Section 6 of Income Tax Act 1961-Residence in India
For the purposes of this Act,—
(1) An individual is said to be resident in India in any previous year if he—
(a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or
(b) [***]
(c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.
Explanation 1.—In the case of an individual,—
(a) being a citizen of India, who leaves India in any previous year as a member of the crew of an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted ;
(b) being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted and in case of such person having a total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year, for the words “sixty days” occurring therein, the words “one hundred and twenty days” had been substituted.
Explanation 2.—For the purposes of this clause, in the case of an individual, being a citizen of India and a member of the crew of a foreign bound ship leaving India, the period or periods of stay in India shall, in respect of such voyage, be determined in the manner and subject to such conditions as may be prescribed.
(1A) Notwithstanding anything contained in clause (1), an individual, being a citizen of India, having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year shall be deemed to be resident in India in that previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.
Explanation.—For the removal of doubts, it is hereby declared that this clause shall not apply in the case of an individual who is said to be resident in India in the previous year under clause (1).
(2) A Hindu undivided family, firm, or other association of persons is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India.
(3) A company is said to be a resident in India in any previous year, if—
(i) it is an Indian company; or
(ii) Its place of effective management, in that year, is in India.
Explanation.—For the purposes of this clause “place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made.
(4) Every other person is said to be resident in India in any previous year in every case, except where during that year the control and management of his affairs is situated wholly outside India.
(5) If a person is resident in India in a previous year relevant to an assessment year in respect of any source of income, he shall be deemed to be resident in India in the previous year relevant to the assessment year in respect of each of his other sources of income.
(6) A person is said to be “not ordinarily resident” in India in any previous year if such person is—
(a) an individual who has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less; or
(b) a Hindu undivided family whose manager has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less; or
(c) a citizen of India, or a person of Indian origin, having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year, as referred to in clause (b) of Explanation 1 to clause (1), who has been in India for a period or periods amounting in all to one hundred and twenty days or more but less than one hundred and eighty-two days; or
(d) a citizen of India who is deemed to be resident in India under clause (1A).
Explanation.—For the purposes of this section, the expression “income from foreign sources” means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India) and which is not deemed to accrue or arise in India.
Related Rule(s)
Rule 126-Computation of period of stay in India in certain cases
(1) For the purposes of clause (1) of section 6, in case of an individual, being a citizen of India and a member of the crew of a ship, the period or periods of stay in India shall, in respect of an eligible voyage, not include the period computed in accordance with sub-rule (2).
(2) The period referred to in sub-rule (1) shall be the period beginning on the date entered into the Continuous Discharge Certificate in respect of joining the ship by the said individual for the eligible voyage and ending on the date entered into the Continuous Discharge Certificate in respect of signing off by that individual from the ship in respect of such voyage.
Explanation: For the purposes of this rule,—
(a) “Continuous Discharge Certificate” shall have the meaning assigned to it in the Merchant Shipping (Continuous Discharge Certificate-cum-Seafarer’s Identity Document) Rules, 2001 made under the Merchant Shipping Act, 1958 (44 of 1958);
(b) “Eligible voyage” shall mean a voyage undertaken by a ship engaged in the carriage of passengers or freight in international traffic where—
(i) for the voyage having originated from any port in India, has as its destination any port outside India; and
(ii) for the voyage having originated from any port outside India, has as its destination any port in India.]
Related FAQ(s)
Q. How to determine the residential status of a company?
Ans:- With effect from Assessment Year 2017-18, a company is said to be resident in India in any previous year, if:
(i) it is an Indian company; or
(ii) its place of effective management, at any time in that year, is in India.
For this purpose, the “place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made.
The concept of POEM is effective from Assessment Year 2017-18. The CBDT has issued the final guidelines for the determination of POEM of a foreign company.
