Residential Status and Tax Incidence

1. Residential Status and Tax Incidence

2. Residential Status is not the same as Citizenship • Income may be earned outside India but taxed and Income earned in India may not be taxed. Why?

3. Different Taxable entities • Individual • HUF • Joint Stock Company • A firm or an association of persons • Every other person

4. Residential Status • Resident in India • Non Resident in India

5. For Individuals & HUF Residential Status Resident Non Resident Resi & Ordinarily Resident Resi. but not Ordinarily Resident (for other entities they are either a resident or Non resident)

6. Rules for Determining Residential Status The total income of an individual is determined on the basis of his residential status in India.Basic Condition: 1.He is in India in the P.Y. for a period of 182 days or more2. He is in India in the P.Y. for a period of 60 days or more and 365 days or more during 4 years immediately preceding the P.Y.) Rule of 60 days is 182 days in case of Indians going abroad for employment) For tax purposes, an individual may be resident, non resident or resident But not ordinarily resident.

7. Additional Conditions: a) He is a resident in India in at least 2 out of 10 P.Y. immediately preceeding the P.Y. b) He has been in India for 730 days or more during 7 years immediately preceeding the P.Y.

8. In brief: An individual becomes Resident & Ordinaliy Resident if he satisfies one basic condition and both the additional conditions However for an Indian citizen leaving the country for the purpose of Employment, 60 days are replaced with 182 days

9. Residential Status varies from year to year depending on residence • Different residential status for different incomes not possible eg.

10. Residential Status- Exercise X comes to India for the first time on Sept 1 , 2008. On Sept. 15 ,2008 he joins a company on monthly salary of Rs.56,000, as a part-time production consultant (duty hours:6.30pm to 9.30 pm) He does not have any source of income up to Sept 14,2008. On October 9,2008, he starts a trading business in computer hardware after obtaining the approval of his employer. For the previous year ending March 31, 2009, he has the following income- Salary from the part-time employment : Rs.3.64,000 Income earned in India from the business of trading in computer hardware : Rs.1,86,000 Foreign income from the same business : $ 40,000 Find out the residential status of X for the A.Y 2009-2010.

11. Solution Source of PY No. of Days Income 1.Salary 15.9.08 to 199 days 31.3.09 2 Business 9.10.08 to 175 days . Income 31.3.09

12. Status Indian Income Foreign Income Resident and ordinarily resident Taxable Taxable Resident but not ordinarily resident Taxable Taxable (if business income is controlled from India) Non-Resident Taxable Not Taxable

13. Indian Income & Foreign Income Indian income is income received in India or income accrued in India Foreign Income is income that satisfies TWO condition: 1.Income not received in India 2.Income does not accrue or arise in India