- October 17, 2019
- Posted by: Numbro
- Category: International Tax
Residential Status of NRI
The need to determine the residential status of a person, that is be it Individual, Karta of Hindu Undivided Family is very essential, as based on the residential status the person’s liability to pay tax is determined.
As far as an individual is considered it is more important to determine his residential status as his assessment is based on his physical presence for every financial year separately irrespective of his nationality.
An individual’s residential status has been defined as per Income tax Act and Foreign Exchange Management Act in different ways. It is important for a person to know the residential status under both the statutes to have a correct understanding over the levy of tax on their income accurately to avoid double taxation or avoid interest and penalties for any non-disclosure and misrepresentation of incomes.
Residential Status as per Income Tax Act
An individual may be:
- Resident and Ordinary Resident in India.
- Inhabitant however not conventionally occupant in India, or
- Non-resident in India
For the understanding of residential status under Income Tax Act, an individual to be called as Non-Resident Indian, one should know basic conditions to be called as a resident under section 6(1), of the Income Tax Act, 1961. A person is said to be Resident in India if, the individual is present in India, for a period of,
- 182 days or more during the earlier year. OR
- 60 days or more during the previous year AND has been in India for 365 days or more during the preceding 4 years immediately prior to the current previous year.
Therefore, based on the above context, Non-Resident means a person who is not a Resident. No additional conditions are required to be checked.
For example, Mr. X, left India for the first time on 10.05.2015. During the financial year 2017-18, he came to India once on May 25 for a period of 65 days. As he doesn’t fulfill any of the essential conditions under segment 6(1), he is therefore, non-resident in India for the assessment year 2018-2019.
A citizen of India, leaves India in any financial year and his period of stay here is less than 182 days then he is outright said to be a Non-Resident in the following two cases,
- For purpose of employment.
- As a crew of Indian ship.
Residential Status as per Foreign Exchange Act
Further, a person to be recognized as a Non-Resident Indian under the Foreign Exchange Act, he should be a citizen on India but goes out of India during the previous year is said to be a Non-Resident in the following cases,
- Stays in India less than 182 days.
- Stays abroad for employment or carrying on business or on vocation or any other purpose where period of stay cannot be determined certainly.
- Deputation of Government servants abroad, including Indian Diplomatic Missions abroad.
- Working abroad on assignment with foreign government regional/international agencies like UNO, WHO, World Bank etc.
Concept of Stay
Additionally, for understanding the concept of Stay in India, the following clarifications have been provided by the Act:
- The stay can be anywhere in India and need not be just at one place.
- The purpose of visit to India is immaterial.
- For purpose of computation of 182 days, continuous stay is not important but aggregate number of days in the whole year is to be considered.
- Person present in Indian territorial waters that is upto 12 nautical miles is also considered as a stay in India.
- For computation of number of days, date of arrival as well as date of departure are also counted and included.
It can be said that, based on the above understanding, citizenship of a person is different from residential status of an individual and residential status is the essence for any assessment of an individual for every financial year.
As far as determination of residential status is done aptly, one can avoid any kind misconception about levy of their incomes accrued in India.