IPCC – Tax – Residential Status

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Fundamental

 

  • Residential status is determined for each category of person separately e.g. there are separate set of rules for determining the residential status of an individual and separate status for companies
  • Residential status must not be confused with the nationality or citizenship of the assessee. These are entirely different concepts.
  • It is not necessary that a person who is resident in India can’t become resident in any other country for the same AY. A person may be resident in more than one country at the same time for tax purpose as well as she/he may also enjoy two domiciles simultaneously.
  • The residential status under I.T Act has no connection with the provisions for residency under the Foreign Exchange Management Act or any other law in India. A person may be resident under FEMA and yet be non-resident under the T. Act and vice versa
  • Residential status of person is to be determined for every Previous Year because it may change fm year to year.
  • If a person is resident in India in a PY relevant to an AY in respect of any source of income, he shall be deemed to be resident in India in the PY relevant to the AY in respect of each of his other sources. [Section-6(5)]
  • Residential status of assessee does not depend upon the residential status of his/ her relative.

For example:-

If assessee’s husband is resident in India, it does not mean that assessee is also resident in India.

  • India includes territorial water of India.

   For example:

If an individual says on a ship, which is in territorial water of India , then It would be treated as his  presence in India.

KEY POINTS

  1. “Territorial water” means that portion of the sea which is adjacent to the shores of the country. Territorial water extends up to 12 nautical miles from the base line on the coast of India . [1NM=1.853 KM]

Indian Citizen has not been defined in the I.T .Act. As per Citizenship Act, 1955, the various modes of acquisition of citizenship are as follows:

  1. Every person who born in India’
  2. A person born outside India , but at the time of his/her birth any of his parents is a citizen of India;
  • Person who are married to citizen of India
  1. Person after residing in India 5 Years makes an application for citizenship;
  2. If a new territory becomes a part of India , person residing in that territory;
  3. By application for naturalization to the Govt. of India

 

 

 

Residential Status

 

 

                                                                                               Ordinary Resident                            OR/ROR

                                               Resident in India

                                                                                              Not Ordinary Resident

 Person                                                                                                              NOR/RNOR

                                                               NR

                                             Non – Resident in India

 

 

 

Person                                 Individual

                                               HUF

                                            Company             

Who can earn                      Firm/LLP/AOP/BOI s

                                               Others

  Residential Status of HUF-section6( 2)

Family Business or Family Income

 

 Karta

 

 

 

Section 6(2):- Residential Status of HUF-

If Control and management of Family is situated

 

 

                             

                                            Wholly or                                                                                     Wholly Outside

                                             Partly in India                                                                             OUTSIDE India

              

                                                HUF= Resident                                                               HUF =     Non –Resident

Case law –CIT vs Nandlal Gandalal[1960]

As per supreme court,control means de-facto control & not mere right to control.Therefore,if  karta has delegated his power to other person(known as De-facto karta),place where decision have been by such de-facto karta,shall also be considered while checking residential status.

NOTE-for determining whether HUF is resident or not, the residential status of the Karta is not at all relevant. But for determining whether the HUF is ordinarily Resident in India or not, Karta (including all successive karta)status for the preceding year become important.

Problem 1.HUF is situated in Delhi whose karta is Mr.John.Mr. john has been in India  since 1.1.2011 and before that he was in UK. Mr.john takes all decision regarding the working of HUF in India. Determine residential status of HUF for the AY 2016-17.                                                                                                                                       [R & OR]

Problem2.HUF is situated in Mumbai.Its karta is Mr.David,who is 92 years of age has delegated power to his eldest son Mr.john. Mr.David is in USA for his Medical treatment and left India for the 1st time on 18.09.2014.Mr.john has full control over affairs of HUF.Mr.john exercises partial control from India and partially from Nepal.calculate residential status of HUF and karta Mr.David for the A.Y 2016-17.                            [ Karta -David-NR,HUF-R & OR]

 

 

 

 

Section6 (4):- Residential Status of Firm /LLP  /AOPs / BOI /Other

                                                                                             Partnership firm                                                      Body Of  Individual

                                                                                                           Limited liability Firm 

                                                                                                                                                      Association of person

Note-Firm & AOP/BOI ,if resident,are not to be classified as ROR & RNOR.

