Residential status of an individual and of a Hindu undivided family (as set, 1961 Act, AY 2018-19)

Why residential status matters

Residence is decided separately for every previous year, and it fixes how much income is taxed: a resident and ordinarily resident person is taxed on world income, a resident but not ordinarily resident person mainly on Indian income and on foreign income from a business controlled in India or a profession set up in India, and a non-resident on Indian income only (section 5). For assessment year 2018-19 the year tested is previous year 2017-18.

Individual: is he 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 during the four years before it (section 6(1)(c)).

The second condition is relaxed for two kinds of Indian citizens (section 6(1), Explanation 1). For a citizen who leaves India in the year for a job abroad, or to work as crew of an Indian ship, the 60 days become 182 days. The same 182 days apply to a citizen, or a person of Indian origin, who lives abroad and comes on a visit to India. Such a person is therefore resident only if he spends 182 days in India in the year. An individual who meets neither condition is a non-resident.

Individual: ordinarily resident or not?

A resident individual is not ordinarily resident in a year if either of the following holds (section 6(6)(a)):

• he was a non-resident in nine of the ten previous years before that year; or
• he was in India for 729 days or less in all during the seven previous years before that year.

If neither holds, he is resident and ordinarily resident. These tests apply only to a person already found resident.

Hindu undivided family

• Resident or non-resident. A Hindu undivided family is resident in India in a year in every case except where the control and management of its affairs is situated wholly outside India in that year (section 6(2)). If even part of the control is exercised from India, it is resident; the stay of its members does not matter.
• Ordinarily resident or not. A resident family is not ordinarily resident if its manager (karta) was a non-resident in nine of the ten preceding previous years, or was in India for 729 days or less in all in the seven preceding previous years (section 6(6)(b)). Otherwise it is resident and ordinarily resident.

Example

Mr. Varun, an Indian citizen working in Dubai, came on a visit and stayed in India for 120 days in 2017-18; in the four years before he was in India for 500 days. Because he is a citizen on a visit, the 60-day test becomes 182 days, so he is a non-resident for assessment year 2018-19. A family whose karta lives in Kanpur and runs its affairs from there is resident, wherever its other members live.