As we go deeper into a sea, we always find something that has never been seen, or heard by anyone before. It could be a different kind of specie or a materialistic article. Similarly, in the Income Tax Act, as we deep dive into the provisions, we will always learn something new. This makes the subject even more interesting.
The taxability of any assessee depends on the residential status in India. It must be noted that nationality, citizenship and residential status are completely different from each other and should not be mixed. Nationality is by birth, citizenship is the legal position in a country while residential status is determined only for the purpose of calculation of Income tax.
As promised in the earlier post, I have come up with the explanation of Resident & Non- resident individuals.
Resident Individual
First, we need to identify that whether the individual is a resident or a NRI. Then, we will classify the resident into OR and NOR. Why is this classification? It is because the taxability is different. We will understand it in the later part of the blog.
- Either of the conditions must be satisfied to be a resident of India:
- Minimum stay in India should be at least 182 days in a financial year*, or,
- At least 60 days stay in the financial year and more than 365 days of stay in the earlier 4 financial years excluding the current financial year.
*Financial Year denotes period from April to March.
If any one of the above conditions are satisfied, then, we may call the individual as the resident of India. Let's understand this complexity with the help of examples and identify that whether the individual is a resident in the F.Y 2020-21:
Example1:
1. Individual: Reshav Mansinghka (age 29)
2. Stay in India in F.Y. 2020-21: 173 days
3. Stay in India from F.Y 2016-17 to 2019-20: 400 days
In the given example, Reshav will be a resident individual since he satisfies the second condition of being an Indian resident.
Example 2:
1. Individual: Ankit Agrawal (age 32)
2. Stay in India in F.Y. 2020-21: 190 days
3. Stay in India from F.Y 2016-17 to 2019-20: 300 days
In the given example, Ankit will be a resident individual since he satisfies the first condition of being an Indian resident.
Example 3:
1. Individual: Ritesh Agarwal (age 29)
2. Stay in India in F.Y. 2020-21: 100 days
3. Stay in India from F.Y 2016-17 to 2019-20: 300 days
In the given example, Ritesh will not be a resident individual since he does not satisfy any of the conditions of being an Indian resident.
Amendment by the Finance Act 2021
In the budget 2021, the honorable Finance Minister also announced that if a citizen of India is earning a total income of more than Rs. 15 lakhs, then, the individual will be deemed (compelled) to be a resident in that financial year provided the following conditions are satisfied:
- There is no income from foreign sources.
- The person is not liable to be taxed in any other country/ territory.
Now, when an individual is determined as a resident individual, then, we will have to determine that whether is he a ordinary/ non-ordinary resident. Therefore, in order to be an OR, all the following conditions needs to be satisfied:
- The individual should be a resident for at least 2 out of 10 years in the previous financial years, and,
- The individual must have stayed in India for a minimum of 730 days in the previous 7 financial years.
We will understand this with the help of following examples that whether the individual is an OR/ NOR for the F.Y. 2020-21.
Example 1:
1. Individual: Sugandha Maharwal (age 30)
2. Resident Individual for F.Y. 2011-12 and 2018-19.
3. Stay in India for a period of 800 days from F.Y. 2013-14 to 2019-20.
In this case, Sugandha will be an OR since both the conditions are satisfied.
Example 2:
1. Individual: Shubham Kochar (age 34)
2. Resident Individual for F.Y. 2015-16.
3. Stay in India for a period of 800 days from F.Y. 2013-14 to 2019-20.
In this case, Shubham will be a NOR since the 1st condition is not satisfied.
Example 3:
1. Individual: Tanisha Bhuwania (age 30)
2. Resident Individual for F.Y. 2012-13 & 2015-16.
3. Stay in India for a period of 621 days from F.Y. 2013-14 to 2019-20.
In this case, Tanisha will be a NOR since the 2nd condition is not satisfied.
Non -Resident Individual
A non -resident is an individual who does not meet any of the criteria's of being a resident.
Taxability
- Resident and ordinary resident (OR): Income earned around the world would be taxable in India after getting certain reliefs in order to avoid double taxation.
- Non - resident and Not Ordinary Resident (NOR): Income earned only in India would be taxable.
I hope with the help of simple examples, I gave you a clear understanding about who is a resident or a Non-resident individual to a certain extent.
Disclaimer: These are just basic concepts. However, the applicability of the law shall depend on case to case basis.
Thank you for reading!!
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ReplyDeleteNice writeup.. Helped a lot..
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