1.

INTRODUCTION
You are aware that Income Tax Act revolves around assessee and his income. In
the previous units you have been familiarized with concepts such as assessee,
previous year, assessment year etc., which are foundations of income tax. However, to determine tax
liability of an assessee, it is essential to know his residential status. In this unit,
we intend to explain the method of applying the rules regarding residential
status and thereby determining the scope of total income of an assessee.

2. IMPORTANCE OF RESIDENTIAL STATUS

According to Section 4 of the Income Tax Act, 1961, tax is to be charged, on
the income of the previous year of a person at the rate fixed for the assessment
year, immediately following the previous year, by the Annual Finance Act
passed by Parliament in February every year. The tax liability of a person is
determined based on his residence in India in the previous year. The residential
status of an assessee may not necessarily be the same in each year; he may be a
resident in one year and a non-resident in the next. As such, clear identification
of residential status, is necessary. It is important to note, however, that the
status of an assessee will be the same for all sources of income. The rules for
determining the residential status are not the same for different types of
assessee viz., individual, Hindu Undivided Family (HUF), firm and a company
etc.

3. CATEGORIES OF RESIDENTIAL STATUS

Section 5 of the Income tax Act deals with the scope of total income. It states
that the scope of total income of a person is determined by reference to his
residence in India in the previous year.
Based on residence, the individuals and HUF entities are divided into
three categories, viz.
a) Persons who are ordinarily residents in India
b) Persons who are not ordinarily residents in India
c) Persons who are non-residents in India

TAXABLE ENTITIES

Ordinarily Non-Ordinarily Non-residents

Residents

Fig. 1.1: Categories of Residential Status

For the purpose of determining the rules applicable in this regard, the
assessees are divided into 4 groups, viz.
i) Individuals

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ii) Non-company plural entities
(H.U.F., firms or other association of persons)
iii) Companies
iv) Every other person

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 4. RULES FOR DETERMINING THE RESIDENTIAL
STATUS
As stated earlier, there are separate rules for determining the residential status of different types of
assessee. The tests for residence of an individual are contained in Section 6(1), those for Hindu Undivided
Families, firms or other associations of persons are laid down in Section 6(2), those for companies in
Section 6(3) and for every other person in Section 6(4).

I. Individual
An Individual may have any of the following residential status depending upon applicability of rules of
Income Tax Act:
a) Resident and Ordinarily Resident
b) Not Ordinarily Resident
c) Non-Resident
A) Resident and Ordinarily Resident:
Section 6(1) and Section 6(6)(a) of the Income Tax Act determines the Residential status of an Individual.
Section 6(1) prescribes two conditions which may be treated as basic conditions and similarly, Section 6(6)
(a) also prescribes two conditions which may be treated as additional conditions. An Individual shall be
considered as Resident in India if he shall fulfil at least one basic condition and both the additional
conditions.

Conditions of Part I or Basic Conditions:

i) He must be physically present in India for a period of 182 days or more during the relevant previous
year, or
ii) He must be in India for a period of 60 days (182 days in some special circumstance) or more during
the relevant previous year and 365 days or more for 4 years immediately preceding the relevant
previous year.
Exception to the ‘Basic Conditions’
a) In the case of an individual being ‘Citizen of India’, if he leaves India during the previous year as a
member of the crew of an Indian ship or for the purpose of employment outside India, he shall fulfil
the basic condition No (ii) only where he is in India for at least 182 days instead of 60 days.
b) In the case of an individual who is a ‘Citizen of India’ or a person of ‘Indian Origin’, if he is already
outside India and comes on a visit to India during the previous year, he shall fulfil the basic condition
No (ii) only when he is in India for at least 182 days instead of 60 days.
Conditions of Part II or Additional Conditions [Section 6(6)(a)]
a) If he has been resident in India for at least 2 out of the 10 years preceding the previous year, and
b) He has been in India for a period or periods amounting in all to 730 days or more during 7 previous
years preceding the previous year.

