Know Your Residential Status: Non Resident or Resident

Residential Status

Hey, how do you know your residential status? 

For the purpose of Income-tax Law, an individual may have any one of the following residential status:

(1) Resident and ordinarily resident in India

(2) Resident but not ordinarily resident in India

(3) Non-resident

Every year the residential status of the taxpayer is to be determined by applying the provisions of the Income-tax Law designed in this regard (discussed later) and, hence, it may so happen that in one year the individual would be a resident and ordinarily resident and in the next year he may become non-resident or resident but not ordinarily resident and again in the next year his status may change or may remain same.

To determine the residential status of an individual, the first step is to ascertain whether he is resident or non-resident. If he turns to be a resident, then the next step is to ascertain whether he is resident and ordinarily resident or is a resident but not ordinarily resident.

Step 1 given below will ascertain whether the individual is resident or non-resident; and step 2 will ascertain whether he is ordinarily resident or not ordinarily resident. Step 2 is to be performed only if the individual turns to be a resident in India.

 

Step 1: Determining whether resident or non-resident

Under the Income-tax Law, an individual will be treated as a resident in India for a year if he satisfies any of the following conditions (i.e. may satisfy any one or may satisfy both the conditions):

1) He is in India for a period of 182 days or more in that year; or

2) He is in India for a period of 60 days or more in the year and for a period of 365 days or more in immediately preceding 4 years.

If an individual does not satisfy any of the above conditions then he will be treated as non-resident in India.

 

Note : Condition given in (2) above will not apply to an Indian citizen leaving India for the purpose of employment or to an Indian citizen leaving India as a member of crew of Indian ship or to an Indian citizen/person of Indian origin coming on a visit to India. A person is said to be of Indian origin, if he or any of his parents or grand-parents (maternal or paternal) were born in undivided India. In other words, these persons will be resident in India only if they are in India for a period of 182 days or more during the relevant year.

 

Step 2: Determining whether resident and ordinarily resident or resident but not ordinarily resident

A resident individual will be treated as resident and ordinarily resident in India during the year if he satisfies both the following conditions:

1) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.

2) His stay in India is for 730 days or more during 7 years immediately preceding the relevant year.

A resident individual who does not satisfy any of the aforesaid conditions or satisfies only one of the aforesaid conditions will be treated as resident but not ordinarily resident.

In short, following test will determine the residential status of an individual:

  1. If the individual satisfies any one or both the conditions specified at step 1 and satisfies both the conditions specified at step 2, then he will become resident and ordinarily resident in India.
  2. If the individual satisfies any one or both the conditions specified at step 1 and satisfies none or one condition specified at step 2, then he will become resident but not ordinarily resident in India.
  3. If the individual satisfies none of the conditions specified at step one, then he will become non-resident.

You are considered an Indian resident for a financial year:

  • When you are in India for at least 6 months (182 days) during the financial year

OR

  • You are in India for 2 months (60 days) for the year in the previous year and have lived for 365 days in the last four years.

If you are an Indian citizen working abroad or a member of a crew on an Indian ship, only the first condition is applicable on you. That means you are a resident when you spend at least 182 days in India. The same is applicable to a Person of Indian Origin (PIO) who is on a visit to India. The second condition is not applicable to these individuals.

A PIO is a person whose parents or any of his grandparents were born in undivided India.

You are an NRI if you do not meet any of these conditions.

Know more about NRI taxation here.

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