Residential Status of a person determines whether the persons income is chargeable to tax in India or not.

RESIDENTIAL STATUS AS PER INCOME TAX ACT

It is necessary because total income of a person cannot be assessed until and unless his/ her residential status is determined as per the rules prescribed in the Income tax Act 1961.
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 PLEASE NOTE : Residential Status determination is very crucial being the First Step in the Assessment of Income, hence calculations should be made strictly as per the prescribed rules only. Residential Status has to be determined for each previous year as per the assessment of income of each previous year. Assessment of wrong Residential Status may lead to wrong assessment of Income and may attract various Penalties as stated in Section 271 of the Income Tax Act 1961. A person may be resident in more than one country for any previous year. The chargeability of tax may be subject to Double Taxation Avoidance Treaty if exists between the two countries. Citizenship and Residential status of a person are separate concepts, since former has a direct reference to the Constitution of India, while latter has reference to Indian Income Tax Act only. For the purpose of determining Residential Status of a Firm or a HUF, the Residential Status of Partner of the firm or the members of the HUF is immaterial except in cases where the residence of the Partners or the Family members affects its control & management.
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CATEGORIES OF Residential Status Category Individuals/ HUF Any Other forms of Person
Resident in India

Resident in India Ordinarily Resident. Not Ordinarily Resident

Non resident in India

Non resident in India

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RULES FOR DETERMINING THE RESIDENTIAL STATUS OF A PERSON Lets bifurcate the answer to this question in Five Parts: Part A : Residential Status of an Individual Part B : Residential Status of an Hindu Undivided Family (HUF) Part C : Residential Status of Firms and Association of Persons Part D : Residential Status of a Joint Stock Company. Part E : Residential Status of every other Artificial Juridical p

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RESIDENTIAL STATUS OF AN INDIVIDUAL,sec(6) For determining the Residential Status of an Individual one has to pass the litmus test of two broad situations, First is the testing of two Basic Conditions, and Second is the testing of other two Additional Conditions. BASIC CONDITIONS: Basic Condition (a)

He is in India in the previous year for a period of 182 days or more.

Basic Condition (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
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 The above period of 60 days gets extended to 182 days in the following three situations:

1) If you being an Indian Citizen leave India during the previous year for the purpose of employment outside India; or,
2) If you being an Indian Citizen leave India during the previous year as a member of the crew member of an Indian Ship. 3) If you being an Indian Citizen or a Person of Indian Origin come to visit India during the previous year. So if any Individual/ HUF satisfies at least one of two basic conditions subject above exemptions he gets qualified for the second round of tests i.e., testing of two additional conditions.

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ADDITIONAL CONDITIONS:
(a) He has been resident in India in at least 2 out of 10 previous years immediately preceding the relevant previous year. He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year
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(b)

 Here you must note that unlike testing of the two basic conditions as mentioned above here the Individual has to satisfy both the conditions simultaneously to qualify him/ herself as a Resident and Ordinarily Resident Abbreviated as ROR,sec 6(1) However if an Individual is able to satisfy either none or only one of the two additional conditions specified above he qualifies himself as a Resident but not Ordinarily Resident Abbreviated as RNOR Non Resident satisfies none of the basic conditions and the additional conditions are irrelevant.
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RESIDENTIAL STATUS OF A HUF

Hindu Undivided Family can either be Resident or a Non Resident in India. Like an Individual, HUF can also be ROR, RNOR or a Non Resident. Following are the conditions when a HUF can either be a Resident or Non resident: Situation I: HUF qualifies as a RESIDENT

Basic Condition

The Control and Management of affairs of the HUF is wholly or partly situated in India.
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 The term Control and Management refers to the decisions taken regarding affairs of the HUF; Once it is determined that the HUF is Resident for the Previous year then one has to assess whether it is ROR or RNOR. If the HUF satisfies both of the below mentioned Additional Conditions simultaneously it qualifies as ROR but if none or only one of the additional conditions is satisfied the HUF qualifies as RNOR for the relevant Previous Year.
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Additional Condition (a)

Karta has been resident in India in at least 2 out of 10 previous years immediately preceding the relevant previous year

Additional Condition (b)

Karta has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year.

