Section 6(1) and 6(6) of the Income Tax Act provides for the
residential status of an individual in order to determine his liability for
paying tax. Residential status has been given due importance under the act due
to the anomaly in determining the taxable income of various people who reside
in other countries as well as India. In order to impose a fair legislative
procedure the residential status of not only individual persons but also
companies, firms, Association of persons/ body of persons and even Hindu
Undivided Family have been included so that none of them can escape the ambit
of taxation.
The incidence of liability depends in all cases upon the
residential status of an individual or an artificial juristic person, since
according to section 5 of the act the scope of taxability of total income of a
person is based purely on his residential status. Section 6 broadly classifies
tax payers into three categories:
2. Non Resident
3. Not ordinarily resident
Section 6 of the income tax act prescribes the tests to be
applied to determine the residential status of all tax payers for the purpose
of income tax. An assesses residential status must be determined with reference
to the previous year in respect of which the income is sought to be taxed and
not with reference to the assessment year.
Individual
According to section 6(1) of the income tax act, an
individual is said to be resident in India in any previous year if:
a.
He has been residing for at least 182 days in
the previous year
b.
He has resided for at least 60 days in the
previous year and a total of 365 days in a period of 4 years immediately
preceding the previous year
There are two exceptions to this rule:
Exception 1: a person
will not be determined under section 6(1)(b) if he being a citizen of India
leaves India as a member of the crew of an Indian ship or for the purpose of
employment outside Indian.
Exception 2: A person
will not be determined u/s 6(1)(b) if he being a citizen of India or of Indian
origin lives outside India rendering service outside Indian and comes to visit
India.
An explanation to this section provides that “a person of
Indian Origin” means a person who himself or his parents or either of his
paternal or maternal grandparents was born in undivided India.
If the above requirements are not sufficed then a person is
said to be a Non Resident, hence no
further requirements prevail as to the determination of his/her residential
status.
Further section 6(6) provides that in order to term a person
as ordinarily resident in India,
one of the following two conditions are to be fulfilled:
a.
He has been resident in India for at least 2
years in the previous 10 years immediately preceding the relevant previous year,
or
b.
He has been in India for 730 days or more during
the past 7 years immediately preceding the relevant preceding year
Hindu Undivided Family:
The residential status of an HUF is determined through the
place of control and management of the affairs of the family. According to
section 6(2), a HUF is said to be resident in India if the control and
management, partially or wholly is situated and executed in India. The word
“Control and Management” includes administration, strategizing and decision
making processes. Therefore, the residential status of the Karta who is the head of a HUF is not relevant for this section. If
the where the Karta resides is the
where the whole administration takes place then the HUF is said to situated in
that place. Therefore if the control and management is not situated in India
then the HUF is said to be a non
resident.
Secondly according to section 6(6)(b) for determining if the
HUF is ordinarily resident in India the following points are to be looked at:
a.
The Karta
has been resident in India for at least 2 years in the previous 10 years
immediately preceding the relevant previous year. Or
b.
The Karta has been resident for a total of 730 days or
more for the past 7 years immediately preceding the relevant previous year
AOP/BOI
For association of persons and body of individuals if the
management of affairs of the firm is wholly or partly situated in India then it
is said to be resident in India. However if whole of the management of
affairs of the firm is done outside
India, it is said to be non resident.
Companies
A company can never be
ordinarily resident. An Indian company i.e. a company incorporated in India is
always a resident in India whether its management of affairs is situated fully
or partially outside India. However a foreign company is said to a resident in
India if in the previous year whole of its management and administration was
situated in India. Conversely when even partial management is situated outside
Indian the foreign company is not held as a resident in India.
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