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Stay In India
His stay in India for at least 182 days during the previous year need not
necessarily be a continuous one and at the same place. It is the total duration of
his stay in India that will be considered for the purpose. It is immaterial
whether he stayed in a rented house, or his own house, in a hotel or with some
friends. What is important is that he must have stayed in India for a period of
182 days or more in the previous year.

Regarding his stay for at least 365 days, the stay may be regular or irregular or
only once in four years preceding the previous year. But he must have stayed
in India for 365 days in all during the four years. The period of 4 years
preceding the previous year means the period of 12 calendar months each
immediately preceding the commencement of the relevant previous year.

Again, with regard to the second condition of Part I i.e. his stay for 365 days or
more, the stay need not be regular, it could be only once in four years
preceding the previous year. It is the total stay which is significant which must
be 365 days or more in the 4 years preceding the previous year.

Illustration 1
Mr. Anil citizen of Spain has been staying in India since 1985. He leaves India
on 16.7.2022 on a visit to U.S.A. and returns on 4.1.2023. Determine his
residential status for the previous year 2022-23.

Solution:
If Mr. Anil satisfies first condition (stay in India for at least 182 days) his stay in
India during the previous year 1.4.2022 to 31.3.2023 is as under:

April,2022 30 days
May, 2022 31 days
June,2022 30 days
July,2022 16 days
August, 2022 Nil
September, 2022 Nil
October,2022 Nil
November, 2022 Nil
December,2022 Nil
January,2023 28 days
February,2023 28 days
March,2023 31 days

Thus, his total stay in India during the previous year is 194 days. As, he is in
India for more than 182 days during the relevant previous year, he satisfies the
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first condition and is, therefore, a resident.

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B) Not Ordinarily Resident
If an individual satisfies anyone of the two conditions of Part I, or basic condition but does not satisfy both
the conditions or fulfils only one of the two additional conditions of Part II, he is said to be resident but not
ordinarily resident or simply stated, he will be a “not ordinarily resident”.
Illustration 2
Mr. Mayank came to India for the first time in July 2022 and stayed in Delhi up to 31st March 2023.
Determine his residential status for the assessment year 2023-24.
Solution:
For the assessment year 2023-24, Mr. Mayank is resident but not ordinarily resident. During the previous
year 2022-23, Mr. Mayank was in India for a period of more than 182 days, and he thereby fulfils one of
the basic conditions or condition (1) of Part I. But he does not satisfy both the additional conditions of Part
II. Therefore, he is resident but not ordinarily resident for the assessment year 2023-24.
C) Non-Resident
If an individual does not satisfy anyone of the basic conditions or conditions of Part I, he is said to be non-
resident in that previous year whether he satisfies one or both conditions of Part II or additional conditions.

Illustration 3
Mr. Anup left India for Canada on August 15, 2014. During 2022-23, he came to India on July 12, 2022,
and stayed in Delhi for a period of one month and again left for Canada, on August 10, 2022.
Determine his residential status for the assessment year 2023-24.
Solution:
Mr. Anup is a non-resident for the assessment year 2023-24, as he stayed in India for only 30 days during
the previous year 2022-23. As such, he does not satisfy any of the basic conditions of Part I. Therefore, he
is a non-resident.
Exceptions (section 6(1A)) applicable from AY 2021-22
In the following cases, an individual is deemed to be resident but not ordinarily resident even if he does not
satisfy the two basic conditions:
1. An individual is deemed to be resident but not ordinarily resident if he satisfies the following 3
conditions:
i. He is an Indian citizen and not a foreign citizen (even though he may be a person of Indian
origin)
ii. His total taxable income during the previous year (excluding income from foreign sources) is
more than Rs. 15,00,000
iii. He is not liable to be taxed in any other country
2. An individual is deemed to be resident but not ordinarily resident if he satisfies the following 4
conditions
i. He is an Indian citizen or a person of Indian origin
ii. His total taxable income during the previous year (excluding income from foreign sources) is
more than Rs. 15,00,000

