Income Tax
Residential Status and Scope of Total Income
1. Section 6: Residential Status
1.1 Residential Status of an Individual
The taxability of an individual in India heavily depends upon their residential status for a given Previous Year (PY). An individual can fall into one of three categories:
- Resident and Ordinarily Resident (ROR)
- Resident but Not Ordinarily Resident (RNOR)
- Non-Resident (NR)
1.2 Basic Conditions — Section 6(1)
An individual is treated as a Resident in India if they satisfy any one of the following basic conditions:
- The individual is in India for a period or periods amounting in all to 182 days or more in the relevant PY.
- The individual is in India for 60 days or more during the relevant PY AND for 365 days or more during the 4 preceding PYs.
1.3 Additional Conditions — Section 6(6)
Once deemed a Resident, an individual must test for "Ordinarily Resident" status. They are ROR if they satisfy both additional conditions:
- Resident in India in at least 2 out of 10 previous years immediately preceding the relevant PY.
- Present in India for 730 days or more during the 7 previous years immediately preceding the relevant PY.
Note: If a resident fails to satisfy one or both of these additional conditions, they are classified as RNOR.
1.4 How Residential Status is Determined
- Test the Basic Conditions [Sec 6(1)]: Determine if the individual meets the 182-day or 60-day rule.
- Evaluate Resident or NR: If no basic condition is met, the individual is a Non-Resident (NR). If one is met, they are a Resident.
- Test Additional Conditions [Sec 6(6)]: If Resident, check the 2/10 years and 730/7 years rule.
- Assign Final Status: Assign ROR if both additional conditions are satisfied, otherwise RNOR.
AND >= 365 days in 4 preceding PYs?"} Q2 -- Yes --> Res Q2 -- No --> NR["Non-Resident"] Res --> Q3{"Resident in >= 2 of 10 preceding PYs
AND
Present in India >= 730 days in 7 preceding PYs?"} Q3 -- Yes --> ROR["Resident & Ordinarily Resident (ROR)"] Q3 -- No --> RNOR["Resident but Not Ordinarily Resident (RNOR)"]
1.5 Important Notes on Day Counting
- The date of arrival into India and the date of departure from India are both counted as days of stay in India.
- Stay in India does not need to be continuous.
- Stay can be at any place within the territorial waters of India.
1.6 Special Rule — Indian Citizen / PIO with Income > ₹15 Lakhs
For an Indian Citizen or a Person of Indian Origin (PIO) coming on a visit to India, whose total income from Indian sources exceeds ₹15 Lakhs, the "60 days" in the second basic condition is replaced with "120 days". If such a person becomes a resident purely by virtue of the 120-day rule, their status is mandatorily restricted to RNOR.
1.7 Summary Table — Indian Citizen / PIO Visiting India
| Total Indian Income | Basic Condition Trigger | Applicable Status |
|---|---|---|
| Up to ₹15 Lakhs | 182 days or more in the PY | Resident (ROR/RNOR based on Sec 6(6)) or NR |
| Exceeds ₹15 Lakhs | 182 days OR (120 days in PY + 365 days in 4 preceding PYs) | Resident (Always RNOR if qualifying via 120-day rule) |
1.8 Special Rule — Indian Citizen Crew Member of Foreign-Bound Ship
For an Indian citizen who leaves India as a member of the crew of an Indian ship bound for a foreign destination, the "60 days" condition does not apply (only the 182 days condition applies). Furthermore, the period starting from the date entered into the Continuous Discharge Certificate regarding joining the ship until the date entered regarding signing off is excluded from their stay in India.
1.9 Section 6(1A): Deemed Resident
An individual shall be deemed to be a resident in India if they satisfy all the following criteria:
- They are a Citizen of India.
- Their total income (other than income from foreign sources) exceeds ₹15 Lakhs during the PY.
- They are not liable to tax in any other country or territory by reason of their domicile or residence.
Such an individual is always classified as RNOR (Resident but Not Ordinarily Resident).
1.10 Section 6(2): Residential Status of Hindu Undivided Family (HUF)
An HUF is a Resident in India if the control and management of its affairs are situated wholly or partly in India. It is a Non-Resident if control and management are wholly outside India.
If the HUF is a resident, we check the Karta's status against the additional conditions (Sec 6(6)). If the Karta meets both additional conditions, the HUF is ROR. Otherwise, it is RNOR.
additional conditions of Sec 6(6)?"} Q2 -- Yes --> ROR["Resident & Ordinarily Resident (ROR)"] Q2 -- No --> RNOR["Resident but Not Ordinarily Resident (RNOR)"]
1.11 Section 6(2): Residential Status of Firm / AOP / BOI / Local Authority / AJP
A Partnership Firm, AOP, BOI, Local Authority, or Artificial Juridical Person (AJP) is considered Resident if the control and management of its affairs are situated wholly or partly in India. It is Non-Resident only if control and management are wholly outside India. (There is no concept of ordinarily/not ordinarily resident for these entities).
