Direct Tax Law 2009 (Solved)


Residential Status:
Residential status of an assessee is important in determining the scope of income on which income tax has to be paid in India. Broadly, an assessee may be resident or non-resident in India in a given previous year. An individual or HUF assessee who is resident in India may be further classified into
a)      resident and ordinarily resident and
b)      Resident but not ordinarily resident.
Under the Income Tax Act, the incidence of tax is highest on a resident and ordinarily resident and lowest on a non-resident. Therefore, it is in the assessee advantage that he claims nonresident status if he satisfies the conditions for becoming a non-resident.
Residential Status of an Individual
Under section 6(1), an individual is said to be resident in India in any previous year if he satisfies any one of the following basic conditions:-
a)      He is in India in the previous year for a period of at least 182 days or,
b)      He is in India for a period of at least 60 days during the relevant previous year and at least 365 days during the four years preceding that previous year. The aforesaid rule of residence is subject to the following exceptions:-
Where an individual, who is a citizen of India, leaves India in any year for the purpose of employment (or where an individual, who is a citizen of India, leaves India as a member of the crew of an Indian ship), he is not to be treated as resident in India in that year unless he has been in India in that year for at least 182 Days.
Where an Indian citizen or a person of Indian Origin, who has settled abroad, comes on a visit to India in the previous year, he is not to be treated as resident in India in that year unless he has been in India in that year for at least 182 Days.
A resident individual may either be an “Ordinarily Resident” OR “Not Ordinarily Resident” in India for a given previous year. In order to determine whether a resident individual is ordinarily resident (ROR) or not ordinarily resident (RNOR), the tests laid down under section 6(6) have to be applied. A resident individual is treated as ROR in India in a given previous year if he satisfies the following additional conditions:-
a)      He has been resident in India in at least 2 out of 10 previous years (according to basic conditions noted above) preceding the relevant previous year; and
b)      He has been in India for a period of at least 730 days during 7 years proceeding the relevant previous year.
In brief it can be said that an individual becomes resident and ordinarily resident in India if he satisfies at least one of basic conditions and both the two additional conditions. An individual who is resident in India but does not satisfy both the additional conditions is RNOR for that previous year.
The following points are very important in determining the residential status of an assessee:-
a)      The residential status may change from year to year depending on whether the condition for residency is satisfied in that year or not.
b)      The residential status under the Income Tax Act, 1961 have no connection with the provisions for residency under the Foreign Exchange Regulation Act or any other law in India. A person may be resident under FERA and yet be nonresident under the Income Tax Act and vice versa.
c)       Residential status must not be confused with the nationality or citizenship of the assessee. These are entirely different concepts.
Residential Status of a Hindu Undivided Family (HUF)
The status of HUF depends upon the manager i.e. Karta. Since Karta is an Individual Same conditions as mentioned above for individual is applied.

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