Residential Status

Residential status is a crucial concept in taxation, determining how an individual or entity is taxed in a particular jurisdiction. In India, residential status is primarily defined under the Income Tax Act, and it categorizes individuals into three main types: Resident, NonResident, and Resident but Not Ordinarily Resident. The determination of residential status is essential as it affects the taxation of income earned by an individual in India. Here are the key criteria for determining residential status for individuals:

Resident:

An individual is considered a resident in India if they satisfy any of the following conditions in a financial year (April 1 to March 31):

They are in India for 182 days or more in that financial year.

They are in India for 60 days or more in that financial year and 365 days or more in the four financial years immediately proceeding the relevant financial year.

Non-Resident:

An individual is considered a non-resident if they do not meet any of the conditions mentioned above.

Resident but Not Ordinarily Resident (RNOR):

An individual can be categorized as RNOR if:

They are a resident in India for at least two out of the ten financial years immediately preceding the relevant financial year, and

They are in India for 730 days or more in the seven financial years immediately preceding the relevant financial year.

It's important to note that the concept of RNOR is relevant for determining the tax liability on foreign income for individuals who qualify as residents.

Tax Implications Based on Residential Status:

Residents:

Residents are taxed on their global income, which includes income earned in India and abroad.

Non-Residents:

Non-residents are generally taxed only on income earned in India or income received in India.

RNOR:

RNORs are taxed similarly to non-residents on income earned outside India. However, their Indian income is taxable as if they were residents.

The determination of residential status is critical for various tax implications, including the applicable tax rates, eligibility for certain deductions, and reporting requirements. It is advisable for individuals to carefully assess their residential status each financial year, especially if they have international financial activities. For entities other than individuals, such as companies, firms, or other forms of associations, the criteria for determining residential status may differ, and specific rules apply based on the nature of the entity.