The residential status of taxpayers plays a key role in determining the scope of taxable income for a financial year in India and there by the tax payable.
For an individual the residential status is determined solely by his/her physical presence in India during the financial year.
Why the residential status of a person is important for income tax purposes?
Shalini Jain, Tax Partner, People Advisory Services, EY India says, "Any income earned by a taxpayer from sources in India or received in India (first receipt) is taxable in India. While this is the generally known principle, another critical factor that determines the scope of taxability (and therefore, determines the total income) of an individual taxpayer is the residential status of the taxpayer during the financial year."
She said, "The residential status is determined based on the number of days of physical presence of the taxpayer in India (irrespective of the purpose of stay) during the financial year and preceding ten financial years. A Non-Resident/Resident but not ordinarily resident taxpayer is taxable only on India sourced income/income received in India whereas a Resident and Ordinarily Resident is taxable on worldwide income."
Classification of residential status of an individual
The income tax laws classify the residential status of an individual into three categories, depending on the individual's stay in India in the relevant financial year as well as his/her stay in the previous years. These categories are:
1. Resident and Ordinarily Resident (ROR)
2. Resident but Not Ordinarily Resident (RNOR); and
3. Non-Resident (NR)
Have a look at the following conditions and identify your residential status
|a)||Your cumulative stay in India during the relevant financial year is 182 days or more; Or your cumulative stay in India is 60 days or more during the financial year and 365 days or more during the 4 previous financial years.||Yes||Yes||Yes|
|a)||His/her cumulative stay in India is 730 days or more during the 7 financial years immediately preceding the current financial year||Yes||Yes||No|
|b)||He/she was a resident in India in at least 2 out of 10 previous financial years immediately preceding the current financial year.||Yes||No||Yes|