Residential Status for Income Tax

Important Keyword: Income Source, Income Tax, Resident Status.

Residential Status for Income Tax

Determining the residential status of a taxpayer is pivotal in Income Tax assessment, as it directly influences their tax liabilities. It’s important to note that residential status isn’t contingent upon citizenship. A person may hold Indian citizenship yet not qualify as a resident for tax purposes in a given financial year, thereby affecting their tax obligations.

Types of Residential Statuses as per Income Tax Act

1. Ordinary Resident of India
2. Resident but Not Ordinary Resident of India (RNOR)
3. Non-Resident of India (NRI)

The determination of residential status for Income Tax purposes involves specific conditions that individuals must meet. Here are the primary conditions:

1. 182 Days Rule: An individual is considered a resident of India if they have resided in the country for 182 days or more during the financial year.
2. 60/120 Days Rule: Alternatively, if the individual has resided in India for at least 60 days during the financial year and for at least 365 days in the preceding four years, they qualify as a resident. However, this 60-day threshold is extended to 120 days if the individual’s total income, excluding income from foreign sources, exceeds INR 15 lakhs.

Exceptions to the 60-day rule:

• For Indian citizens or persons of Indian origin, the 60-day requirement is replaced with 182 days.
• Crew members of Indian ships and Indian citizens leaving India for employment purposes abroad also follow the 182-day rule.

Failure to meet any of these conditions renders an individual a Non-Resident Indian (NRI).

Additional conditions for Ordinary Resident status:

1. Two-Year Rule: The individual must have resided in India for at least 2 years out of the previous 10 financial years.
2. 730 Days Rule: They should have spent at least 730 days in India during the seven years preceding the current financial year.

If an individual meets any one of the primary conditions and fulfills both additional conditions, they are classified as an Ordinary Resident of India. Conversely, if they fail to meet these criteria, they become a Not Ordinary Resident of India (RNOR).

Sources of Income and its taxability

Source of Income	Ordinary Resident	Not Ordinary Resident	Non-Resident
Income earned in India.	Taxable in India	Taxable in India	Taxable in India
Any income received in India.	Taxable in India	Taxable in India	Taxable in India
Income earned outside India but received in India.	Taxable in India	Taxable in India	Taxable in India
Income earned and received outside India.	Taxable in India	Taxable in India	Not Taxable in India
Any income earned outside India for a business/ profession controlled in/from India.	Taxable in India	Taxable in India	Not Taxable in India
Income earned outside India from any source other than business/ profession controlled from India.	Taxable in India	Not Taxable in India	Not Taxable in India

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Official Income Tax Return filing website: https://incometaxindia.gov.in/