In today’s article, we will discuss the topic related to the residential status of an assessee as defined in the income tax act 1961. The residential status will help determine the taxable income in India. The residential status of an assessee as defined in SECTION 6 OF INCOME TAX ACT, 1961.
Residential status is very important in Income Tax Act as the determination of tax liability depends much on it.
An assessee is either;
(a) resident in India; or
(b) non-resident in India.
However resident individual and HUF maybe
(a) resident and ordinarily resident; or
(b) resident but not ordinarily resident.
All other assessees are either resident or non-resident.
|The aggregate income is different in the case of a person resident in India and a person non-resident in India. Further, in the case of an individual and Hindu Undivided Family (HUF) being “not ordinarily resident in India”, the meaning of total income shall be slightly different. Since the total income of an assessee varies according to his residential status in India, the incidence of tax shall also vary according to such residential status in India.|
Residential status is a term coined under Income Tax Act and has nothing to do with the nationality or domicile of a person. An Indian, who is a citizen of India can be a non-resident for Income-tax purposes, whereas an American who is a citizen of America can be a resident of India for Income-tax purposes. The residential status of a person depends upon the territorial connections of the person with this country, i.e., for how many days he has physically stayed in India.
The residential status of different types of persons is determined differently. Similarly, the residential status of the assessee is to be determined each year concerning the “previous year”. The residential status of the assessee may change from year to year. What is essential is the status during the previous year and not in the assessment year.
Important Points to note:
- Residential Status in a previous year. Residential status is to be determined for each previous year.
It implies that—
- Residential status of assessment year is not important.
- A person may be resident in one previous year and a non-resident in India in another previous year, e.g., Mr. A is resident in India in the previous year 2018-19 and in the very next year he becomes a non-resident in India.
- Duty of Assessee. It is assessee’ s duty to place relevent facts, evidence and material before the Income Tax Authorities supporting the determination of Residential status.
- Dual Residential Status is possible. A person may be resident of one or more countries in a relevant previous year e.g., Mr. X may be resident of India during previous year 2018-19 and he may also be resident/non-resident in England in the same previous year. The emergence of such a situation depends upon the following
- the existence of the Residential status in countries under considerations
- the different set of rules having laid down for determination of residential status.
Determination of Residential status of different ‘Persons’:
As we know that Income tax is charged to every person. The term ‘Person’ has been defined under section 2(31) includes:
- An individual
- Hindu Undivided Family
- association of persons (AOP) or a body of individuals (BOI)
- Local authority
- Every other artificial juridical person not falling in preceding six sub-classes.
Therefore, it is essential to determine the residential status of the above various types of persons and now we shall learn the calculation of the residential status of each type of person.
Basic rules for determining Residential Status of an Assessee
The following basic rules must be taken into consideration while determining the residential status of an assessee:
- Residential status is regulated for each category of persons separately, for example, there are separate set of rules for regulating the residential status of an individual, Hindu undivided family (HUF) and separate rules for companies, etc.
- Residential status is always decided for the previous year because we have to decide the total income of the previous year only.
- Residential status of a person is to be determined for every previous year because it used to change from year to year. For example, Rohan, who is resident of India in the previous year 2020- 21, may become a non-resident in previous year 2019-20.
- According to Section 6(5) of Income Tax Act,1961, If a person is resident in India in a previous year relevant to an assessment year in respect of any source of income, he shall be deemed to be resident in India in the previous year relevant to the assessment year in respect of each of his other source of income.
- A person may be a resident of more than one country for any previous year. If John, is a resident in India for previous year 2020-21, it does not mean that he cannot be a resident of any other country for that previous year.
- Citizenship of a country and residential status of that country are separate concepts. A person may be an Indian national/citizen, but may not be a resident in India. On the other hand, a person may be a foreign national/citizen, but may be a resident in India.
- It is the responsibility of the assessee to place all material facts and information before the assessing officer to enable him to determine his correct residential status.
SIGNIFICANCE OF RESIDENTIAL STATUS
We are living in such a society where we abhor the concept of sharing. We only think about the individual while we should think of society for the large.
That’s why we try all possible ways to not share our own hard-earned money with the government. However, it is an extremely important responsibility to pay the tax for the growth of the nation. Because the money which we are paying as a tax is directly or indirectly connected to our own development.
At the time of filing of tax return, the residential status of the individual is very significant. Because the Income Tax Department calculates tax according to the residential status of the individual.
Residential Status of the individual, company, a firm is necessary because they are commencing their business in India and for their business, they are using the resources of the particular country and while using the resources they are earning money. So Residential status of the particular person plays a significant role while at the time of paying taxes.
Origin, Nationality, place of birth, domicile doesn’t play a vital role in the calculation of Income Tax. If a person who is a citizen of India can be non-resident and the person who is not an Indian citizen and if they are residing in India, and if they are fulfilling the criteria of Resident then as an eye of Income Tax, they can be resident of India and they will be taxable in nature.
A resident will be charged to tax in India on his global income i.e., income earned in India as well as income earned outside India.
While calculating the residential status of an Assessee we check the physical stay in India and the physical stay of an individual is checked by their physical stay of the previous years. However, the residential status of an individual changes from year to year.
Like a person who can be a resident for this year they can’t be resident for the next year if they are not fulfilling the resident criteria. That’s why once a taxpayer can’t be a taxpayer for next year.
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