Your residential status determines your tax liability in India. Find out if you are a resident, ordinary resident or a non-resident of India.

Why is the Residential Status of a Person important for Income Tax?

If you are a salaried person or carry out your own business in India, you will be subjected to the age-old Income Tax based on your residential status. At the time of Income Tax return filing, it is of paramount importance to determine the residential status of a person. It is of utmost importance as the tax laws applicable to you is determined by your residential status.

Why is the Residential Status of a Person important for Income Tax?

According to the Indian Income Tax law, people are generally divided into two categories for tax purposes.

They are:

  • Resident and
  • Non-resident

It is worth mentioning that Resident category is further divided into two parts:

  • Ordinary resident and
  • Not ordinary resident

Tax status by the Indian Income Tax department is determined on year to year basis. Helping to know and understand the category you fall into will help you be in the clear with your tax obligations.

Why is it important?

The Indian Income tax law has different sets of rules and regulations guiding the income earned by these two different categories. You may be exempted from paying income tax if you belong to one category and on the other hand, if you fall under other category you will be liable to pay income tax.

Keeping the above mentioned important factors in mind, we shall in the following paragraphs try to find out the category of your residential status.

Criterion for being a resident of India:

Section 6 (1) of the Income Tax Act, 1961, lays down two sets of parameters to determine if a particular individual is Indian citizen or not. If the person meets any of the following two criteria, he/she will be deemed a resident of the country.

Condition 1

An individual is in the country for 6 months (182 days to be more precise) or more in a financial year. The same is applicable to a Person of Indian Origin (PIO) who is on a visit to India. A PIO is a person whose parents or grandparents were born before the country was partitioned.

Or

An individual is in India for more than two months (60 days) in a financial year or lived for a whole year (365 days) or more during the last four years preceding immediately the current year.

Only Condition I is to be tested if

  • An individual who is an Indian citizen leaves the country to find meaningful employment opportunities outside the country in the current financial year. In other words, if a person who is a resident of India leaves the country in order to take up another job outside India during the current financial year.
  • A person who is either a citizen of India or is of Indian origin on a visit to the country in the current financial year.

If the person is resident of the country, the following condition also comes into play

Not ordinary resident

If a person has been a non- resident in 9 out of 10 years immediately preceding the financial year

Or

An individual is in India for more than two months (60 days) in a financial year or lived for a whole year (365 days) or more during the last four years preceding immediately the current year.