Income Tax Provisions applicable to non-residents

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Income Tax Provisions applicable to
non-residents
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• The residential status of an individual is
  crucial for determining the taxability of income
  under Indian tax law. An individuals residential
  status can be one of three types Resident and
  Ordinarily Resident (ROR), Resident but Not
  Ordinarily Resident (RNOR), or Non-Resident (NR).
  This status influences how various types of
  income are taxed. Indian citizens are deemed
  residents if their total income, excluding
  foreign sources, exceeds Rs. 15 lakhs and they
  are not taxed in another country. For Hindu
  Undivided Families (HUFs) and companies,
  residential status is determined based on the
  location of management and control. Companies, in
  particular, are considered resident if they are
  incorporated in India or their place of effective
  management is in India. The taxability of income
  also depends on its nature and source, with
  Indian incomes and those deemed to arise in India
  being taxed according to the residential status
  of the taxpayer. Changes to the residential
  status may occur annually based on specific
  conditions, impacting the tax obligations of
  individuals and entities.

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• Q1. Is the residential status of a person
  relevant for determining the taxability of the
  income in his hands?
• Ans Yes, the residential status of a person
  earning income is very much relevant for
  determining the taxability of such income in his
  hands. Taxability of any income in the hands of a
  person depends on the following two things
• Residential status of the person as per the
  Income-tax Law and
• Nature of income earned by him.
• Hence, residential status plays a vital role in
  determining the taxability of the income.
• Q2. What are the different classes of residential
  status prescribed under the Income-tax Law for an
  individual?
• Ans For the purpose of Income-tax Law, an
  individual can have any one of the following
  residential status
• (1) Resident and ordinarily resident in India
  (also known as resident)
• (2) Resident but not ordinarily resident in India
• (3) Non-resident
• Every year the residential status of the taxpayer
  is to be determined by applying the provisions of
  the Income-tax Law designed in this regard
  (discussed later) and, hence, it may so happen
  that in one year the individual would be a
  resident and ordinarily resident and in the next
  year he may become non-resident or resident but
  not ordinarily resident and again in the next
  year his status may change or may remain same.

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• Q3. Will a person holding Indian citizenship be
  treated as a resident in India for the purpose of
  charging Income-tax?
• Ans 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. Liable to tax in relation to a person
  and with reference to a country means that there
  is an income-tax liability on such person under
  the law of that country for the time being in
  force. It shall include a person who has
  subsequently been exempted from such liability
  under the law of that country.

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• Q4. What are the different classes of residential
  status prescribed under the Income-tax Law for a
  Hindu Undivided Family (HUF)?
• Ans For the purpose of Income-tax Law, a HUF
  can have any one of the following residential
  status
• Resident and ordinarily resident in India
• Resident but not ordinarily resident in India
• Non-resident
• Every year the residential status of the
  taxpayer is to be determined by applying the
  provisions of the Income-tax Law designed in this
  regard (discussed later) and, hence, it may so
  happen that in one year the HUF would be a
  resident and ordinarily resident and in the next
  year it may become non-resident or resident but
  not ordinarily resident and again in the next
  year its status may change or may remain same.

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• Q5. What are the different classes of residential
  status prescribed under the Income-tax Law for a
  person other than an individual or a HUF?
• Ans For the purpose of Income-tax Law, a person
  other than an individual or a HUF, i.e., company,
  partnership firm, etc., can have any one of the
  following residential status
• (1) Resident
• (2) Non-resident
• Every year the residential status of the taxpayer
  is to be determined by applying the provisions of
  the Income-tax Law designed in this regard
  (discussed later) and, hence, it may so happen
  that in one year the taxpayer would be a resident
  and in the next year may become non-resident and
  again in the next year the status may change or
  may remain same.
• Q6. How to determine the residential status of an
  Individual?
• Ans 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.

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• 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)
• He is in India for a period of 182 days or more
  in that year or
• 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 4 years immediately preceding the relevant
  year. 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).Read more at https//taxguru.in/in
  come-tax/income-tax-provisions-non-residents.html
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