income (excluding foreign sources) exceeding ₹15 lakh during the previous year.
- Not liable to tax in any other country due to residence or domicile.
Taxation:
- Deemed residents are automatically classified as RNORs, taxed only on income earned in India and income from businesses controlled in India.
3. Taxability and Disclosure Requirements
Comprehensive Chart: Residential Status and Tax Implications
| Residential Status | Conditions for Classification | Taxability | Income Disclosure Requirements |
|---|---|---|---|
| Resident and Ordinarily Resident | Stayed in India for 2 out of 10 years. Stayed in India for 730 days in 7 years. | Global income, including foreign sources, taxable. | Comprehensive disclosure of all income, foreign assets, and foreign bank accounts in Indian tax returns. |
| Resident but Not Ordinarily Resident | Does not meet both additional ROR conditions. | Income earned in India and from businesses controlled in India taxable. | Report Indian income and specified foreign assets. |
| Non-Resident | Does not meet basic residency conditions. | Income received or deemed received in India taxable. | Report income sourced in India. |
| Deemed Resident | Indian citizen or PIO. Total income > ₹15 lakh (excluding foreign). Not liable to tax in any other country. | Indian income and income from businesses controlled in India taxable. | Report Indian income and income from businesses controlled in India, similar to RNORs. |
4. Examples Illustrating Different Scenarios
Scenario 1: Indian Citizen Working Abroad
Facts: Mr. D works in UAE, visits India for 150 days (P.Y. 2023-24), total income ₹18 lakh (excluding foreign).
- Residential Status: Deemed resident.
- Tax Implications: RNOR status, taxed on Indian income only.
Scenario 2: PIO Visiting India
Facts: Ms. E, PIO, visits India for 130 days (P.Y. 2023-24), total income ₹12 lakh (excluding foreign).
- Residential Status: Non-resident (NR).
- Tax Implications: Taxed on income sourced in India.
Scenario 3: Returning Indian Citizen
Facts: Mr. F returns to India from UK, stays 200 days (P.Y. 2023-24), total income ₹22 lakh (excluding foreign).
- Residential Status: Resident and Ordinarily Resident (ROR).
- Tax Implications: Global income taxable in India.
Scenario 4: Foreign Citizen
Facts: Mr. G, US citizen, stays in India for 70 days (P.Y. 2023-24), total income ₹25 lakh (including ₹10 lakh foreign).
- Residential Status: Non-resident (NR).
- Tax Implications: Taxed on income sourced in India.
Scenario 5: Deemed Resident with High Income
Facts: Ms. H, Indian citizen, stays 110 days (P.Y. 2023-24), total income ₹30 lakh (excluding foreign).
- Residential Status: Deemed resident.
- Tax Implications: RNOR status, taxed on Indian income only.
5. Additional Propositions and Considerations
- Taxability of Different Income Sources: Variations in taxation ensure equitable treatment based on residential status, balancing global income versus income sourced in India.
- Reporting and Compliance Requirements: Stringent guidelines enhance transparency and tax compliance across all residential classifications.
- Stay in India Definition: Includes territorial waters up to 12 nautical miles, impacting days of stay calculation.
- Foreign Companies: Classification hinges on effective management location, influencing tax liabilities in India.
Conclusion
Understanding and accurately determining residential status under Sections 6 and 6A of the Income Tax Act is critical for effective tax planning, compliance, and international tax obligations. This guide provides clarity on the intricate provisions, ensuring individuals and professionals navigate tax implications accurately and transparently in the Indian fiscal landscape.