The final guidelines on POEM contain some unique features. One of the unique features is a test of Active Business Outside India (ABOI). The guidelines prescribe that a company shall be said to be engaged in ‘active business outside India’ if passive income is not more than 50% of its total income. Further, there are certain additional cumulative conditions to be satisfied regarding the location of total assets, employees, and payroll expenses.
The place of effective management in case of a company engaged in active business outside India shall be presumed to be outside India if the majority of meetings of the Board of directors of the company are held outside India.
In cases of companies other than those that are engaged in active business outside India, the determination of POEM would be a two-stage process, namely:—
- The first stage would be identification or ascertaining the person or persons who actually make the key management and commercial decisions for the conduct of the company’s business as a whole.
- The second stage would be the determination of the place where these decisions are in fact being made.
However, it has been provided that the POEM guidelines shall not apply to a company having turnover or gross receipts of INR 50 crores or less in a financial year vide CIRCULAR NO.8, DATED 23-2-2017.
(To know more about POEM guidelines, read CIRCULAR NO.6, DATED 24-1-2017.)
Q. How to determine the residential status of a HUF for the purpose of Income-Tax law?
Ans:- To determine the residential status of an HUF, the first step is to ascertain whether the HUF is a resident or a non-resident. If the HUF turns to be a resident, then the next step is to ascertain whether it is resident and ordinarily resident or is resident but not ordinarily resident.
Step 1 given below will ascertain whether the HUF is resident or non-resident and step 2 will ascertain whether the HUF is ordinarily resident or not ordinarily resident. Step 2 is to be performed only if the HUF turns to be a resident.
Step 1: Determining whether resident or non-resident
For the purpose of Income-tax Law, a HUF will be treated as resident in India, if the control and management of the affairs of the HUF is located (partly or wholly) in India.
Step 2: Determining whether resident and ordinarily resident or resident but not ordinarily resident
A resident HUF will be treated as resident and ordinarily resident in India during the year if its manager (i.e. karta or manager) satisfies both the following conditions :
(1) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.
(2) His stay in India is for 730 days or more during the 7 years immediately preceding the relevant year.
A resident HUF whose manager (i.e. karta or manager) does not satisfy any of the aforesaid conditions or satisfies only one of the aforesaid conditions will be treated as resident but not ordinarily resident.
In short, the following test will determine the residential status of a HUF :
- If the control and management of the affairs of the HUF is located (partly or wholly) in India and the manager (i.e. karta or manager) satisfies both the conditions specified in step 2, then the HUF will become resident and ordinarily resident in India.
- If the control and management of the affairs of the HUF is located (partly or wholly) in India and the manager (i.e. karta or manager) satisfies none or only one condition specified in step 2, then the HUF will become resident but not ordinarily resident in India.
- If the control and management of the affairs of the HUF is located wholly outside India, then the HUF will become non-resident.
Q. How to determine the residential status of a person other than an individual, HUF, and company?
Ans:- Every person other than an individual, HUF, and company is said to be resident in India during the year if the control and management of its affairs for that year is located wholly or partly in India.
Q. How to determine the residential status of an individual?
To determine the residential status of an individual, the first step is to ascertain whether he is a resident or non-resident. If he turns to be a resident, then the next step is to ascertain whether he is resident and ordinarily resident or is a resident but not ordinarily resident.
Step 1 given below will ascertain whether the individual is resident or non-resident and step 2 will ascertain whether he is ordinarily resident or not ordinarily resident. Step 2 is to be performed only if the individual turns to be a resident.
Step 1: Determining whether resident or non-resident
Under the Income-tax Law, an individual will be treated as a resident in India for a year if he satisfies any of the following conditions (i.e. may satisfy any one or may satisfy both the conditions):
(1) He is in India for a period of 182 days or more in that year; or
(2) He is in India for a period of 60 days or more in the year and for a period of 365 days or more in 4 years immediately preceding the relevant year.
However, in respect of an Indian citizen and a person of Indian origin who visits India during the year, the period of 60 days as mentioned in (2) above shall be substituted with 182 days. A similar concession is provided to the Indian citizen who leaves India in any previous year as a crew member or for the purpose of employment outside India.
