It is important to determine the residential status before we determine the taxability of an individual in India. Taxability of the transactions in India is dependent on the residential status. Let us understand the residential status and taxability in detail:
What is the meaning of residential status?
The taxability in India depends on the residential status for a particular financial year. Residential status has been defined under section 6 of the Income Tax Act, 1961 (“the Act”) and it should not be confused with the citizenship in India. A person who is an India citizen need not necessarily be tax resident of India. Similarly a non-resident individual can be a tax resident of India if the conditions mentioned below are fulfilled.
What are the classifications of residential status as per the Act?
There are three classifications in which the residential status of an individual is
b. Resident but non ordinary resident (RNOR)
c. Non-resident (NR)
An individual is said to be resident if:
i. If his/her stay in India for a particular financial year is 182 days or
ii. If his/her stay in India for a particular financial year is 60 days or more
and the aggregate stay is 365 days or more in the preceding 4
financial years preceding the relevant financial year.
In case of an Indian citizen or person of Indian origin leaving India in a
particular financial year as a member of crew of India ship or for the purpose
of employment outside India then, in condition (ii) above, the 60 days would
be replaced by 182 days.
Vide Finance Act, 2020 this, 182 days is further reduced to 120 days w.e.f.
financial year 2020-21 for individuals earning income exceeding 15 lakhs in
Further via Finance Act, 2020 amendment was also made to include an
Individual being a citizen of India who is earning income exceeding 15 lakhs or
more in India and who is not liable to tax in any other country or territory
outside India, as a Resident of India.
For eg:- An individual who is an Indian citizen staying outside India but is not
a tax resident in any other country and is earning income in India of Rs. 17 lakhs in a particular financial year, then he/she would be classified as
resident of India for that particular F.Y.
B. Resident but non ordinary resident (RNOR):
If an individual satisfies either of the conditions mentioned above, he/she
would qualify as resident in India. This is further to be classified as Resident
and Ordinary Resident (ROR) or Resident but not Ordinary Resident (RNOR).
An individual is said to be ROR if:
i. He/She is a resident in atleast 2 out of the 10 previous years
preceding the relevant financial year; or
ii. The aggregate no. of days stay during the 7 previous years preceding
the relevant financial year is 730 days or more.
Thus, any individual who does not satisfy the above-mentioned conditions
would be classified as RNOR.
Vide Finance Act, 2020, additional two criteria for RNOR were inserted which
are as follows:
i. A citizen of India or person of Indian origin leaving India for
employment outside India in a particular financial year having total
income exceeding 15 lakhs or more from India who’s stay in India is
exceeding 120 days but is less than 182 days; or
ii. An Indian citizen who is earning income exceeding 15 lakhs from India
and is not a taxed in any other country or territory outside India.
An individual who does not satisfy the conditions mentioned in point A above
(i.e. who does not satisfy the conditions of being a resident) would be
considered as Non-Resident in India.
What is the taxability of each type of classification above ?
A. Resident and Ordinary Resident (ROR)-
Their global income would be subject to tax in India.
B. Resident but not Ordinary Resident (RNOR) and
Only the income earned in India would be taxable in India.