Find expert near you


Register as Expert?

Who is a Non-Resident?

241 views
Subscribe and get "Guide For Startups"

Who is a Non-Resident?

Section 2(30) defines non-resident as a person who is not a resident. Section 6 lays down the test of residency for different taxpayers as under:

A. Individual

An individual is said to be non-resident in India if he is not a resident in India.

To determine the residential status of an individual, the first step is to ascertain whether he is resident or non-resident. If he turns to be a resident, then the next step is to ascertain whether he is resident and ordinarily resident or is a resident but not ordinarily resident.

Step 1 given below will ascertain whether the individual is resident or non-resident; and step 2 will ascertain whether he is ordinarily resident or not ordinarily resident. Step 2 is to be performed only if the individual turns to be a resident in India.

Step 1: Determining whether resident or non-resident

Under the Income-tax Law, an individual will be treated as a resident in India for a year if he satisfies any of the following conditions (i.e. may satisfy any one or may satisfy both the conditions):

1) He is in India for a period of 182 days or more in that year; or

2) He is in India for a period of 60 days or more in the year and for a period of 365 days or more in immediately preceding 4 years.

However, in respect of an Indian citizen and a person of Indian origin who visits India during the year, the period of 60 days as mentioned in (2) above shall be substituted with 182 days. The similar concession is provided to the Indian citizen who leaves India in any previous year as a crew member or for the purpose of employment outside India.

The Finance Act, 2020, w.e.f., Assessment Year 2021-22 has amended the above exception to provide that the period of 60 days as mentioned in (2) above shall be substituted with 120 days, if an Indian citizen or a person of Indian origin whose total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year. Income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).

Note: The Finance Act, 2020 has introduced new section 6(1A) to the Income-tax Act, 1961. The new provision provides that an Indian citizen shall be deemed to be resident in India only if his total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year. For this provision, income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).

However, such individual shall be deemed to be Indian resident only when he is not liable to tax in any country or jurisdiction by reason of his domicile or residence or any other criteria of similar nature.

Thus, from Assessment Year 2021-22, an Indian Citizen earning total income in excess of Rs. 15 lakhs (other than from foreign sources) shall be deemed to be resident in India if he is not liable to pay tax in any country.

If an individual does not satisfy any of the above conditions then he will be treated as non-resident in India.

Step 2: Determining whether resident and ordinarily resident or resident but not ordinarily resident

A resident individual will be treated as resident and ordinarily resident in India during the year if he satisfies the following conditions:

1) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year; or

2) His stay in India is for 730 days or more during 7 years immediately preceding the relevant year.

However, w.e.f., Assessment Year 2021-22, the Finance Act, 2020 has inserted the following two more situations wherein a resident person is deemed to be ‘Not Ordinarily Resident’ in India:

a) An Indian Citizen or a person of Indian origin whose total income (other than income from foreign sources) exceeds Rs. 15 lakhs during the previous year and who has been in India for a period of 120 days or more but less than 182 days;

b) An Indian Citizen who is deemed to be resident in India as per new Section 6(1A).

A resident individual who does not satisfy any of the aforesaid conditions or satisfies only one of the aforesaid conditions will be treated as resident but not ordinarily resident.

In short, following test will determine the residential status of an individual:

1. If the individual satisfies any one or both the conditions specified at step 1 and satisfies any of the conditions specified at step 2, then he will become resident and ordinarily resident in India.

2. If the individual satisfies any one or both the conditions specified at step 1 and satisfies none or one condition specified at step 2, then he will become resident but not ordinarily resident in India.

3. If the individual satisfies none of the conditions specified at step one, then he will become non-resident.

B. Partnership firm

A partnership firm is treated as non-resident in India if control and management of its affairs are situated wholly outside India.

C. Company

An Indian company is always resident in India. A foreign company is treated as resident if, during the previous year, control and management of its affairs is situated wholly in India. In other words, a foreign company is treated as non-resident if control and management of its affairs is situated wholly or partly outside India.

With effect from Assessment Year 2017-18, a company is said to be resident in India in any previous year, if:

(i) it is an Indian company; or

(ii) its place of effective management, in that year, is in India.

For this purpose, the “place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made.




Comments

There are currently no comments on this topic. Be the first one to comment.


to post comment