Residential Status and Its Types Taxation Law

The determination of income tax liability is based on the residential status of a citizen. And the residential status of the assessee, i.e. the taxpayer, is determined based on his residence in the previous financial year.

In this article, you will read about the meaning of residential status and its types in the context of income tax in India.

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What Is Residential Status?

Residential status is any person’s status as to the period he has stayed in India for the past five years.

Types or Classification of Residential Status

Section 6 of the Income Tax Act (1961) has classified the residential status into three categories:

  1. Resident and ordinarily resident (persons who are ordinarily resident in India)
  2. Non-ordinarily resident (persons who are not ordinarily resident in India)
  3. Non-resident (persons who are non-resident)

1. Resident and Ordinarily Resident

There are different types of assessees, such as individual persons, Hindu Undivided Families, companies and firms. The rule to determine the residential status of different assessees is different.

Individual person: Section 6(1) of the Income Tax Act states that a person must fulfil one of the following conditions to be called a resident in India:

  1. Such a person has stayed in India for 182 days or more than 182 days in toto (totally, entirely) in the previous year; or
  2. Such a person has stayed in India for 60 days or more in toto in the previous year and 365 days or more in toto during the 4 years immediately preceding the previous year.

Hindu Undivided Family, firm or any other association of persons: Section 6(2) of the Income Tax Act states that where the control and management of a Hindu Undivided Family, firm or any other association of persons are situated wholly or partly in India in the previous year, it is said to be resident in India.

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Companies: Section 6(3) provides that the company must fulfil the following two conditions to be called a resident in India:

  1. Such company is an Indian company in the previous year, and
  2. The control and management of the company were situated in India the previous year.

Non-Ordinarily Resident

Along with the provisions related to the resident in India, section 6 of the Income Tax Act also provides provisions about persons called non-ordinarily resident in India.

Individual person: According to section 6(6)(a) of the Income Tax Act, a person is considered as non-ordinarily resident in India:

  1. If such a person has not been resident in India in 9 out of the 10 previous years preceding the previous year, or
  2. If such a person has not been resident in India for 730 days or more in toto during the 7 previous years preceding the previous year.

Hindu Undivided Family: According to section 6(6)(b) of the Income Tax Act, the Karta or manager will be considered as non-ordinarily resident in India if:

  1. The Karta or manager has not been resident in India in 9 out of the 10 previous years preceding the previous years, or
  2. The Karta or manager has not been resident in India for 730 days or more in toto during the 7 previous years preceding the previous year.

Non-Resident

The person or any other assessee is known as a non-resident in India if he is a citizen of India but is not resident in India.

Individual person: A person is said to be a non-resident in India if he does not fulfil the conditions necessary to be a resident in India under section 6(1) of the Income Tax Act.

Hindu Undivided Family, firm, company or any other association of persons: Suppose the control and management of affairs of a Hindu undivided family, firm, company or any other association of persons are situated wholly outside India in the previous year. In that case, such an undivided Hindu family, firm, company, or association of persons is considered non-resident in India.

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