The concept of residential status in Income Tax is very crucial for determination of the applicability of taxation of income in India. The applicability of residential status is not just on individuals but also on companies, firms, HUFs, AOPs etc. Therefore, the implication of the residential status in Income Tax has an impact on all kinds of assessees. Let us understand how to determine the residential status –
Residential Status Meaning
The residential status should not be confused with the citizenship of the assessee. There are certain pre-defined conditions that have to be checked for the determination of the residential status of the assessee. Even a foreign citizenship assessee can fall under the category of resident of India and sometimes even an Indian citizen does not fall under the category of resident of India. Thus, it is pertinent to remember that the residential status of an assessee has to be studied carefully as a separate concept and is not decided by citizenship.
Importance of Residential Status in Income Tax
The residential status in Income Tax determines the taxability of income of the assessees. This needs to be determined before proceeding with the liability and computation of tax of the assessee. Therefore, in a way, it is the first checkpoint that must be covered before moving ahead to the tax determination of an assessee. Moreover, the residential status can change every financial year for the assessee and thus has to be done annually for correct determination of tax liability.
Section 6 – Residential Status
As per Section 6, the residential status in Income Tax is classified as under –
- Resident and Ordinarily Resident (ROR)
- Resident and Not Ordinarily Resident (RNOR)
- Non-resident.
Tax Implications for ROR, RNOR and NR
The categories of the residential status in Income Tax broadly determine the tax implications of the income of the assessees. The taxation in India for each of these categories is explained in the table below –
| Income | ROR | RNOR | NR |
| Income received or deemed to be received in India | Taxable in India | Taxable in India | Taxable in India |
| Income accrued or deemed to be accrued in India | Taxable in India | Taxable in India | Taxable in India |
| Income accrued or received or arising outside India from a business controlled from India or a professional setup in India | Taxable in India | Taxable in India | Not Taxable in India |
| Income accrued or received or arising from outside India | Taxable in India | Not Taxable in India | Not Taxable in India |
Residential Status of an Individual
Before understanding whether the assessee is a ROR, RNOR or NR, let us understand who is considered a resident as per Section 6 of the Income Tax Act.
As per Section 6(1), an assessee would qualify as a resident of India if he satisfies one of the following 2 conditions –
- Stay in India for a year is 182 days or more in the previous year, or
- Stay in India for the immediately 4 preceding years is 365 days or more and 60 days or more in the previous year.
However, an exception to the above rules is that if an Indian citizen joins as a member of an Indian ship crew and leaves India or for the purpose of employment during the previous year leaves India, he will be treated as a resident only if he stays in India for 182 days or more i.e. the second condition will not be applicable on him.
Deemed Resident of India
Section 6(1A) was inserted by the Finance Act, 2020 with effect from AY 2021-22 introducing the concept of Deemed Resident of India. As per Section 6(1A), if an individual who is a citizen of India, has a total income, other than the income of foreign sources, exceeding Rs. 15 lacs during the previous financial year shall be deemed to be a resident of India in that previous year if he is not liable to taxation in any other country by reason of his domicile or reference or any other reason. As per Section 6(6), any person satisfying the condition as per Section 6(1A), will be treated a resident but not ordinarily resident of India in that previous year.
However, any individual that satisfies the conditions as per Section 6, will not be considered u/s 6(1A).
Resident and Ordinarily Resident (ROR)
If an individual satisfies the conditions as per Section 6(1) of the Income Tax Act, the assessee will be deemed to be a resident of India.
As per Section 6(6), the residential status in Income Tax of an individual will be determined as “Resident and Ordinarily Resident” if he fulfills both the following 2 conditions –
- He was a resident of India in 2 out of the last 10 immediately preceding previous years, and,
- He has stayed in India for atleast 730 days in the last 7 immediately preceding previous years.
Resident and Not Ordinarily Resident (RNOR)
As per Section 6(6) of the Income Tax Act, the residential status of an individual will be “Resident and Not Ordinarily Resident” in the following cases –
- If an individual is a deemed resident of India as explained above, i.e., if an individual satisfies the conditions as per Section 6(1A),
- If an individual fails to satisfy the conditions of being an ROR,
- If an individual is a deemed resident of India due to any reasons, he will by default by an RNOR.
Non Resident (NR)
An individual will qualify as a Non-Resident (NR) if they satisfy any of the following conditions –
- Stay in India is less than 181 days during the previous year,
- Stay in India for a maximum of 60 days during the previous year,
- Stay in India for more than 60 days in a financial year but their total stay in the previous four financial years is less than 365 days.
Residential Status in Income Tax of an HUF
A Hindu Undivided Family (HUF) is considered resident in India if its control and management are situated in India, otherwise, it will be classified as non-resident.
If the Karta (manager) of a resident HUF meets the following criteria, the HUF will be treated as “resident and ordinarily resident.” If not, it will be regarded as “resident but not ordinarily resident”-
- The Karta has been a resident in at least 2 out of the 10 preceding years,
- The total stay of the Karta in India during the last 7 years is 730 days or more.
Residential Status in Income Tax of a Company
A company will be regarded as resident in India if it meets one of the following conditions –
- It is incorporated in India, or,
- The place of effective management (POEM) during the relevant previous year is located in India.
The place of effective management refers to the location where key management and commercial decisions essential for running the business or entity are made.
Residential Status of Firms, LLPs, AOPs
The residential status of firms LLPs, AOPs, Local Authorities, AJPs, is based on where their management and control are exercised. If these functions are directed from within India, the entity will be treated as resident, if they are directed from outside India, it will be treated as non-resident.
FAQs
Q1. What is Residential Status of Income Tax?
A1. The residential status in Income Tax determines the taxability of income of the assessees. This needs to be determined before proceeding with the liability and computation of tax of the assessee. Therefore, in a way, it is the first checkpoint that must be covered before moving ahead to the tax determination of an assessee.
Q2. What is residential status in Form 12B?
A2. Form 12B is a tax-related form in India that an employee submits when joining a new employer in the middle of a financial year. In Form 12B, residential status refers to whether an individual is classified as a Resident or Non-Resident in India for income tax purposes during the relevant financial year. This classification is determined based on the number of days the person has stayed in India, as per the conditions laid out in the Income Tax Act.
About the Author This article is written by FCA Eshita Krishna , an experienced Chartered Accountant with advanced ICAI certifications in DISA, Anti-Money Laundering, Real Estate Laws, and Forex & Treasury Management. With strong expertise in direct and indirect tax, audit, risk advisory, financial planning, and financial management, she delivers accurate, experience-backed financial insights to readers.