Residential status income tax: Applicability, features and benefits

Residential status refers to the status of a person according to the time period for which the person has been in India for the last five years. The taxpayer’s income tax burden depends on the fiscal year and their immigration status before the fiscal year.

See also: Residence certificate: What does it mean and how to get one online?

 

Residential status income tax: Background

Status of residence is a term used in the income tax law and does not depend on nationality or place of residence. An Indian citizen can be a non-resident for income tax purposes. In contrast, an American who is a US citizen can be a resident of India for income tax purposes. A person’s residency status depends on their territorial ties to the country, i.e., the number of days physically residing in India.

The status of residence for different groups of people is determined differently. The position of place of the person to be assessed must also be decided every year based on the “previous year”. The status of residence of the person under assessment may change from year to year. The quality of the previous year is decisive, not the year of evaluation.

 

Residential status Income Tax: Is it applicable in 2023?

According to the current act, a person is considered to be a resident of India for the purposes of a financial year if they spend at least 182 days there or they spend at least 365 days there over the course of the four years that immediately precede it and at least 60 days there during that year.

 

Residential status Income Tax: Features

Some of the significant features of Residential status income tax are explained below.

 

Who has the residential status under the Income Tax act?

The length of the taxpayer’s stay in India defines the individual’s residential status, computed separately for each year. An individual is considered to be a resident of India for the current fiscal year if they meet any one of these criteria. The circumstances are:

• They spend at least 182 days in India within that fiscal year.

• They spent at least 60 days in India during that fiscal year and 365 days there throughout the four fiscal years before the applicable fiscal year.

• The person is considered a resident of India if any of the requirements mentioned above are met.

• But if none of the criteria is fulfilled, then that person is said to be a Non-resident Indian or NRI.

 

What are the different types of residential status?

The Income Tax Act divides a person’s residency status between India into three categories based on the time they have resided in India. A person’s residency status includes the current fiscal year and previous residency years.

There are the following classifications of the status of residence for individuals.

• Resident (ROR)
• Resident but not general resident (RNOR)
• Non-resident (NR)

 

01. Residents and general residents

An individual is considered to be a resident of India under the Income Tax Act if they meet the following conditions:

• If they have been in India for at least 182 days in any financial year, if they have been in India for at least 60 days in any financial year, and if they have been in India for at least 365 days for their four immediately preceding the previous year. It is annual and is lower than general residents for income tax purposes.

• According to Section 6(6) of the Income Tax Act, 1961, there are two criteria by which a person is considered to be a resident and an Ordinary Resident (ROR) of India if you have stayed in India for 730 days or more in the seven years from the previous year.
• If they have lived in India for at least two of their ten fiscal years before the current year.

 

02. Resident but not an ordinary resident

An assessee will be considered their RNOR if they meet the following basic requirements:

• Suppose you reside in India for at least 182 days in any financial year. Or if in any financial year, they are in India for 60 days, and in the last four financial years, they are in India for more than 365 days.

On the other hand, an assessee is classified as a resident but not usually resident (RNOR) if it meets any of the following primary conditions:

• If they have been in India for more than 730 days in the previous financial year.
• If they resided in India for more than 2 out of 10 days during the last financial year.

 

03. Non-resident

You are eligible for Non-Resident (NR) status if you meet the following criteria:

• If you stay in India for less than 181 days in a fiscal year.
• If the number of days in India within the fiscal year is 60 days or less.
• If you have been in India for 60 days or more in any financial year but have not been in India for 365 days or more in the last four financial years.

 

How is the status of residence calculated?

First, whether the person falls under the significant status exception category is determined. Next, attention is paid to whether the basic requirement of 182 days or more is met. You will be treated as a resident or non-resident, as applicable.

 

How is the status of residence determined?

The Indian Income Tax Act classifies taxable persons as follows:

• Resident
• Residents without Ordinary Homes (RNOR)
• Non-resident (NR)

Taxation is different for each category of taxpayer mentioned above. Before we get into tax liability, let us first understand how a taxpayer becomes a resident, RNOR, or NR.

 

What are income tax limitations? 

You cannot carry losses forward if the adjuster attempts to evade tax. If you file an income tax return late, you must pay a fine of Rs. 5,000. Tax officials have the power to waive penalties imposed.

 

What are the recent changes in the residential status act? 

The condition of stay in India of ’60 days’ is replaced by ‘182 days’ for specific categories of people (such as Indian citizens).

 

Who can claim under residence status income tax? 

The 2020 Finance Act introduced a new Section 6(1A) of the Income Tax Act of 1961. The new regulations stipulate that an Indian citizen will only be considered a resident of India if their gross income, excluding income from abroad, exceeds Rs 1,50,000 in the previous year.

 

How does immigration affect tax liability?

In summary, individual taxpayers, residents and usual residents in India pay taxes on their Indian and foreign income. Residents and non-residents pay tax on Indian income and their two premium foreign payments. Non-residents pay tax only on their Indian income.

 

Residential status income tax: Benefits

The residency status determines a person’s tax liability in India under the Indian Income Tax Law for a particular tax year.

Someone can be an Indian citizen but only a non-resident for specific years. Similarly, a foreign citizen can become a resident of India for income tax purposes in any given year. Also, it should be noted that the status of residence based on income tax differs depending on the type of person, such as a working person, determined in different ways, such as individual, legal entity, or company.

 

FAQs

What is your immigration status if you live in India?

If you have lived in India for at least 182 days in the relevant financial year, you are a resident of India. You are also a resident if you stay for at least 60 days each fiscal year.

Is residence status relevant for determining a taxpayer's tax liability?

Yes, residency status is relevant in determining a taxpayer's tax liability. Taxation on a taxpayer's income depends on the taxpayer's residency status under the Income Tax Act and the nature of the revenue it generates.

Will a person with Indian citizenship automatically be taxed as a resident of India?

No, a taxpayer is not considered a resident simply by holding Indian citizenship. For tax purposes, they must determine his residence status under the Income Tax Act 1961. Taxation is different for each type of status of residence. Therefore, it is essential to know your level of home before filing your income tax return.