This article - Residential Status – Income Tax Act 2021 would be pertinent for NRIs and would help them in understanding their Residential Status under Income Tax Act 2021. This article is written in FAQ style to address most common questions & issues.
When is an individual considered as a Resident in India under the Act?
ANSWER: An individual is considered as a Resident in India under the Act if :-
1. he stays in India for 182 days or more in a FY; or
2. he is India for 60* days or more in a FY and for 365 days or more in preceding 4 FYs.
*However, the condition of stay of 60 days is extended to 182 days for:
1. Member of the crew of an Indian Ship leaving India
2. Indian citizen leaving for purpose of employment
3. PIO or Citizen of India, being outside India, having come on a visit to India
When is an individual considered as a Non-resident (NR) in India under the Act?
ANSWER: If an individual does not satisfy any of the conditions for being a Resident in India as per prior question, he/she shall be considered as a NR in India.
When is an individual considered as a RNOR in India under the Act?
ANSWER: If an individual is a Resident of India for a particular FY (as explained in the above question)
if the said individual is –
1. a NR in India in 9 FY out of 10 preceding FYs; or
2. is in India for less than 729 days in preceding 7 FYs,
then he/she shall be considered as a RNOR in India provided he satisfy either of the above additional condition.
However, if both the aforesaid additional conditions are not satisfied, then he/she shall be considered as ROR in India.
Whether date of arrival in India and date of departure from India to foreign country must be included while calculating number of days of stay in India?
ANSWER: Generally, while calculating the number of days of stay in India, date of arrival and date of departure in India shall be treated as days of stay in India. Normally, dates stamped on Passport are considered as proof of departure from and arrival in India.
However, in case where an individual is a Citizen of India and a member of the crew of a Indian Ship, on a voyage having originated from any port in India, with destination being any port outside India or vice versa, then number of days of stay in India for the said individual, shall not include the period beginning on the date entered into the Continuous Discharge Certificate (CDC) in respect of joining the ship till date entered into the CDC in respect of signing off from the ship.
An Indian citizen leaves India for the first time on July 1, 2018 for taking up employment abroad. He/she does not return to India till March 31, 2019. What will be his/her residential status for the FY 2018-19?
ANSWER: The individual in the aforesaid case stays in India for 92 days during FY 2018-19.
As per provisions of the Act, in the following cases, only the condition of stay in India for less than 182 days is applicable for determining Residential Status to be NR:
1. In case of a person, who is citizen of India or PIO being outside India, who is on visit to India;
2. In case of a person, who is citizen of India, and leaves India for employment outside India or as a member of the crew of an Indian ship.
Accordingly, as his/her stay in India is 92 days which is less than 182 days, the residential status shall be a NR for the FY 2018-19 under the provisions of the Act.
It may be noted that the same conditions may not be applicable in case of family members of the person leaving India who has left India for the purpose of employment abroad.
Would the ANSWER: in the above example be different in case he/she was not an Indian citizen but a PIO?
ANSWER: As explained above, he/she is not an Indian citizen, so he/she would not be eligible to claim benefit of 182 days, even though he/she is a PIO. Hence, as his/her stay in India in the FY 2018-19 exceeded 60 days and for the 4 years preceding the FY 2018-19 exceeded 365 days, his/her residential status would be Resident of India.
A foreign citizen who is a PIO is settled overseas since 2004. She/he comes on a visit to India in FY 2018-19 on June 1, 2018 and leaves India on February 1, 2019. For the past 13 years, her/his days of stay in India were less than 180 days per year, however her/his total stay for the last 7 years in India was around 1000 days. What will be her/his residential status for FY 2018-19?
ANSWER: The individual in the aforesaid case stays in India for 246 days during FY 2018-19.
So, she/he shall be a Resident for FY 2018-19, as her/his stay in India for FY 2018-19 is more than 182 days. However, she/he shall not be ROR despite her/his stay for the past 7 years is exceeding 729 days, as she/he has been a NR for all the past 10 years by virtue of her/his stay in India being less than 182 days for the past 10 years. Accordingly, her/his residential status for FY 2018-19 shall be that of a RNOR.
