Amended Residential Status of an Individual as per Finance Act, 2020

• Taxation
• ||
• August 4, 2020

Residential Status of an Individual under taxation is determined on the basis of his physical presence in India, i.e. depending on the number of days he stays in India during the Previous Year and Preceding Previous Years. 

For tax purposes, taxpayers are categorized into two categories:

• Resident
• Non Resident (NR)

And further Residents are categorized into:

• Resident & Ordinary Resident (ROR)
• Resident but Not Ordinary Resident (RNOR)

As per Section 6 of Income Tax Act, 1961, an individual is said to be a resident in previous year if he satisfies one of the following two conditions

• His physical stay in India is for 182 days or more during the relevant previous year
OR
• His physical stay in India is for 60 days or more during the Previous Year and for 365 days or more during the 4 years preceding the relevant previous years

An individual is said to be resident if any one of the conditions mentioned above is satisfied, otherwise the individual is considered as a Non-Resident.

A relaxation has been provided to any individual  

• Who is a citizen of India and has left India for taking up any business or profession or employment outside India 
• Who is a citizen of India or is a person of Indian origin and is having business / profession/  employment outside India and has come to India on a visit
• Who is a citizen of India and has left India as a crew member of an Indian ship

Such special category individuals will be considered as resident only if they stay in India for 182 days or more, i.e. condition of 60+365 days is not applicable to these individuals.

• The Finance Act 2020 has altered the provision for such special category individuals and accordingly reduced the period of 182 days to 120 days for Indian citizen and person of Indian Origin having Total Income other than Income from Foreign Sources more than Rs. 15 Lacs. Now they are deemed to be resident as per below conditions: –
  • His physical stay in India is for 182 days or more during the relevant previous year
  OR
  • His physical stay in India is for 120 days or more during the Previous Year and for 365 days or more during the 4 years preceding the relevant previous years

Further concept of Deemed Resident has been introduced by the Finance Act 2020 under which those Indian Citizens having Total Income other than Income from Foreign Sources more than Rs. 15 Lacs and who is not liable to pay tax in any other country or territory by reason of domicile or residence shall be Deemed to be Resident in India.

An Individual will be treated as Resident & Ordinary Resident (ROR) in India in Previous Year if he satisfies both the following conditions:

• He is a resident in India in any 2 out of the last 10 years preceding the relevant previous year
AND
• His total stay in India in the last 7 years preceding the relevant previous year is 730 days or more

If both the conditions are satisfied then the individual will be considered as ROR but if only one or none of the conditions are satisfied then the individual will be treated as Resident but Not Ordinary Resident (RNOR).

The Finance Act 2020 has introduced two more conditions for an Individual to become RNOR:

• A citizen of India or a person of Indian Origin having total income other than income from foreign sources exceeding Rs. 15 Lacs, who has been in India for a period of 120  days or more but less than 182 days during the previous year
OR
• An individual who is considered to be deemed resident in India.

The expression “The Finance Act 2020” includes income which accrues or arises outside India, except income derived from a business controlled in or a profession set up in India.

Here, at AJSH we do assist our clients in determining the residential status and taxability related services. If you have any questions or want to know more as how to determine the residential status and taxability, please click here.