How to Determine the Residential Status of a HUF?

Residential Status is to be determined for the taxability of income of a person. This term is coined under the Income Tax Act and has nothing to do with the nationality or citizenship of a person. A person with American citizenship can still be a resident of India for Income Tax purposes. The residential status of the assessee is to be determined each year with reference to the 'previous year'. A person may be a resident in one previous year and non-resident in other. Residential status of assessment year is not important.

1. Resident

HUF is considered to be a resident in every case where the control & management of its affairs is situated wholly or partially in India. It means that a HUF is a Resident except in the case where the control & management of its affairs is situated wholly outside India.

Now let us first understand what is 'control and management of affairs'. The control and management of affairs refers to the controlling and directing power, the head and the brain. It means that decision-making power for vital affairs is situated in India. The control and management means de-facto control and management and not merely the right to control or manage.

Resident = Control and management of affairs in India (wholly or partially)

HUF can be further classified as ordinary resident and non resident as follows:

(a) Ordinary Resident

After fulfilling the above condition, a HUF becomes resident of India but to become an ordinary resident of India the Karta has to fulfill BOTH the following two conditions :

(i) He has been resident of India in at least 2 previous years out of 10 previous years immediately prior to the previous year in question. AND

(ii) He has stayed in India for at least 730 days in 7 previous years immediately preceeding the previous year in question.

Ordinary Resident = Control and management of affairs in India (wholly or partially) + Fulfilment of both additional conditions by karta

(b) Not Ordinarily Resident

A HUF will be considered as Not Ordinarily Resident of India if:

(i) Karta has not been resident in India in at least 2 previous years out of ten previous years preceding the relevant accounting year; OR

(ii) Karta has not stayed in India for at least 730 days in 7 previous years immediately preceeding the previous year in question.

These two conditions have to be applied in case of Karta of such HUF. In case the Karta has been succeeded by some other man, for computing the presence in India, the length of presence in India of each succeeding Karta will be added. So we can conclude that the residential status of the members of HUF other than Karta is of immaterial consideration. Not ordinarily resident status of HUF is directly linked with the status of its Karta. So if Karta taken as an individual is not ordinarily resident then the HUF will also be considered as not ordinarily resident.

Not Ordinarily Resident = Control and management of affairs + Non-fulfilment of anyone or both the conditions

2. Non-Resident

If the control & management of its affairs of a HUF is situated wholly outside India, it would be regarded as 'Non Resident' during the relevant previous year for all purposes of this Act.