RESIDENCE AND SCOPE OF TOTAL INCOME

Scope of Total Income and Tax incidence on an assessee depends on his residential status. For instance,
whether an income earned by a person in India or outside India, is taxable or not in India depends upon the
residential status of the person in India. Similarly, whether an income earned by a foreign national in India or
outside India, is taxable or not in India depends on the residential status of the individual in India, rather than
on his citizenship. Therefore, the determination of the residential status of a person is very significant in order
to find out his tax liability.

CONCEPT OF RESIDENTIAL STATUS

The following norms one has to keep in mind while deciding the residential status of an assessee;
1]. Different Taxable Entities All taxable entities are divided in the following categories for the purpose of
determining residential status;
i]. An individual;
ii]. A Hindu undivided family;
iii]. A firm or an association of persons;
iv]. A company; and
v]. Every other person.
2]. Different Residential Status An assessee is either;
i]. Resident in India, or
ii]. Non-resident in India.
However, a resident individual or a Hindu undivided family can be;
(a) Resident and Ordinarily Resident, or
(b) Resident but Not Ordinarily Resident.
Therefore, an Individual and a Hindu Undivided Family can either be; (i) resident and ordinarily resident in
India; or (ii) resident but not ordinarily resident in India; or (iii) non-resident in India.
All other assessees (viz., a Firm, an Association of Persons, a Company and Every Other Person) can either
be; (i) resident in India; or (ii) non-resident in India.
3]. Residential status for each Previous Year Residential status of an assessee is to be determined in respect
of each previous year as it may vary from previous year to previous year.
4]. Different residential status for different Assessment Years An assessee may enjoy different residential
status for different assessment years. For instance, an individual who has been regularly assessed as
resident and ordinarily resident has to be treated as non-resident in a particular assessment year if he
satisfies none of the conditions of section 6(1).
5]. Resident in India and Abroad It is not necessary that a person, who is resident in India, cannot become
resident in any other country for the same assessment year. A person may be resident in two (or more)
countries at the same time. It is, therefore, not necessary that a person who is resident in India will be nonresident in all other countries for the same assessment year.

CA Pinky Agarwal

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RESIDENTIAL STATUS OF AN INDIVIDUAL [SECTION 6(1)]

Resident & Ordinarily Resident
(ROR)
Must satisfy at least one of the
basic conditions & both the
additional conditions

Resident but Not Ordinarily

Resident (RNOR)
Must satisfy at least one of basic
conditions & satisfy one or none of
the additional conditions

Non Resident (NR)

Not satisfy any of the basic
conditions

BASIC CONDITIONS AT A GLANCE

(a) He is in India in the previous year for a period of 182 days or more;
(b) He is in India for a period of 60 days or more during the previous year and 365 days or more during 4
years immediately preceding the previous year.
However, in the following two cases, an individual needs to be present in India for a minimum of 182 days or
more in order to become resident in India
i]. An Indian citizen who leaves India during the previous year for the purpose of taking employment outside
India or an Indian citizen leaving India during the previous year as a member of the crew of an Indian ship.
ii]. An Indian citizen or a person of Indian origin who comes on visit to India during the previous year (a person
is said to be of Indian origin if either he or any of his parents or any of his grand parents was born in
undivided India).

ADDITIONAL CONDITIONS [SECTION 6(6)]

i]. He has been resident in India in at least 2 out of 10 previous years [according to basic condition noted
above] immediately preceding the relevant previous year.
ii]. He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant
previous year.
It will be worthwhile to note the following propositions;
It is not essential that the stay should be at the same place. It is equally not necessary that the stay should

be continuous. Similarly, the place of stay or the purpose of stay is also not material.
Where a person is in India only for a part of a day, the calculation of physical presence in India in respect of

such broken period should be made on an hourly basis. A total of 24 hours of stay spread over a number of
days is to be counted as being equivalent to the stay of one day.
If, however, data is not available to calculate the period of stay of an individual in India in terms of hours,

then the day on which he enters India as well as the day on which he leaves India shall be taken into
account as stay of the individual in India.

RESIDENTIAL STATUS OF A HINDU UNDIVIDED FAMILY [HUF] [SECTION 6(2)]

A Hindu undivided family is said to be Resident (ROR/RNOR) in India if control and management of its affairs is
wholly or partly situated in India. A Hindu undivided family is non-resident (NR) in India if control and
management of its affairs is wholly situated outside India.
Control and management means de facto control and management and not merely the right to control or

manage. Control and management is situated at a place where the head, the seat and the directing power
are situated.

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 If the HUF is resident, then the status of the Karta determines whether it is resident and ordinarily resident

or resident but not ordinarily resident. If the karta is resident and ordinarily resident, then the HUF is
resident and ordinarily resident and if the karta is resident but not ordinarily resident, then HUF is resident
but not ordinarily resident.

RESIDENTIAL STATUS OF FIRM AND ASSOCIATION OF PERSONS [SECTION 6(2)]

A partnership firm and an association of persons are said to be resident in India if control and management of
their affairs are wholly or partly situated within India during the relevant previous year. They are, however,
treated as non-resident in India if control and management of their affairs are situated wholly outside India.

