How Does The Income Tax Act Determine Residential Status?
In the realm of Income Tax, the residential status of a person holds significant weight in determining tax implications. The residential status of a person can be classified into three categories:
Resident and Ordinarily Resident (ROR),
Resident But Not Ordinarily Resident (RNOR),
Non-Resident (NR).
Here’s how one can ascertain their residential status:
Resident: A resident taxpayer is an individual who satisfies any of the following conditions:
Resides in India for a minimum of 182 days in a year, or
Resided In India for at least 365 days in the preceding four years and for a minimum of 60 days in the current financial year.
Resident And Ordinarily Resident And Resident But Not Ordinarily Resident (RNOR): These are two more classifications under the resident status. Apart from the fundamental conditions, if both conditions are fulfilled, the individual will be classified as ROR:
They have lived in India for at least two out of the immediate 10 previous years.
They have lived in India for at least 730 days in the immediate seven previous years.
Non-Resident: An individual who does not satisfy the basic conditions for residence is categorized as a non-resident.
Specific Exemptions To The Basic Criteria Utilized In Determining An Individual’s Residential Status:
“If an individual, whether an Indian citizen or a person of Indian origin, visits India and earns income from Indian sources (excluding income earned outside India), and if that income exceeds Rs. 15 lakhs in the relevant previous year, they will be categorized as a Resident but Not Ordinarily Resident provided the following conditions are met: the individual stays in India for a minimum of 120 days during the relevant previous year. The individual stays in India for 365 days or more during the four preceding years, commencing from April 1, 2021,” Avinash Polepally, senior director, ClearTax said.
Starting from April 1, 2021, if an individual is a citizen of India and their total income, excluding income from foreign sources, surpasses Rs 15 lakh during the previous year, and they are not obligated to pay taxes in any other country, they will be considered a Resident in India for that particular previous year. If such an individual does not meet the primary criterion, then they will attain, Resident but not ordinarily resident status.
