Residential status of an individual, and the categories of resident but not ordinarily resident (as set, 1961 Act, AY 2021-22)

Residential status is fixed for each previous year on its own; for assessment year 2021-22 the year tested is 2020-21 (1 April 2020 to 31 March 2021). It is fixed in two steps: first whether the individual is resident at all, then, for a resident, whether he is ordinarily resident. As a rule, physical stay in India decides it, not citizenship. The exception, from assessment year 2021-22, is section 6(1A): a citizen of India with total income, other than income from foreign sources, above ₹15 lakh who is not liable to tax in any other country by reason of domicile, residence or a similar criterion is deemed resident without any test of stay (see below).

Step 1: resident or non-resident

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

1. Condition (a): he is in India in that year for 182 days or more; or
2. Condition (c): he is in India in that year for 60 days or more, and has been in India for 365 days or more in all during the four years before that year.

An individual who meets neither is non-resident for that year. The days need not be continuous; all the days of stay in the year are added.

The 182-day cases

Explanation 1 to section 6(1) replaces the 60 days of condition (c) with 182 days for:

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

For them, therefore, only a stay of 182 days or more in the year makes them resident.

Assessment year 2021-22 changes

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

• a visiting citizen or person of Indian origin whose total income, other than income from foreign sources, exceeds ₹15 lakh in the year is resident under condition (c) on 120 days in the year (with 365 days in the four years before), not 182; and
• a citizen of India whose total income, other than income from foreign sources, exceeds ₹15 lakh, and who is not liable to tax in any other country because of domicile, residence or a similar test, is deemed resident (section 6(1A)).

Step 2: ordinarily resident or not

Only a resident is tested further. A resident individual is resident and ordinarily resident unless he falls in one of the categories below, in which case he is resident but not ordinarily resident (section 6(6)). The first two categories are the two alternative tests of section 6(6)(a): meeting either one is enough.

Category 1

Non-resident in nine of the last ten years. The individual was non-resident in India in nine out of the ten previous years before the year in question. A person who has lived abroad for most of the last decade and has just returned falls here, even if he stays in India for the whole of the current year.

Category 2

729 days or less in the last seven years. During the seven previous years before the year in question, his stay in India adds up to 729 days or less. So a person who was in India for about 100 days a year for the past seven years (700 days) is not ordinarily resident even if he was resident in some of those years.

For assessment year 2021-22 two further groups are also 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 who is resident only under the 120-day rule, having been 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)).

Why it matters (section 5)

Worked example (our own facts)

Ms. Kavya, an Indian citizen working in Dubai, was non-resident in each of the ten years 2010-11 to 2019-20 and spent about 30 days a year in India. She returns for good on 1 July 2020 and stays in India until 31 March 2021 (274 days).

• Step 1: 274 days is 182 days or more, so she is resident for 2020-21 (section 6(1)(a)).
• Step 2: she was non-resident in all ten earlier years, so Category 1 applies (and her stay of about 210 days in the seven earlier years also meets Category 2).
• She is resident but not ordinarily resident for assessment year 2021-22: her Dubai salary for April to June 2020, earned and received outside India, is not taxed in India.