Individuals need to stay informed about their residential status for the previous year during income tax filing. The taxability of an individual depends on the residential status in that year.
Section 6 of the Income Tax Act categorises the citizens into three different categories for ease of taxation based on their residential status. The categories are given below:
The income tax to be levied on an individual depends on the above-mentioned categories. This is why it is important to know your residential status before filing income tax returns.
Determining one’s residential status is vital as the amount of tax that an individual has to pay depends on it. For example, if an individual is a resident of India, the person has to pay tax on the global income even though he/she can claim facilities of DTAA (Double Taxation Avoidance Agreement). However, an NR or RNOR has to pay tax on his/her income received only in India.
Here are the details of eligible and not eligible taxpayers in different scenarios:
|Income of the Resident||ROR||RNOR||NR|
|Income received or earned in India independent of the source||Yes||Yes||Yes|
|Income earned in India or is supposed to be earned during the mentioned financial year, independent of the source||Yes||Yes||Yes|
|Income earned and received outside India from other sources in the mentioned financial year||Yes||No||No|
|Income received outside India, but the business is being managed from India||Yes||Yes||No|
Apart from the above-discussed criteria, there are some exceptions to the rules applied to an individual. The exceptions are as follows:
There are some criteria mentioned in Section 6 of the Income Tax Act that an individual has to fulfil to be identified as a Resident of India. They are as follows:
If an individual does not meet either of the above mentioned criteria, he/she is considered a Non-Resident Indian (NRI).
Now there are more criteria one should satisfy to be considered an Ordinarily Resident. The criteria are discussed below:
Furthermore, when it comes to the conditions for being considered as a Not Ordinarily Resident, the following criteria have to be fulfilled:
Now, you might want to know what Deemed Resident in India means. To find out, read on!
Deemed Resident of India is an individual who —
The taxability of an individual is largely dependent on his/her residential status. Hence, it is crucial to determine the residential status as per Section 6 of Income Tax Act, India.
Ans: A citizen is a native of that country or belongs to the country. In contrast, residential status is a legal status given to an individual for living and working in the country. Citizens have the right to vote, work, live, study, and get healthcare facilities in that country, but a residency only gives them the right to work, study, and live in that country.
Ans: A DTAA or Double Taxation Avoidance Agreement is a pact signed between India and a foreign country. This agreement aims to save taxpayers from paying double taxes on their income earned from the source country as well as the residence country.
Ans: To avail of the benefits under DTAA, a Non-Resident Indian has to submit the following documents:
Tax Residency Certificate acquired through the native government
Self-attested copy of PAN card
Self-attested copy of VISA and Passport
OCI (Overseas Citizen of India) card (if applicable)
Indemnity-cum-declaration(if banks are involved)
Ans: ‘Place of Effective Management’ refers to the place where vital commercial and management decisions that are important for the business have taken place. POEM has been levying taxes on the shipping businesses.
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