 

 

Section 6(3):- Residential Status of Company

Company

                                                                                  Indian Company                                                                Foreign Company

 

 

 

                                                                          Always Resident                                                                            POEM

 Outside India
    In India

 

 

 

 

    Non –     Resident

 

Resident

 

 

 

 

 

 

  • Indian Company

. Registered office in India

.Company Registered under Indian company act.2013 or any previous law

  • Place of Effective Management[POEM] ………FA.2015

It means A place where Key management and commercial decisions that are necessary for the conduct of business of an entity as a whole  are ,in substance mode.

A set of principle to be followed in determination of POEM would be issued for the guidance of the taxpayer as well as tax administration.

 

Problem3.Tata limited is a company incorporated in India and which has its registered office in Mumbai. For the P.Y  2015-16,The place of effective management  of it is situated in Nepal. Determine its residential status for the A.Y  2016-17.

Problem4. Vijay ltd.is incorporated in India .it carries on  business in new Delhi and London. Th place of effective management is situated in USA. 80% of total income of the company is from the business in London .Prakash ltd.is incorporated in Nepal but its place of effective management holds in India. Discuss the residential status of  vijay ltd. & prakash ltd for A.Y 2016-17.

 

  • section 6(1) Resident in india

An individual is said to be resident in India in any PY if he satisfies any one of the following two basic condition –

  • If he/she is physically present in India at least 182 days or more during the RPY.

or

  • If he /she were physically present in India at least 60 days or more during the RPY & 365 days during last 4 years immediately preceding the RPY.

 

Key Points

 

  • Exception- Special Person
  1. Indian citizen who leaves India during the PY for employment purpose
  2. Indian Citizen who leaves India during the PY as a crew member of an India ship.
  3. An Indian citizen or a person of Indian origin, who normally reside outside India, comes on a visit to India during the PY

 

  • Non resident in India

If an individual does not satisfy any of the above condition given u/s 6(1) she/he will be a non-resident  in India for the relevant PY.

 

  • Resident and ordinarily resident (ROR). [Section 6(6)]

 

As per section 6(6) A resident individual is said to be ROR in India if he satisfies both the following additional conditions :-

  1. He/she has been resident in India at least 2 out of 10 PY immediately preceding the RPY.

And

  1. He/she has been in India for at least 730 days during 7 years immediately preceding the RPY.

 

 

  • Resident but not ordinarily Resident (RNOR)

If an individual does not satisfy any one or both the additional conditions, then he/she will be treated as resident but not ordinarily resident.

 

 

Section 6(1):- Residential Status of INDIVIDUAL

 

Stay in India at least 182 days or more during RPY
Basic Condition
Stay in India at least 60 days or more during RPY +365 days or more during last 4 PY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Example -1

 

 

      10                    11             12               13               14                15                      16

 

                                         60           70           100               —                190

 

 

 

                                                                                                                          ?

 

 

 

 

Find out the residential Status for the Previous Year 2015-16

 

Example-2

10        11           12                  13               14                     15                        16 

 

 

200             —                  —               100                            70

?                     

 

Find out the residential Status for the previous year 2015-16

Example-3

10             11          12                   13                14                     15                        16     

                         100              —                  200              70                        90

 

 

Find out the residential Status for the Previous Year 2015-16

Example:4-

10              11                  12                13                     14                     15                       16

                          —                   90              100                   200                  55

 

 

                                                                                                                      ?                              

Find out the Residential status for the Previous Year 2015-16

Answer:        

 

Section 6(1):- Residential Status of Individual

                                                          Special Person                                               Normal Person                   

                                                        He satisfies first                                              He satisfies any one out of

                                                          Basic condition                                               two basic Condition                     

 

 

                                    

                                    No                                                 Yes                      Yes                                                      NO

                                    

 

Resident

                                                                   

                                                                                 Both Additional Conditions

 

 

                                 Yes                ROR                                                                                       NOR                     NO

 

Points to be remembered

  1. Bothe the day of arrival and the day of departure should be taken as the day of stay in India.
  2. Official tours abroad in connection with employment in India shall not be regarded as employment outside India
  3. “Relevant PY” means the PY for which the residential status is being determined.
  4. Stay at the same place in India is not necessary.
  5. Continuous stay in India is not necessary
  • Meaning of Person of Indian Origin[115C(e)]

A person shall be deemed to be a person of Indian origin if he or either of his parents or any of his grandparents , was born in undivided  India [ i.e. Before 1947 ].India includes Pakistan and Bangladesh.Grand -parents includes paternal grandparentd or maternal grand parents.

Problem5.Mr. john is unemployed in India and get a job in the US.He leaves India to join his duties in the US.Now Mr.John is leaving India for employment outside India. Discuss his  residential status?

