Determination of Residential Status is the key to determine the tax liability. There has been an amendment to Section 6 of the Income Tax Act, 1960 which deals with Residential Status as per Finance Act,2020. As per the Finance Act, 2020, there has been the following changes in the Residential Status-
Criteria for the number of days
Earlier a person will be resident if he satisfies any one of the following two conditions –
- If he is in India for 182 days or more during the previous year OR
- If he is in India for 60 days or more in the previous year and 365 days or more during 4 previous years preceding that year.
However now, as per the amendment in clause (1) Explanation 1 in clause (b) –
A person being a citizen of India, or a person of Indian origin who, being outside India comes on a visit to India in any previous year, then in his case 60 days in above provision needs to be read as 120 days.
Further, the application of explanation 1 clause (b) is restricted only to that Indian citizen or a person of Indian origin whose total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year.
Introduction of Deemed Residency
Prior Amendment, India had always followed a physical presence test to determine the tax residency of individuals in India. With the introduction of the concept of Deemed Residency under section by inserting a new clause (1A), this has changed. An individual shall be a deemed resident if all the following conditions are satisfied-
- The individual must be an Indian Citizen or a person of Indian Origin
- Having income from Indian Sources exceeding Rs. 15 Lakh
- The individual is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.
Resident but Not Ordinary Resident
A person would be considered as Resident but Not Ordinary Resident if any of the following conditions have been satisfied-
- Individual or Karta of HUF has been a non-resident in India for at least 9 years out of 10 years preceding the previous year; OR
- Individual or Karta of HUF has been in India for 729 days or less during the period of 7 years preceding the previous year OR
- An Indian Citizen or a person of Indian origin whose total income (other than income from foreign sources) exceeds Rs. 15 lakhs during the previous year and who has been in India for a period of 120 days or more but less than 182 days; OR
- An Indian Citizen who is deemed to be resident in India as per new Section 6(1A).
The clause (c) and (d) above have been newly inserted.
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