Residential Status and Heads of Income
What this domain tests
Residential status fixes the scope of taxable income, so it appears both as theory and as a computation. Expect questions on the basic and additional conditions, the resident-and-ordinarily-resident, resident-but-not-ordinarily-resident and non-resident categories, the special rules for Indian citizens, and the five heads of income with their basic computational rules.
Core rules
- Basic conditions: resident if in India 182 days or more in the previous year, or 60 days or more in the previous year together with 365 days or more in the four preceding previous years. For an Indian citizen leaving India for employment, a crew member, or a person of Indian origin visiting India, the 60-day limb is replaced by 182 days.
- Additional conditions: ordinarily resident only if resident in India in at least 2 of the 10 preceding previous years and present in India for 730 days or more in the 7 preceding previous years. Failing either makes the person resident but not ordinarily resident; failing both basic conditions makes the person non-resident.
- Scope: ordinarily resident - global income; resident but not ordinarily resident - Indian income plus income from a business controlled from, or profession set up in, India; non-resident - Indian-source income only.
- Heads: salaries; income from house property (gross annual value − 30% standard deduction − interest on borrowed capital); profits and gains of business or profession; capital gains; income from other sources.
Worked example
Ms A, an Indian citizen, stays in India 200 days in the previous year, was in India 500 days in the seven preceding previous years, and was resident in 3 of the 10 preceding previous years. Basic condition 1 is met (200 ≥ 182), so she is resident. The additional conditions fail because she was not in India for 730 days in the seven preceding years, so she is resident but not ordinarily resident. Income from a business controlled from India is taxable in her hands; other foreign income is not.
Traps
- Applying the 60-plus-365 test to someone leaving India for employment, where the 182-day test applies.
- Mixing up the 10-year and 7-year tests.
- Taxing a non-resident on foreign income.
- Taking the 30% standard deduction from net annual value instead of from gross annual value.