iii. He comes to India on a visit during the relevant previous year

iv) He is in India for more than equal to 120 days (but less than 182
days) during the relevant previous year and more than equal to
365 days for 4 years immediately preceding the previous year
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 Check Your Progress A
1) When is an individual treated as a ‘resident’ in India?
......................................................................................................................
......................................................................................................................
2) When is an individual treated as ‘not ordinarily resident in India?
......................................................................................................................
......................................................................................................................
3) Who is a non-resident?
......................................................................................................................
......................................................................................................................
4) After 25 years stay in India, Mr. Jatin went to U.S.A. on April 15, 2015,
and came back to India on March 12, 2023. Determine his residential
status for the assessment year 2023-24.
......................................................................................................................
......................................................................................................................
5) Mr. John came to India for the first time on July 10, 2022 and stayed upto
February 28, 2023. Determine his residential status for the assessment
year 2023-24.
......................................................................................................................
......................................................................................................................
6) Mr. Shankar Prasad is an Indian citizen who left for Japan on November 15,
2022 on personal work and he did not return during the previous year 2022-
23. He was never out of India in the past. Determine his residential status for
assessment year 2023-24.
......................................................................................................................
......................................................................................................................
7) Explain the conditions which should be satisfied for an individual to be
resident but not ordinarily resident.
......................................................................................................................
......................................................................................................................

Non-Company Plural Entities

Under this section, we will examine the rules regarding residential status of plural
entities such as Hindu Undivided Family (HUF), firms and association of persons.

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I. Hindu Undivided Family [Section 6(2)]
The residential status of an HUF depends on two factors, the location of control and management of its
affairs and the residential status of its Karta.
A) Ordinarily Resident [Section 6(2)]
HUF is said to be ordinarily resident in India in any previous year:
a) If the control and management of its affairs is wholly or-partly situated in India during the
previous year.
The expression ‘Control and Management’ signifies controlling and directive power. In other
words, it means the ‘head and brain’. Moreover, the control and management should be de facto
(in effect) and not merely the right or power to control and manage.
b) If its manager (Karta) satisfies the following conditions of Section 6(6)(a):
i) Its manager has been resident in India in 2 out of 10 previous years preceding that year; and
ii) Its manager has, during the 7 years preceding that year, been in India for a period amounting
in all to 730 days or more.
For the purposes of calculating the period of the manager’s stay in India, we shall add up the stay
in India of all the successive managers of the family, in case of the death of the first manager.
Illustration 4
A Hindu Undivided Family carries Import-Export business in India, Nepal, Sri Lanka, and Pakistan.
The Karta stays in India and manages the affairs of HUF through employees and agents. What will be
the status of the family for income-tax purpose?
Solution:
The control and management of the affairs of the family is situated wholly in India and the manager
stays in India and fulfils the conditions of Part II or additional conditions of Section 6(6)(a). Hence,
the Hindu Undivided Family is resident in India.

B) Not Ordinarily Resident

A Hindu Undivided family is said to be “not ordinarily resident in India, if control and management of
its affairs is situated wholly or partly in India during the previous year, but its manager does not
satisfy the additional condition conditions of Section 6(6)(a).

C) Non-resident
A Hindu Undivided Family is said be a non-resident in such cases only where its control and
management are situated wholly outside India during the previous year. If, however, the control and
management is situated partly in India and the Karta satisfies the conditions of Part II Section 6(6), it
becomes a resident in India.

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Illustration 5
Head Office of AB, a Hindu Undivided Family is situated in Dubai. The
family is managed by Mr. A, who is a resident in India in only 2 years out
of 10 years preceding the previous year 2022-23. Determine the
residential status of the HUF for the assessment year 2023-24, if the
affairs of the family business are (i) wholly controlled from Dubai (ii)
partly controlled from India.

