Scope of Income
An individual is a resident in India if he satisfies any one of the following two conditions:
- He is in India for 182 days or more in the relevant previous year or
- He is in India for 60 days or more during the relevant previous year and 365 days or more for 4 years immediately preceding the previous year.
If he does not satisfy any one of the conditions above, he shall be non-resident.
Condition (ii) above is not applicable in following cases (means in following cases a person shall be resident of India only when he is in India for 182 days or more in the previous year):
- If Indian Citizen leaves India during the previous year for employment outside India or as a member of the crew of an Indian Ship
- If Indian citizens or a person of Indian origin visit India during the previous year.
- Residential status is determined for every year separately
- India includes territorial waters of India.
- Employment includes self-employment
- In computing the period of 182 days, the day of entry into India and the day of exit from India shall be included.
- A person of Indian origin is a person who himself or any of his parents or any of his grandparents was born in undivided India before 15th August 1947.
In the budget 2020, section 6 of the Income-tax Act, 1961 is AMENDED that: –
Period of stay for Indian citizens visiting India
- The Budget proposes to reduce the period of stay criteria for Indian citizens/PIO visiting India to determine their residential status. They will now qualify as residents if their stay in India is:
- More than 120 days (the earlier limit was 182 days), and
- More than 365 days during the preceding four previous years.
Applicable to Indian citizens/persons of Indian origin (PIOs) visiting India
- Period of stay criteria for qualifying as ‘residents’ in India has been tightened
- Existing and proposed conditions are as summarised as under:
- Mr. A, an India citizen, has stayed in India for 170 days during FY 2020-21
- His period of stay in India during the preceding 4 years is more than 365 days
- His residential status in India under existing and new rules would be as under:
Example: An Assessee Mr… X being an Indian Citizen is working abroad in the US since 1st January 2014.
A ‘resident’ would be further categorized as ‘resident and ordinary resident’ (ROR) or ‘not ordinary resident’ (NOR)
An individual who is resident in India shall be resident and ordinarily resident (ROR) in India if he satisfies both the following conditions:
- He has been resident in India for at least 2 out of 10 previous years immediately preceding the relevant previous year
- He has been in India for 730 days or more during 7 previous years immediately preceding the relevant previous year.
If he does not satisfy any or both above conditions, he shall be resident but not ordinarily resident (RNOR) in India.
Change in condition for qualifying as Not Ordinary Resident (NOR)
- Existing provisions provide two criteria for an individual to qualify as NOR.
- is a non-resident in 9 out of 10 preceding years, or
- stays in India for 729 days or less in seven preceding years.
- The above provisions are proposed to be replaced with a new provision whereby an individual will qualify as NOR if he/she has been a non-resident in India in 7 out of 10 preceding years.
- Existing and proposed conditions are summarised as under:
Residential status has an impact on the taxability in India
Illustration: Condition to qualify as NOR in India
Mr. A, an Indian citizen, qualified as a resident in India till FY 2012-13 and has been a non-resident for 7 years since then (i.e., from FY 2013-14 till FY 2019-20)
- He has stayed in India for 170 days during FY 2020-21 and more than 365 days in the last 4 years
- The residential status of Mr. A for FY 2020-21 will be determined as under:
– Qualifies as a resident in India in FY 2020-21 under basic condition (as discussed under the earlier illustration)
– Will need to determine if Mr. A further qualifies as NOR in India in FY 2020-21.
With the modification of tax residency rules, globally mobile individuals would need to evaluate their residential status in India very carefully as their global income will be exposed to tax in India.
Deemed residency criteria for citizens of India
The Budget proposes to introduce the concept of citizenship-based taxation in a limited manner.
- Indian citizens who are not liable to tax in any other country by virtue of residency, domicile or any other similar criteria would be deemed tax residents of India.
- This may result in global income being liable to tax in India unless they qualify as NOR based on the new condition proposed.
- In simple words, if a non-resident, being a citizen of India, is not liable to tax in any other country shall be deemed to be a resident in India and liable to pay tax in India on global income.
So, if you are a citizen of India, working in multiple countries throughout the year and not liable to pay tax in any of the countries (as per the residential status of those foreign land), then you shall be deemed (assumed) to be a resident in India and will be liable to tax in India on the income earned during the financial year in various countries.
Thus, non-residents residing in Middle East countries, and who are not liable to tax in these countries will be taxed in India on the income that they have earned there.
Illustration: Impact of deemed residency on Indian citizens visiting various countries and qualifying as a non-resident in all these countries:
Indians who otherwise qualified as non-residents in India as well as in other jurisdictions will be impacted by the proposal.