1.12 Section 6(3): Residential Status of a Company
A company is said to be resident in India in any previous year if:
- It is an Indian Company; OR
- Its Place of Effective Management (POEM) in that year is in India.
2. Section 5: Scope of Total Income
2.1 Taxability of Income — Individual & HUF
| Nature of Income | ROR | RNOR | NR |
|---|---|---|---|
| Income received or deemed to be received in India | Taxable | Taxable | Taxable |
| Income accruing/arising or deemed to accrue/arise in India | Taxable | Taxable | Taxable |
| Income accruing/arising outside India from a business controlled from or profession set up in India | Taxable | Taxable | Not Taxable |
| Income accruing/arising outside India from other foreign sources | Taxable | Not Taxable | Not Taxable |
profession set up in India?"} Q1 -- Yes --> Tax2["Taxable for ROR & RNOR
Not taxable for NR"] Q1 -- No --> Tax3["Taxable ONLY for ROR
Not taxable for RNOR & NR"]
2.2 Taxability of Income — Other Assessees
For Assessees other than Individual and HUF (e.g., Company, Firm):
- Resident: Global income is taxable in India.
- Non-Resident: Only Indian income (received/accrued in India) is taxable.
2.3 Important Notes on Income Taxability
- Remittance of past untaxed foreign profits into India is not taxable in the year of remittance.
- Agricultural income from land situated outside India is taxable for a Resident as "Income from Other Sources".
- Income accrued in India but received outside India is taxable for all categories.
3. Section 7: Income Deemed to be Received in India
The following incomes are deemed to be received in India in the previous year, irrespective of actual receipt:
- Employer's contribution to a Recognized Provident Fund (RPF) in excess of 12% of salary.
- Interest credited to RPF in excess of 9.5% per annum.
- The taxable portion of the transferred balance from an Unrecognized Provident Fund (URPF) to an RPF.
- Contribution made by the Central Government or any other employer to the account of an employee under a notified pension scheme (NPS) under Section 80CCD.
4. Section 9: Income Deemed to Accrue or Arise in India
4.1 Section 9(1)(i) — Business Connection / Property / Asset / Capital Asset in India
Any income accruing or arising, directly or indirectly, through or from the following shall be deemed to accrue or arise in India:
- A Business Connection in India.
- Any property in India.
- Any asset or source of income in India.
- The transfer of a capital asset situated in India.
4.2 Exceptions — Following shall NOT be treated as Business Connection in India
- Purchase of Goods for Export: In the case of a non-resident, no income shall be deemed to accrue or arise in India from operations confined to the purchase of goods in India for the purpose of export.
- Collection of News: A non-resident news agency or journal confining its activities to the collection of news and views in India for transmission out of India.
- Shooting of Cinematograph Films: Operations confined to the shooting of any cinematograph film in India by a non-resident individual (who is not a citizen of India), a firm (no partner is a citizen or resident), or a company (no shareholder is a citizen or resident).
4.3 Section 9(1)(ii) — Salary for Services Rendered in India
Salary earned for services rendered in India shall be regarded as income earned in India. Additionally, any leave salary paid abroad in respect of leave earned in India is deemed to accrue or arise in India.
4.4 Section 9(1)(iii) — Salary Received by Indian Citizen from Government
Salary payable by the Government of India to a Citizen of India for services rendered outside India shall be deemed to accrue or arise in India. (However, any allowances or perquisites paid outside India are fully exempt under Section 10(7)).
4.5 Section 9(1)(iv) — Dividend Paid by Indian Company Outside India
Dividends paid by an Indian company outside India are deemed to accrue or arise in India.
4.6 Section 9(1)(viii) — Deemed Accrual of Gift Made to a Person Outside India
Any sum of money exceeding ₹50,000 received by a non-resident or a foreign company without consideration from a person resident in India (on or after 5th July 2019) shall be deemed to accrue or arise in India.
4.7 Section 9(1)(v) — Interest
Interest is deemed to accrue or arise in India if it is payable by:
- The Government.
- A Resident, except where the debt is incurred wholly for the purposes of a business or profession carried on outside India or for earning income outside India.
- A Non-Resident, only if the debt is incurred for the purposes of a business or profession carried on in India.
4.8 Diagram — Interest (Section 9(1)(v))
4.9 Example — Applicability of Deemed Interest Rule
If an Indian resident company borrows money from a US bank to construct a factory in the UK, the interest paid to the US bank will not be deemed to accrue or arise in India because the money is strictly utilized for a business situated outside India.
4.10 Section 9(1)(vi) — Royalty
Royalty is deemed to accrue or arise in India if it is payable by:
- The Government.
- A Resident, except where the royalty is payable for the transfer of rights/property utilized for a business or profession carried on outside India or for earning income outside India.
- A Non-Resident, only if the royalty is payable for the transfer of rights/property utilized for the purposes of a business or profession carried on in India or for earning income from any source in India.
4.11 Section 9(1)(vii) — Fees for Technical Services (FTS)
FTS is deemed to accrue or arise in India under the exact same principles applied to Royalty. It matters not where the services were physically rendered; what matters is where the services are utilized.