Problem6.Mr.Ram is working  in MNC in India.He sent to the Uk by the company for 3 years. Now Mr.Ram is leaving India for employment outside India. Discuss his residential status?

Problem7.Mr. jai an Indian citizen, who is appointed as auditor  by a reputed company of USA, and leaves India for the 1st time on 13.09.2014.During P.Y 2015-16,he comes to India on a visit for 175 days. Determine  his residential status of Mr.jai for A.Y 2016-17.                                                              [NR]

Problem 8.An Indian company deputes its employee Mr.Manoj to the UK for a period of two years starting from 1.07.2015.Income tax authorities contended that Mr.manoj is not unemployed at the time of leaving India,hence the provision of 60days stay in India would be applicable and therefore Mr.manoj is a resident in India.Decide whether he is resident or a non resident.

Problem9.Mrs. Sunita Williams (citizen of USA), a famous astronaut,comes to India on 2.10.2015 to visit her grandmother who was born in Gujrat in 1935.she stay in India till 26.01.2016 and then leaves for USA. Calculate her Resedential status for A.Y 2016-17                                                                               .[NR]

Problem10.Mr.john is a foreign cricketer and has been coming to India for 100 days every year since 2008-09.Determine his residential status for A.Y2016-17.                                                        [R&NOR]

Problem 11.Determine the residential status of Mr.R who is citizen of Australia,for the AY.206-17,who stays in India as follows-

    Previous  year No of days in India      Previous year No of days in india
      2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

        100

86

91

80

91

89

      2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

 

            90

89

94

197

75

85

                                                                                                                                                                      [R&NOR]

Problem12.Mr.john is a citizen of Australia and has been staying in India since 1.01.2009.He leaves India on 16.07.2015 to visit Australia and return on 4.01.2016.Determine his residential status for the A.Y 2016-17.                                                                                                                                                  [ R&OR]

                                                                                                                                                 

Problem13.Mr.R and Mrs.R are citizen of USA. They come to India on 1.10.2015. for a seven month.Both have been coming to India earlier and the data for their stay is given to you-

       Previous year  No of days in India of Mr.R  No of days in India of Mrs.R
          2011-12

2012-13

2013-14

2014-15

         118

Nil

330

235

               120

28

30

365

Calculate the residential status of Mr.R and Mrs.R for A.Y  2016-17.        [Mr.R & Mrs.R both …R&NOR]

 

 

Section 5

Scope of Income Tax Incidence

 

Types of Income                R& OR             R & NOR                    NR
Income accrues India from Profession which Is setup in India.  

 

 

 

 

 

Income Received or deemed to be received in India.

 

 

 

Income accrues or deemed to be accrued in India

 

 

           ×
Income from business situated outside India it has been controlled from India or

 

 

           ×
 

Other Incomes

 

                    ×            ×

 

Sec.7

Income Deemed to be Received in India

 

The following incomes shall be deemed to be received in the previous year:-

  1. The annual accretion in the previous year by way of employer’s contribution to recognized provident fund, in excess of 12% of salary of employee.
  2. Interest credited on the balance of recognized provident fund in excess of 9.5% p.a.
  3. The transferred balance in a recognized provident fund, to the extent provided in Rule 11(4) of part A of the Fourth Schedule;
  4. The contribution made, by the central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80 CCD.

 

ANALYSIS OF SECTION 9 Income Deemed to be earned in India

     The following incomes shall be deemed to accrue in India-

  1. Income arising from any business connection in India.

Note1: Business connection shall not include any business activity carried out through independent Agent.

Note2: If all operation of business are not carried out in India , the reasonably attributable income to the operations carried out in India shall be deemed to accrue in India.

Note3: Following incomes shall not be deemed to accrue in India (Only for NR)

(a) Income from operation which are limited to purchase of goods in India for export.                                                 (b)  Income from news agency or publishing new papers, magazines or journals, which are confined to the          collection of news and views in India for transmission out of India.

(c)  Income from operations which are limited to shooting of cinematograph film in India.

Assessee (NR) for point no. (c)

…Individual (must be foreign citizen)

…Firm (all partner are NR & foreign citizen)

…company (all share holders are NR & foreign citizen)

  1. Income arising from any property or source situated in India.
  2. Income arising from transfer of capital asset situated in India.
  3. Income from salary, which is payable by Government to citizen of India for services outside India.
  4. Dividend income paid by Indian Company outside India [However it is exempt from tax u/s 10(34)]
  5. Income by way of interest which is payable by-
  • Government of India ,or
  • Any resident of India, if loan is used for any purpose in India.
  • Any NR of India,if loan is used for business or profession carried on in india.
  1. Income by way of royalty or fees for technical services payable by…
  • Government of India;
  • Any resident of India, if right or property used in India or services utilized in India.
  • Any NR of India, if right or property or services utilized in India.

