Individuals - An individual will be ‘Resident’ in India in a previous year if he satisfies one of the following three conditions:

(a) He is in India in that year for a period or periods totaling not less than 182 days, or

(b) He has been in India

(i) for a total period of 365 days in four years preceding the previous year and

(ii) for 60 days or more in that previous year. However, in the case of following categories of persons, the limit of 60 days will be increased:

(i) to 182 days in the case of a citizen of India who leaves India in any year as a member of the crew of an Indian ship; and

(ii) to 150 days in the case of a citizen of India or a person of Indian origin who resides outside India and comes for a visit to India.

CONDITIONS NOT CUMULATIVE

These conditions are not cumulative and if any one of these conditions is satisfied, the assessee will be treated as ‘resident’ in India for that previous year.

Taking the condition (a), the assessee’s physical presence in India for 182 days or more is essential. This need not be continuous. Physical presence can be in intervals, but the total period of stay must amount to 182 days or more.

Coming to condition (b) even if he is not in India for 182 days in any year, if he was in India for 365 days in the preceding four previous years and is in India for 60 days in the relevant previous year, he will be a resident.

New liberalized test of residence - With a view to avoiding hardship in the Indian citizens who are employed or engaged in other vocations outside India, the test of residence are modified as under:

(i) The provisions relating to maintenance of dwelling place coupled with stay in India for 30 days or more is omitted. Thus, a person whether he maintains dwelling house for his family in India or not, can now stay in India in a year up to 181 days without being considered a ‘Resident’. This will enable the non-resident to spend longer periods with their families in India and also to have longer contact with India.

(ii) A person who visits India and stays in India for a period of 150 days or more in a previous year coupled with a total stay of 365 days in the four years preceding the previous year would be considered a resident for assessment year 1990-91 and subsequent years. In other words, a person who stays in India in a previous year for a period of 149 days can only be considered as a non-resident irrespective of the number of days stay in the earlier years. This change will enable Non-resident Indians to spend longer time in India for business of other reasons.

(iii) It is now provided that where an Indian who is a citizen of India leaves India in any year as the member of the crew of an Indian ship, he will not be treated as resident in India for that year unless he has been in India in that year for 182 days or more. The effect of this amendment will be that such a person could leave India during any financial year and not be liable to pay tax in India on his foreign income provided his stay in India during that year is less than 182 days.

The provision will apply to assessment year 1990-91 and subsequent years. To illustrate, if an Indian citizen leaves India on any day after 1st April, 1997 as a member of the crew of an Indian ship, he will have no tax liability in India on the foreign income provided he leaves India on or before 28th September, 1997 and does not come to India before 31st March, 1998.

HUF, Firm, Association of Persons - Tests of residence - Hindu Undivided Family, Firm or Association of persons is resident in India in any previous year in every case, except where during the year the control and management of its affairs is situated wholly outside India. The ‘control and management’ refers to actual or de facto control. It signifies controlling and directive power. ‘Situated’ implies functioning of such power at a particular place with some degree of permanence. ‘Affairs’ would mean affairs which have relation to the income and are relevant for the Income-tax Act. Thus, in the case of a Hindu Undivided Family, if the Karta is resident in India, the control and management would be in India and the Hindu Undivided Family would also be resident. In the case of a firm or an Association of persons, if the partners of the firm or the members of the association of persons are resident the Firm / association of persons would also be residents.

Company : Residential status - An Indian company is deemed to be resident irrespective of where its business is situated. In all other cases, a company would be resident in India if the control and management of its affairs is situated wholly in India.

Other persons - Residential status - Residential status of every other person would be taken as resident in India if the control and management of the affairs of its business is not situated wholly outside India.

Another important point to be remembered is that when person is resident in India in a previous year in respect of one source of income, he shall be deemed to be resident in India in the previous year in respect of each of his other sources of income also for the assessment year concerned.

NOT ORDINARILY RESIDENT

As explained earlier, the basic difference in tax liability between resident and not ordinarily resident is that in the case of not ordinarily resident, the foreign income emanates from a business controlled in India or from a profession set up in India.

An individual who is ‘Resident’ in a previous year would be ‘ordinarily resident’ in that previous year only when the following two conditions are satisfied, i.e.,:

(a) He has been ‘resident’ in India in nine out of ten previous years preceding that previous year; and

(b) He has during the seven years preceding that year been in India for a period or periods amounting in all to, at least 730 days.

In other words, if an individual satisfies at least one condition laid down for being a ‘resident’ for the previous year concerned and satisfies the two conditions given above, his residential status for that previous year will be ‘Resident’. But if a ‘Resident’ individual does not satisfy both the conditions stated above, he will be ‘Not Ordinarily Resident’ for that previous year. Periods of ten / seven years referred to here means either ten or seven accounting years preceding the relevant accounting year or where he is not assessed to tax, ten / seven periods of twelve months each preceding the relevant accounting year.

A person who is Resident in India and who goes out and remains non-resident for two years, would upon his return be treated as ‘Not Ordinarily Resident’ for the next nine years i.e., his income outside India will not be taxed in India.

Pension received from abroad by Pensioners residing in India - Pension received in India but accruing abroad for services rendered outside India will not be taxable on accrual basis unless the assessee is ‘Resident’. It will not be taxable on receipt basis also, in the case of assessees who are ‘Not Ordinarily Resident’ or ‘Non Resident’ if the pension is drawn and received abroad in the first instance and then remitted to India. But pension paid through treasuries in India on a Government to Government basis would be taxable on receipt basis even in the hands of ‘Not Ordinarily Resident’ persons.
 

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