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Situation II: HUF qualifies as a NON-RESIDENT Basic Condition The Control and Management of affairs of the HUF is totally Outside India

RESIDENTIAL STATUS OF FIRMS OR AOP

A Firm or Association of Persons can either be Resident or a Non Resident in India. Unlike an Individual / HUF, a firm or AOP can not be assessed as ROR or RNOR. Following are the conditions when a Firm or AOP can be treated as a Resident or Non resident for a previous year: www.agbsindia.webs.com

The term Control and management herein refers to in case a firm is in the hands of the Partner and in case of AOP in the hands of the Chief Officer and in no sense refers to the management of day to day business affairs
Status Control and Management of Affairs

RESIDENT

Is situated Wholly in India Is situated Partly in India

NON RESIDENT

Is situated totally Outside India

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RESIDENTIAL STATUS OF A JOINT STOCK COMPANY

A Company can be assessed as Resident or a Non Resident in India on the same lines as a Firm or an AOP can be assessed. Following are the conditions when a Company can be treated as a Resident or Non resident for a previous year. The term Control and management herein refers to Central Controlling Power and has no reference to the day to day affairs of the Company An Indian Company RESIDENT RESIDENT A Foreign Company Control and Management of Affairs Is situated Wholly in India Is situated Partly in India Is situated totally Outside India

NON-RESIDENT

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RESIDENTIAL STATUS OF EVERY ARTIFICIAL JURIDICAL PERSON

Every other person can be assessed as Resident or a Non Resident in India on the same lines as a Firm/ AOP or a Company can be assessed. Following are the conditions when an artificial juridical person can be treated as a Resident or Non resident for a previous year:Status Control and Management of Affairs

RESIDENT NON RESIDENT

Is situated Wholly in India Is situated Partly in India Is situated totally Outside India
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Relationship between residential status and Incidence of Tax (Section 5) : The below diagrammed table will provide distinct clarity on Income Chargeability on the basis of ones Residential Status:-

Type of Income

ROR

RNOR

Non Resident

Indian Income

Taxable in India

Taxable in India

Taxable in India

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Type of Income

ROR

RNOR

Non Resident

Foreign Income

If it is Business Income business is control wholly or partly from India It is from Income from Profession which is setup in India

Taxable in India

Taxable in India

Not Taxable in India

Taxable in India

Taxable in India

Not Taxable in India

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If it is Business Income & business is controlled from outside India It is from Income from Profession which is setup outside India

Taxable in India Taxable in India

Not Taxable in India Not Taxable in India

Not Taxable in India Not Taxable in India

Any other
Foreign Income

Taxable in India

Not Taxable in India

Not Taxable in India

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ANY OTHER FORM OF PERSON

Type of Income Resident Indian Income Non Resident

Taxable in India Taxable in India

Foreign Income Taxable in India Not Taxable in India

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RECEIPT OF INCOME vs. REMITTANCE OF INCOME As per the Act all Income received in India is taxable irrespective of residential status of a person, but a clear difference infact exists between receipt & remittance of income, the former if received in India becomes taxable in India and latter if received outside India, but remitted to India afterwards, becomes non taxable in India.
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Example
Mr. A, an Indian Citizen received $4000 in out of Fixed Deposits made by him in Bank of America, USA. Which he later remitted to India at an exchange rate of 1$= Rs. 40/- (i.e., 1,60,000/- INR), Is his Income taxable in India or USA?
The Answer is that his Income is not taxable in India but is taxable in USA. The reason behind this is the Income out of Interest aroused & was received in USA by the assessee, only later it was remitted to India. Herein the law clearly states that only receipts in India are taxable and not remittances made after any receipt of such Income outside India
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CASH vs. KIND

It is not necessary that an Income should be actually received in Cash form only, even if the Income is received in Kind form it is taxable in India, e.g., Mr. A received a Maruti Car on winning Kaun Banega Badshaah? contest. In this case tax calculated at applicable rates on cost of Maruti car as on the date of receipt or accrual, whichever is earlier will have to be paid to Govt. in cash.
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