Solution:
i) Here the affairs of HUF are controlled and managed from outside India.
Therefore AB, a Hindu Undivided Family is non-resident for the
assessment year 2023-24.
ii) Under this situation, the affairs of HUF are controlled and managed partly
from India. Therefore, the HUF is resident of India. However, it would be
ordinarily resident in India if Karta/Manager satisfies the conditions laid
down in Part II Section 6(6)(a) below:
a) He has been resident in India at least 2 out of 10 years preceding the
previous year.
b) He has been in India for a period or periods amounting in all to 730
days or more during the 7 years preceding the previous year.
As the manager, Mr. ‘A’ is resident in India in only 2 out of 10 years
preceding the previous year, the HUF would be ‘non-ordinarily resident’ in
India for the assessment year 2023-24.
II. Firms and other Association of Persons [Section 6(2)]
Firms and other association of persons can fall under two categories only.
They may either be residents or non-residents. The category of non-ordinarily
residents does not apply to such assessee.
A) Resident
According to section 6(2), a firm or other association of persons is said to
be resident in India in any previous year where during that year the
control and management of its affairs is partially or wholly situated in
India. The residential status of its partners in India is immaterial.
B) Non-Resident
A firm or an association of persons is said to be non-resident in such cases
only where the control and management of its affairs is situated wholly
outside India during the previous year.
Illustration 6
A firm has five partners who are permanent residents in India. The firm owns a
rubber estate in Malaysia. The estate is managed and controlled by the partners
in India, through an agent in Malaysia. Determine the residential status of the
firm.
Solution:
Even if the control and management of the firm is partly situated in India, the
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 firm becomes resident. Here, all the partners reside in India and manage at least a
part of the affairs of the estate. As such, the firm is resident in India.
II. Residential status of a company [Section 6(3)]
A company is said to be resident in India, in a previous year, if-
i) It is an Indian company, or
ii) The company is foreign company, its place of effective management (POEM), in that year, is in
India
A company is said to be non–resident in any previous year, if –
i) It is not an Indian company, and.
ii) Its place of effective management, in that year, is not in India.
‘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 are in substance made.

Illustration 7
The Indian chemical limited is a registered Indian company carrying business in India and in Gulf
countries. The control and management of its affair was partially situated in Riyadh (Saudi Arabia) during
the year ending March 31, 2023. What will be the residential status of the company for the assessment year
2023-24?

Solution:
The Indian chemical limited is an Indian company, therefore, it should be treated as resident in India and
the facts regarding control and management outside the country are immaterial.

Illustration 8
International Remedies is a registered company in Germany, and has a registered office in Germany, but
the management and control are situated wholly in Bombay (India). What will be the residential status of
the company for tax purpose?

Solution:
As the company’s control and management is situated wholly in India, it is resident in India, and the location
of the registered office of the company is immaterial.

In the above illustration, if the control and management is partially situated in India, the company is non-
resident in India for tax purpose.

III. Any other Person [Section 6(4)]

A) Resident: Every other person (local authority, artificial juridical person e.g.: Statutory Corporations)
is said to be resident in India in any previous year, if the control and management of its affairs is partly
or wholly situated in India.
B) Non-Resident: Every other person is said to be non-resident if control and management of its affairs
is situated wholly outside India.
Note: Firm and other Association of persons, companies and every other person can never be a ‘Not
Ordinarily Resident.’

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Check Your Progress B
1) State whether each of the following statements are True or False:
i) A company can never be a ‘Not Ordinarily Resident’.
ii) Indian company is a ‘Resident’.
iii) Hindu Undivided Family cannot be non-resident.
iv) Firm and other association of persons can never be ‘not ordinarily
recipient.
2) Explain the procedure for determining an individual as resident in India.
......................................................................................................................
......................................................................................................................
3) Explain the procedure for determining a company as resident in India.
......................................................................................................................
......................................................................................................................
4) Japan remedies is an international company dealing in pesticides, in India,
registered in Tokyo and the control and management of its affairs is
wholly situated in Tokyo. Determine the residential status of the company
in India.
......................................................................................................................
......................................................................................................................
5) An HUF carries toys business in India. Its control and management are
partly situated in India and partly in Canada. The Karta (manager) is non-
resident in India for the previous year 2022-23. Determine the residential
status of HUF in India for the assessment year 2023-24.
......................................................................................................................
......................................................................................................................