The Finance Act, 2020, w.e.f., Assessment Year 2021-22 has amended the above exception to provide that the period of 60 days as mentioned in (2) above shall be substituted with 120 days, if an Indian citizen or a person of Indian origin whose total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year. Income from foreign sources means income that accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).
Note: The Finance Act, 2020 has introduced new section 6(1A) to the Income-tax Act, of 1961. The new provision provides that an Indian citizen shall be deemed to be a resident in India only if his total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year. For this provision, income from foreign sources means income that accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).
However, such an individual shall be deemed to be an Indian resident only when he is not liable to tax in any country or jurisdiction by reason of his domicile or residence or any other criteria of similar nature.
Thus, from Assessment Year 2021-22, an Indian Citizen earning total income in excess of Rs. 15 lakhs (other than from foreign sources) shall be deemed to be resident in India if he is not liable to pay tax in any country.
Step 2: Determining whether resident and ordinarily resident or resident but not ordinarily resident
A resident individual will be treated as resident but not ordinarily resident in India during the year if he satisfies the following conditions:
(1) He is non-resident in India in 9 out of the last 10 years immediately preceding the relevant year; or
(2) His stay in India is for 729 days or less during the 7 years immediately preceding the relevant year.
However, w.e.f., Assessment Year 2021-22, the Finance Act, 2020 has inserted the following two more situations wherein a resident person is deemed to be ‘Not Ordinarily Resident’ in India:
a) An Indian Citizen or a person of Indian origin whose total income (other than income from foreign sources) exceeds Rs. 15 lakhs during the previous year and who has been in India for a period of 120 days or more but less than 182 days;
b) An Indian Citizen who is deemed to be resident in India as per new section 6(1A).
A resident individual who does not satisfy any of the aforesaid conditions or satisfies only one of the aforesaid conditions will be treated as resident but not ordinarily resident.
In short, the following test will determine the residential status of an individual:
- If the individual satisfies any one or both the conditions specified in Step 1 and satisfies any of the conditions specified in Step 2, then he will become a resident and ordinarily resident in India.
- If the individual satisfies any one or both the conditions specified in Step 1 and satisfies any of the conditions specified in Step 2, then he will become a resident but not ordinarily resident in India.
- If the individual satisfies no conditions satisfied at step one, then he will become a non-resident.
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Q. Is the residential status of a person relevant for determining the taxability of the income in his hands?
Ans:- Yes, the residential status of a person earning income is very much relevant for determining the taxability of such income in his hands.
Taxability of any income in the hands of a person depends on the following two things :
(1) Residential status of the person as per the Income-tax Law; and
(2) Nature of income earned by him.
Hence, residential status plays a vital role in determining the taxability of the income.
Q. What are the different classes of residential status prescribed under the Income-tax law for Hindu Undivided Family (HUF)?
Ans:- For the purpose of Income-tax Law, a HUF can have any one of the following residential status:
(1) Resident and ordinarily resident in India
(2) Resident but not ordinarily resident in India
(3) Non-resident
Every year the residential status of the taxpayer is to be determined by applying the provisions of the Income-tax Law designed in this regard (discussed later) and, hence, it may so happen that in one year the HUF would be a resident and ordinarily resident and in the next year it may become non-resident or resident but not ordinarily resident and again in the next year its status may change or may remain same.
Q. What are the different classes of residential status prescribed under the Income-tax law for persons other than an Individual or Hindu Undivided Family (HUF)?
Ans:- For the purpose of Income-tax Law, a person other than an individual or a HUF, i.e., company, partnership firm, etc., can have any one of the following residential status:
(1) Resident
(2) Non-resident
Every year the residential status of the taxpayer is to be determined by applying the provisions of the Income-tax Law designed in this regard (discussed later) and, hence, it may so happen that in one year the taxpayer would be a resident and in the next year may become non-resident and again in the next year the status may change or may remain same.