Basic Concepts of Income Tax and Residential Status
This domain tests how income is classified and whose global or Indian-source income enters the tax computation. Start with the previous year (the income year) and the assessment year (the following year), then fix residential status before applying any head of income.
Core rules
- A “person” includes an individual, HUF, company, firm, AOP, local authority and artificial juridical person.
- An individual is resident if present in India for 182 days in the previous year, or for 60 days in that year plus 365 days in the four preceding previous years. The 60-day route is replaced by 182 days for an Indian citizen leaving India for employment or as crew, and for an Indian citizen or PIO visiting India whose income other than foreign-source income is up to ₹15 lakh; above ₹15 lakh the visiting rule is 120 days plus 365 days.
- Resident and ordinarily resident (ROR) requires residence in 2 of the 10 preceding previous years and 730 days in the 7 preceding previous years; otherwise the individual is RNOR. A deemed resident under section 6(1A) is normally RNOR.
- ROR is taxed on global income; RNOR on Indian-source income plus foreign business controlled from India or a profession set up in India; non-resident on Indian-source income.
Worked example
Ms A, an Indian citizen visiting India for the first time, stays 200 days in the previous year and has Indian interest of ₹20 lakh. The 182-day test makes her resident. She fails the 2-of-10 and 730-day tests, so she is RNOR. Her salary for services rendered abroad is not taxed; the Indian interest is taxable.
Traps
Do not apply 60 days when a statutory exception applies; count stay days correctly; RNOR is not non-resident; HUF residence follows control and management; deemed residence does not automatically make a person ROR.