     Practical Questions

problem 1. Compute taxable income,Mr.A has furnished the following information if he is  a)ROR b)RNOR C)NR

1) interest on German development bonds (TWO –fifth is received in India)…………………………………………….…  60,000

2) income from agriculture in Bangladesh, received there but later on  Rs.50,000 is remitted to India

(Agricultural activity control from Bangladesh)………………………………………………………………………………..………1,81,000

3) income earned from business in Kampala(Uganda) which is controlled from Delhi (Rs.15,000 received in India)…………………………………………………………………………………………………………………………………………………………………. 65,000

4) dividend paid by a foreign company but received in India on April 10,2015…………………………………………… 40,000

5) profit from business in madras and managed from outside India………………………………………………………….. 27,000

6) profit on sale of building in India but received in sri lanka……………………………………………………………………. 50,000

7.pension from a former employer in India ,received in Rangoon(net of standard deduction)…………………….30,000

8.income from business situated in Nepal & controlled from India (40% received in India & 60%

Received outside India)…….……………………………………………………………………………………………………………………….30,000

9.intersest received from  govt of India (received outside India)  ……………………………………………………………….20,000

10.interest received from a foreign company outside India (on capital which is utilized outside India )…..….15,000

11.royality received in India from  NR in respect of technology used by such person outside India………………20,000

12.income from a business in Bangalore controlled from USA ………………………………………………………………. …. 35,000

13.salary income received in India for service rendered in Pakistan  ………………………………………………………….25,000

14.Dividend received from an Indian company   ………………………………………………………………………………………. 10,000

15.Agricultural income in India  ……………………………………………………………………………………………………………….20,000

16.profit of past years (past untaxed profit) brought in this year    ……………………………………………………..…..…..5,000

 

Problem 2.

Compute  taxable income of an individual if he is…………1) ROR 2) RNOR 3) NR

1)profit from business in India ,but controlled from England………………………………………………………………….…..55,000

2)salary for service rendered in Pakistan, but received in India……………………………………………………………….….56,000

3)pension from Indian govt. against service rendered in India,but received in Nepal……………………………..…….35,000

4)interest on foreign Govt.securities,received in foreign…………………………………………………………………..……..…..40,000

5)profit from business in Africa,controlled from India………………………………………………………………………………..45,000

6)profit from business in Delhi but half of the income is received outside India……………………………………..…….45,000

 

Problem 3.

Gopinath furnished the following information for the previous year, compute his total income if he is…….1)ROR 2)RNOR 3)NR

1)salary received in India for 9 months……………………………………………………………………………………………….….…1,80,000

2) income from house property in London (received there)……………………………………………………………………..….2,60,000

3) interest on saving bank deposited in a bank in new Delhi…………………………………………………………………………20,000

4) Income from business in Nepal , being controlled in India, half of the income received in India………………….40,000

5)Gift in foreign currency from a relative received in India………………………………………………………………………..….80,000

6) past untaxed foreign income brought to India in the previous year………………………………………………………..….30,000

 

Problem 4.

Ram has furnished the following information in the previous year, compute taxable income if he is …..1)ROR 2)RNOR 3)NR

1)Income from salary in India from lanka limited ……………………………………………………………………………….………84,000

2)dividend from an Indian company received in U.S.A and spent there…………………………………………………………14,000

3) income from house property in Pakistan and received there………………………………………………………………….…45,000

4)income from business in Kolkata, which is controlled from U.S.A……………………………………………………………….55,000

5 )$ 2,000 earned in U.S.A during the previous year 2006-07 was brought to India

6) Received $1,000 draft as gift from his uncle in U.S.A for his daughter`s marriage [1$=Rs 44]

 

Problem 5.

