Residential status of an individual and of a Hindu undivided family (as set, 1961 Act, AY 2021-22)

Why residential status matters

The scope of total income depends on residential status (section 5). A resident and ordinarily resident person is taxed on income from every source in the world; a resident but not ordinarily resident person on income received, accruing or arising in India, and on foreign income only if it comes from a business controlled in, or a profession set up in, India; a non-resident only on income received, accruing or arising, or deemed to accrue or arise, in India. Status is decided for each previous year separately; for assessment year 2021-22 it is decided for the previous year 2020-21 (1 April 2020 to 31 March 2021).

Individual: resident or non-resident

An individual is resident in India in a previous year if he satisfies either of two basic conditions (section 6(1)):

1. he is in India for 182 days or more in that year (section 6(1)(a)); or
2. he is in India for 60 days or more in that year and for 365 days or more in all in the four years before it (section 6(1)(c)).

If he meets neither, he is non-resident. Two cases lengthen the 60 days of the second condition to 182 days, so that only the first condition can make the person resident (Explanation 1 to section 6(1)):

• an Indian citizen who leaves India in the year for employment outside India, or as a member of the crew of an Indian ship; and
• an Indian citizen, or a person of Indian origin, living outside India who comes on a visit to India in the year.

The stay need not be continuous or at one place: the days in India in the year are added up.

Changes for assessment year 2021-22

(Finance Act, 2020, section 4, which amends section 6 with effect from 1 April 2021.) From assessment year 2021-22:

1. Visitors with large Indian income. For an Indian citizen or a person of Indian origin coming on a visit, the 60 days become 120 days (not 182) where his total income, other than income from foreign sources, exceeds ₹15 lakh in the year. Such a person is resident if he is in India for 120 days or more in the year and 365 days or more in the four years before.
2. Deemed resident. An Indian citizen whose total income, other than income from foreign sources, exceeds ₹15 lakh is deemed resident in India (section 6(1A)) if he is not liable to tax in any other country by reason of his domicile, residence or a similar test. Income from foreign sources means income accruing or arising outside India, other than income from a business controlled from India or a profession set up here.

Individual: ordinarily resident or not

A resident individual is not ordinarily resident (section 6(6)(a)) if either is true:

1. in nine of the ten previous years before that year, he was non-resident; or
2. in the seven previous years before that year, his stay in India adds up to 729 days or less.

If neither is true, he is resident and ordinarily resident. A non-resident individual is never tested for ordinary residence. For assessment year 2021-22 two more groups are not ordinarily resident (Finance Act, 2020, section 4, which amends section 6 with effect from 1 April 2021): a citizen or person of Indian origin resident only because of the 120-day rule, being in India for 120 days or more but less than 182 days (section 6(6)(c)); and a citizen deemed resident under section 6(1A) (section 6(6)(d)).

Hindu undivided family

1. Resident or non-resident (section 6(2)): a Hindu undivided family is resident in India unless, in that year, its affairs are controlled and managed wholly from outside India. Control and management means the place where decisions about the family's affairs are taken, ordinarily by the karta. If even a part of it is exercised in India, the family is resident; it is non-resident only if the whole is outside India.
2. Ordinarily resident or not (section 6(6)(b)): a resident family is not ordinarily resident if its manager (the karta) has been a non-resident in nine out of the ten previous years before that year, or has been in India for 729 days or less in all during the seven previous years before it. Otherwise it is resident and ordinarily resident. The test is applied to the karta's own stay and status, not to the family's.

Status and taxability

A person resident for one source of income in a year is resident for all his sources in that year (section 6(5)).