RESIDENTIAL STATUS OF A COMPANY [SECTION 6(3)]

An Indian company is always resident in India.
A foreign company is resident in India only if, during the previous year, control and management of its

affairs is situated wholly in India. However, a foreign company is treated as non-resident if, during the
previous year, control and management of its affairs is either wholly or partly situated outside India.

RESIDENTIAL STATUS OF EVERY OTHER PERSON [SECTION 6(4)]

Every other person is resident in India if control and management of his affairs is, wholly or partly, situated
within India during the relevant previous year. On the other hand, every other person is non-resident in India if
control and management of its affairs is wholly situated outside India.

SCOPE OF INCOME AND INCIDENCE OF TAX [SECTION 5]

Scope of Income and incidence of tax on a taxpayer depends on his residential status and also on the place and
time of accrual or receipt of income. The following table summarizes the incidence of tax;

[1]
[2]
[3]
[4]
[5]
[6]

[7]

Income received in India (for the 1st time) whether accrued in

India or outside India
Income deemed to be received in India whether accrued in
India or outside India
Income accruing or arising in India whether received in India or
Outside India
Income deemed to accrue or arise in India whether received in
India or Outside India
Income received and accrued outside India from a business
controlled in or a profession set up in India
Income received and accrued outside India from a business
controlled from outside India or a profession set up outside
India
Income earned and received outside India for an earlier year,
but remitted to India in the current year Tax incidence at the
time or remittance [as earlier taxed on accrual or due basis]

CA Pinky Agarwal

Whether tax incidence arises in the case

of
ROR
RNOR
NR
Yes
Yes
Yes
Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No

Yes

No

No

No

No

No

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From the above, following broad conclusions can be drawn;

A]. Indian Income [case (1) to (4)]
Taxable in India irrespective of the residential status of the taxpayer.
B]. Foreign Income [case 5 & 6]
i]. Taxable, in the hands of resident (in case of a firm, an association of persons, a joint stock company
and every other person) or resident and ordinarily resident (in case of an individual and a Hindu
undivided family) in India.
ii]. Not taxable, in the hands of non-resident in India.
iii]. Taxable, in the hands of resident but not ordinarily resident taxpayer only if it is (a) business income
and business is controlled from India, or (b) professional income from a profession which is set up in
India. In any other case, foreign income is not taxable in the hands of resident but not ordinarily
resident taxpayers.
Illustration 1
Steve Waugh, the Australian cricketer comes to India for 100 days every year. Find out his residential status for
the AY 2015-16.

Illustration 2
Mr. B, a Canadian citizen, comes to India for the first time during the PY 2009-10. During the financial year
2010-11, 2011-12, 2012-13, 2013-14 and 2014-15, he was in India for 55 days, 60days, 90 days, 150 days and
70 days respectively. Determine his residential status for the AY 2015-16.
Solution

Illustration 3
Mr. C, a Japanese citizen left India after a stay of 10 years on 1.06.2012. During the financial year 2013-14, he
comes to India for 46 days. Later, he returns to India for 1 year on 10.10.2014. Determine his residential status
for the AY 2015-16.

Illustration 4
Mr. D, an Indian citizen, leaves India on 22.9.2014 for the first time, to work as an officer of a company in
France. Determine his residential status for the AY 2015-16.

Illustration 5
The business of a HUF is transacted from Australia and all the policy decisions are taken there. Mr. E, the karta
of the HUF, who was born in Kolkata, visits India during the PY 2014-15 after 15 years. He comes to India on
1.4.2014 and leaves for Australia on 1.12.2014.
Determine the residential status of Mr. E and the HUF for AY 2015-16.

CA Pinky Agarwal

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Illustration 6
Determine the taxability of the following incomes in the hands of a resident and ordinarily resident, resident
but not ordinarily resident, and non-resident for the A.Y. 2015-16
Particulars
Interest on UK Development Bonds, 50% of interest received in India

Amount ( A )
10,000

Income from a business in Chennai (50% is received in India)

20,000

Profits on sale of shares of an Indian company received in London

20,000

Dividend from British company received in London

5,000

Profits on sale of plant at Germany 50% of profits are received in India

40,000

Income earned from business in Germany which is controlled from Delhi

70,000

Profits from a business in Delhi but managed entirely from London

15,000

Rent from property in London deposited in a Indian Bank at London, brought to India

50,000

Interest on debentures in an Indian company received in London.

12,000

Fees for technical services rendered in India but received in London

Profits from a business in Bombay managed from London
Pension for services rendered in India but received in Burma
Income from property situated in Pakistan received there
Past foreign untaxed income brought to India during the previous year
Income from agricultural land in Nepal received there and then brought to India
Income from profession in Kenya which was set up in India, received there but spent in
India

8,000
26,000
4,000
16,000
5,000
18,000
5,000

Gift received on the occasion of his wedding

20,000

Interest on savings bank deposit in State Bank of India

12,000

Income from a business in Russia, controlled from Russia

20,000

Dividend from Reliance Petroleum Limited, an Indian Company

Agricultural income from a land in Rajasthan

5,000
15,000

****

CA Pinky Agarwal

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