Taxability on residential status

Tax planning 8830 views 11 replies

Taxability of Income dependent on residential status of the Assessee

 





 

An individual is taxed based on his residential status in India. The residential status, in turn, is determined based on the physical stay of an individual in the relevant financial year (tax year) as well as preceding ten tax years. This is particularly relevant in respect of Indians working overseas or having income/income earning assets outside India.

 

 

Residential Status:- Broadly, and individual could be a resident or a non-resident in a particular tax year. Once an individual’s residential status is determined to be a resident, it is further examined whether he is an ordinary resident or not an ordinary resident in India.

 

Physical Stay- Basic test:- An individual is said to be a resident in India if he fulfils any of the following two conditions. First, if he is present in India for a period of 182 days or more in that tax year OR second, if he is present in India for a period of 60 days or more during the relevant tax year and at least 365 days or more during the four preceding tax years. In case an individual does not satisfy any of the above two basic conditions, then he is said to be a non-resident.

 

Concession for NRIs :- In the case of a citizen of India, who leaves India in any tax year for the purposes of employment outside India, the above said period of 60 days is substituted by 182 days. This is particularly beneficial for individuals going and working overseas in a particular tax year. Similarly, in the case of a citizen of India or a person of Indian origin who being outside India, comes on a visit to India in any tax year, the above said period of 60 days is substituted by 182 days. This is helpful for non-resident Indians who visit India for family or other purposes.

 

Not Ordinary Resident:- In the case of an individual who is a resident, it is to be further determined whether he is an ordinary resident or not an ordinary resident. A person is said to be not ordinary resident if he satisfies any of the following additional conditions. First, if he has been a non-resident in India in nine out of the 10 previous years preceding the relevant tax year OR second, if he has been in India for 729 days or less in the seven tax years preceding the relevant tax year. If none of the above two conditions are satisfied, then a person is said to be an ordinary resident.

 

Tax Incidence:- An individual who is an ordinary resident is taxable on his worldwide income, irrespective of the place of receipt or accrual of such income. Thus, broadly speaking, rental income, business income, interest, dividends, capital gains etc. earned / received overseas would be taxable in India.

In the case of a person who is not Ordinarily Resident, any income other than income accruing or arising outside India is taxable in India. However, in the case of such income that accrues or arises outside India is derived from a business controlled in or a professional set-up in India, then the same would also be taxable in India.

In case an individual is a non-resident, then only income received / deemed to be received or accrued / deemed to be accrued in India is taxable in India. Thus, broadly speaking, his overseas income would not be taxable in India, provided it is first received outside India.

 

DTAA:- It is also important to examine the conditions laid out under the respective Double Taxation Avoidance Agreements (DTAAs), also know as treaties, which India has entered into with other countries to finally determine the taxability or otherwise for any particular source of income. Generally, the DTAAs provide for taxability of income in one country. Else, if the income is subject to tax in both the countries, then credit could be claimed for tax paid in the other country, subject to the prescribed conditions.

 

Replies (11)

Dear Dhiraj bhai.........Nice post........Thank U very much..........

NICE

dear dhiraj sir,

while quotin d 2nd additional condition, u said

""second, if he has been in India for 729 days or less in the seven tax years preceding the relevant tax year.""

but .. i fear dat dis condition requires AT LEAST 729 days..not 729 days or less.

pls check 

Nice & helpfull Post

helpful one

Nice & helpfull Post

easy 2  understnad ,,,,nice one

I am a partner in a partnerhip firm in India. For the PY 2010-11 I was in India for 166 days and in 4 yrs precedeeing to PY 2010-11 I was in India for morethan 365 days. I am an indian citizen. Shall the Speial Cases for Citizen or Indian origin applicable to me or not? Plz reply the same its urgent  

If a person who is non-resident providing services outside india(Korea) and payment in the form of salary is also received outside India (Korea) but salary is remitted from India then TDS  on his salary income is deducted or not ?

Please give answer to my question.

Thanks in advance.

 

 

 

a person was posted in USA during 9th april to  15th june , he has paid tax on salary recd in USA, he has paid tax on salary there in USA, now please tel me whether  he will have to include the salay of USA  while filing his return in india and if yes then how he will take credit of tax  paid in USA

Hi

One doubt here please.Which of the following Additional Conditions are correct?

i) He has been resident in India in at least 2 out of 10 previous years immediately preceding the relevant previous year. ii) He has been in India for a period of 730 days or more during 7 years immediately preceeding the relevant previous year.

                                             OR

i). The person is non-resident, as per the above provisions, for at least 9 out of 10 previous years prior to the previous year under consideration.ii)The person’s stay in India during the 7 previous year prior to the previous year under consideration should be 729 days or less.

PLEASE HELP.Very confused

 


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