Who is treated as a PIO as per the Act?
ANSWER: A person shall be deemed to be of Indian origin if he/she, or either of his/her parents or any of his/her grand-parents, was born in undivided India (i.e., India, Pakistan and Bangladesh before 1947).
During FY 2018-19, an Indian citizen left India for the purposes of employment overseas on August 1, 2018. He/she came on a visit to India on January 20, 2019 and left for the foreign country on February 1, 2019. What shall be his/her total number of days of stay in India? What would be his RS?
ANSWER: His/her stay in India for FY 2018-19 will be 136 days (April 1, 2018 to August 1, 2018 - 123 days and January 20, 2019 to February 1, 2019 - 13 days). The day of leaving India and returning to India both will be calculated as ‘stay in India’ for the purposes of counting number of days of stay in India. He would be a NR of India for FY 2018-19.
An Indian citizen is leaving India for the first time for taking-up employment overseas. What is the best time for his/her departure from India?
ANSWER: As it is his/her first year of leaving India for the purposes of employment, being an Indian citizen, he/she will become a resident in India only if his/her stay in India for the concerned FY is 182 days or more. Hence, he/she should leave India on or before September 28 to maintain status of NR for that FY. This is on the basis that he/she does not return to India for any visits personal/ official until the end of such FY.
If he/she fails to do so, he / she will qualify as ROR and by virtue of taxation rules will be taxed on global income for residents, subject to DTAA benefits. There will also be an obligation to report foreign assets in India. Thus, he/she may need to plan his/her departure and subsequent visit appropriately keeping in mind the tax provisions.
If an Indian citizen settled overseas wishes to return to India for good, what is the best time for her/him to do so?
ANSWER: On the basis that he/ she was a NR in the previous FYs, she/he should try to come back on or after February 1 (or February 2 in case of a leap year). However, if her/his stay in India in prior 4 previous FYs does not exceed 365 days, then she/he may return after October 2 (or October 3 in case of a leap year). In both the cases, she/he will continue to remain NR for that FY.
A Karta has an HUF comprising of himself, his wife, two sons and an unmarried daughter. The family is based in India, except for the Karta who resides overseas for his employment purposes. He visits India once in four months and takes the financial decision on his stay in India. Will the HUF be categorized as a resident?
ANSWER: An HUF will be categorized as NR only when it is wholly controlled and managed from outside India. Accordingly, because the HUF will be managed wholly in India, as the decisions are taken when Karta comes India, its residential status shall be Resident. Further, the HUF will not be considered ROR-Resident if its Karta has been a Resident for less than 2 FY out of 10 FY preceding that FY, or has not during the 7 FY preceding that FY been in India for more than or equal to 730 days. Accordingly, if the Karta is not ROR-Resident, the HUF shall not be ROR-Resident.
An Indian citizen stays in India for less than 182 days in FY 2018-19 and leaves India for the first time for the purpose of self-employment / business outside India. What will be his/her residential status for the FY 2018-19?
ANSWER: The expression ‘employment’ may also include business and self-employment.
So, in case of a person, who is citizen of India, and leaves India for self-employment or business outside India, then only the condition of stay in India for less than 182 days may be applicable for Residential Status to be NR.
Accordingly, he/she shall be a NR for the FY 2018-19 under the provisions of the Act, as his/her stay in India is less than 182 days for the said FY.
The same provisions may not apply for the family members accompanying such person.
An Indian citizen leaves outside India for the first time for the purpose of education (PHD) in FY 2018-19 in July 2018 What will be his/her residential status for the FY 2018-19?
ANSWER: In case of a person, who is citizen of India, and leaves India for employment outside India, then only the condition of stay in India for less than 182 days may be applicable for Residential Status to be NR.
However, in the above case, the individual is leaving for education purpose and not employment, so the condition of physical presence of 60 days during the FY and the more than 365 days during the immediately preceding FY is required to be evaluated.
As he is going outside India for first time and has been in India for more than 60 days during the FY 2018-19, he will qualify as ROR-Resident.