Gopal has furnished the following information, compute taxable income if he is……………1)ROR 2)RNOR 3)NR

1) profit on sale of plant at London (one-half  is received in India)…………………………………………………………1,43,000

2) profit on sale of plant at Mumbai (one-half is received in London)……………………………………………………..1,42,000

3) salary from an Indian company received  in UK (one-half is paid for rendering service in India…………..1,60,000

4) Interest on U.k development bonds(entire  amount is received in London)…………………………………………….50,000

5) income from property in London received there……………………………………………………………………………………34,000

6) profit from a business in Mumbai  managed from there…………………………………………………………………………39,000

7) Income from agriculture in London received there, half of which is used for meeting hostel

Expenses of Gopi-son is U.k and remaining amount is later on remitted to India…………………………………………90,000

8) Dividend (Gross) received in London on May 2015 from a company registered in India but mainly operating in  U.K……………………………………………………………………………………………………………………………………………………………………………………………17,000

9) Rental income from a property in Nepal deposited by the tenant in a foreign branch of an Indian bank operating there………………………………………………………………………………………………………………………………………………………….38,000

 

Problem 6.

Ram has furnished the following information, compute taxable income if is………………….1)ROR 2)RNOR 3)NR

1) interest on German development Bond (one-third is received in India)…………………………………………………..55,000

2) income from agriculture in Bangladesh, received there and remitted to India………………………………………..31,000

3) income from property  in Canada received in U.S.A………………………………………………………………………………1,10,000

4)income earned from business in Kuwait,business being controlled from india(Rs.26,000 is received in India)…………………………………………………………………………………………………………………………………………………………66,000

5)Dividend from an Indian company ………………………………………………………………………………………………………….25,000

6)Royalty received in Singapore from Mr. john ,resident in India for technical service provided for a business carried in Singapore…………………………………………………………………………………………………………………………………………….…33,000

7)profit from a business  in Chennai, this business is controlled from Singapore………………………………………….1,25,000

8)profit on sale of a building in Mumbai ,but received in Nepal…………………………………………………………….…..1,50,000

9)income from agriculture in Punjab ,received in Delhi ………………………………………………………………………..…….40,000

10)profit from business situated in Uk which is controlled from Delhi (60% of the profit deposited in a bank there and 40% is remitted in India)…………………………………………………………………………………………………………….….….4,10,000

11)interest received from Mr.daya, a non-resident, on the loan provided to him for a business in India…….25,0000

 

Problem 7.

Mr.kush came to India for the 1st time on 1st july 2008 and been staying here since then what will be his residential status for p.y 2015-16.

 

Problem 8.

Mr. Mohan, an Indian citizen, leaves India on 18th September 2015, after a stay of 10 years , to work as an officer of a company in japan. Determine his residential status for the A.Y 2016-17.

 

Problem 9.

Mr.Om, an Indian citizen ,is appointed as a senior executive by a company in Canada .He left India, for the 1st time on September 16,2013 to join his duty in Canada. During the previous year 2014-15, he comes to India for 96 days. Determine the residential status of Mr. Om for the A.y 2014-15 and A.Y 2016-17.

 

Problem 10.

Mr. David, a foreign citizen , a scientist from U.K was appointed as a  senior scientist in India on 1.4.2013. on 31.1.2014, he went to Pakistan but left his family in India. On 1.5.2015,he came to India and took his family in 31.10.2015. Determine his residential status for the A.Y  2014-15 to 2016-17.

 

 

Problem 11.

Mr.Ramjee and Mrs.Ramjee came to india on October 12,2015 for a visit of 7 months. Both of them are Indian citizen. In the earlier years they in india as follows-

Year                                                           Mr. Ramjee                                                            Mrs. Ramjee

2014-15                                                       243 days                                                                 365 days

2013-14                                                        343 days                                                                  29 days

2012-13                                                           nil                                                                            18 days

2011-12                                                         115 days                                                                   126 days                                                                       Determine their residential status for the A.Y 2016-17.

 

Problem 12.

Mr. Bhanudev, an Indian citizen, is appointed as a senior executive by a company in Canada. He left India ,for the 1st time ,on September 27,2014  to join his duty in Canada. During the P.Y 2015-16, he comes to India for 94 days. state the residential status of Mr. Bhanudev for the A.Y 2015-16 and 2016-17.

 

Problem 13.

Ram Ltd. And Krishna Ltd. Companies are registered in Nepal and India respectively. All meeting of Board of director of Ram ltd. were held in India, whereas all Board meeting of Krishna Ltd. were held in Nepal during the P.Y 2015-16. Determine their residential status for the A.Y 2016-17.

 

Problem 14.

Mrs. Asmi was born in 1976 in Delhi. Her father and mother were also born in India in 1949. Her grandparents were however born in London. Mrs.  Asmi left  India 1st time in last 32 years on 15.06.2012 and migrated to England . she took the citizenship of uk. She visit India during 2015-16 for 60 days. determine the residential status of Mrs.Asmi for A.y 2016-17.

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