Taxation for Stateless Individuals - Indian Citizens 2025

Section 6(1A) of the Indian Income Tax Act, 1961 was introduced by the Finance Act, 2020, and is applicable from the Assessment Year 2021-22. It addresses the issue of stateless individuals (those not liable to tax in any country) and ensures that Indian citizens with significant income in India are taxed appropriately. Below is a detailed explanation of Section 6(1A) along with examples:

Key Provisions of Section 6(1A) of the Indian Income Tax Act, 1961

1. Applicability:

   • Applies to Indian citizens only (not to Persons of Indian Origin or foreign citizens).

   • Does not apply if the individual is already a resident under Section 6(1).

2. Conditions:

   • The individual must have a total income (excluding income from foreign sources) exceeding ₹15 lakh during the previous year.

   • The individual must not be liable to tax in any other country or territory due to domicile, residence, or similar criteria.

3. Outcome:

   • If the above conditions are met, the individual is deemed to be a resident of India for that previous year, even if they have not stayed in India for a single day.

   • Such individuals are classified as Resident but Not Ordinarily Resident (RNOR) under Section 6(6).

4. Exclusion:

   • Income from foreign sources (income accruing or arising outside India, except from a business controlled or profession set up in India) is excluded from the ₹15 lakh threshold.

Examples to Illustrate Section 6(1A) of the Indian Income Tax Act, 1961

Example 1: Deemed Resident Due to Statelessness

• Scenario: Mr. A, an Indian citizen, lives in the UAE (a tax-free country) and earns the following income in the previous year:

  • Income from India: ₹10 lakh (rental income).

  • Income from UAE: ₹30 lakh (salary).

  • Total income excluding foreign sources: ₹10 lakh.

• Analysis:

  • Since Mr. A's income from India (₹10 lakh) does not exceed ₹15 lakh, Section 6(1A) does not apply.

  • He remains a Non-Resident (NR) for tax purposes.

• Taxable Income in India: Only ₹10 lakh (income from India) 26.

Example 2: Deemed Resident with Income Exceeding ₹15 Lakh

• Scenario: Mr. B, an Indian citizen, lives in Bahrain (a tax-free country) and earns the following income in the previous year:

  • Income from India: ₹20 lakh (business income).

  • Income from Bahrain: ₹40 lakh (salary).

  • Total income excluding foreign sources: ₹20 lakh.

• Analysis:

  • Mr. B's income from India (₹20 lakh) exceeds ₹15 lakh, and he is not liable to tax in Bahrain.

  • He is deemed a resident under Section 6(1A) and classified as RNOR.

• Taxable Income in India:

  • Income from India: ₹20 lakh.

  • Foreign income is not taxable unless derived from a business controlled or profession set up in India 210.

Example 3: Deemed Resident with Foreign Business Income

• Scenario: Mr. C, an Indian citizen, lives in Monaco (a tax-free country) and earns the following income in the previous year:

  • Income from India: ₹18 lakh (rental income).

  • Income from Monaco: ₹50 lakh (business controlled from India).

  • Total income excluding foreign sources: ₹18 lakh.

• Analysis:

  • Mr. C's income from India (₹18 lakh) exceeds ₹15 lakh, and he is not liable to tax in Monaco.

  • He is deemed a resident under Section 6(1A) and classified as RNOR.

• Taxable Income in India:

  • Income from India: ₹18 lakh.

  • Foreign income from the business controlled in India: ₹50 lakh (taxable in India) 610.

Key Takeaways

1. Purpose: Section 6(1A) targets stateless individuals and ensures that Indian citizens with significant Indian income are taxed appropriately.

2. Threshold: The ₹15 lakh threshold applies only to income other than foreign sources.

3. Taxability: Foreign income is not taxable unless derived from a business controlled or profession set up in India.

4. RNOR Status: Individuals deemed residents under Section 6(1A) are classified as RNOR, meaning they are taxed only on Indian income and foreign income with an Indian nexus 2610.

Conclusion - Practical Implications

• For NRIs: If you are an Indian citizen working in a tax-free country (e.g., UAE, Bahrain) and your Indian income exceeds ₹15 lakh, you may be deemed a resident under Section 6(1A) of the Indian Income Tax Act, 1961.

• Tax Planning: Ensure compliance with Indian tax laws and consider the implications of foreign income if it has an Indian nexus.

• Documentation: Obtain a Tax Residency Certificate (TRC) from your country of residence to prove tax liability (if applicable).

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