5. SCOPE OF TOTAL INCOME ON THE BASIS OF

RESIDENCE
We have examined the rules determining the residential status of assessee as
given in section 5 of Income Tax Act. As stated earlier, the scope of total
income of an assessee depends on his residential status in the previous year. In
the following sections, we will explain the scope of total income for the
different categories of assessee viz.
i) Residents and ordinarily resident [Section 5(1)]
ii) Not-ordinarily residents [Section 5(1)]
iii) Non-residents [Section 5 (2)]

I. Resident and Ordinarily Resident

The total income of any person, who is resident in the relevant previous year,
includes all income from whatever sources derived which:
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a) Is received, or deemed to be received in India in such year by him or on his
behalf during the previous year; or

12
 b) Accrues or arises or is deemed to accrue or arise to him in India during 1) Ordinarily
the previous year; or resident 2) Not
c) Accrues or arises to him outside India during such year. ordinarily
resident 3)
II. Not Ordinarily Resident Non-resident in
India in respect
If the assessee is ‘not-ordinarily resident’, the total income of the relevant of the above
previous year includes all incomes from whatever sources derived which: incomes
a) Is received or is deemed to be received in India in such year by or on
behalf of such person during the previous year; or
b) Accrues or arises or is deemed to accrue or arise to him in India during
the previous year; or
c) Accrues or arises to him outside India during such year but derived from
business controlled (wholly or partly) in India or a profession set up in
India.
Thus, it will be seen that the basic difference between the scope of total
income of an ordinarily resident and not ordinarily resident relates to the
income which accrues or arises to him outside India. In case of a resident, it is
included in his total income irrespective of the source of such income. But, in
case of a not ordinarily resident, it will be included in his total income only if
it is derived from a business which is controlled (wholly or partly) in or a
profession set up in India.

III. Non-Resident
If the assessee is a non-resident in India, the total income of the relevant
previous year includes all income from whichever sources derived which:
a) Is received or is deemed to be received in India in such year by or on
behalf of such person during the previous year, or
b) Accrues or arises or is deemed to accrue or arise to him in India during
such year.
Thus, non-residents are not liable in respect of income accruing or arising
outside India even if it is remitted to India.
Illustration 9
Sri P.C. Reddy, an Indian citizen has different sources of income in India and
U.K.
a) Income from property in U.K.
b) Salary earned and received in India
c) Profits from a business situated in U.K. but controlled from India.
d) Past untaxed foreign income brought to India during the previous year.
e) Dividend paid by an Indian company and received in U.K.
f) Profit earned from a business in
Hyderabad. He would like to know his tax
liability if he is:

13
43
14
Fundamentals Solution:
Resident Not Ordinarily Resident Non-resident
A Yes No No
B Yes Yes Yes
C Yes Yes No
D No No No
E Yes Yes Yes
F Yes Yes Yes

Illustration 10
During the previous year 2022-23, Sumit Bansal has the following incomes:
Particulars Rs.
(a) Salary income received in India for services rendered 3,90,000
in Singapore.
(b) Income from profession in India, but received in 3,60,000
Germany
(c) Property income in Uganda (out of which Rs. 2,40,000 5,00,000
was remitted to India.)
(d) Profits earned from business in Bangalore. 1,50,000
(e) Agricultural income in Kenya 1,60,000
(f) Profits from a business carried on at Nepal but 2,20,000
controlled from India
Compute the income of Sumit Bansal for the assessment year 2023-24, if he is
(i) Resident and Ordinarily Resident (ROR), (ii) Not Ordinarily Resident
(NOR), and (iii) Non-Resident in India (NR).
Solution:
Computation of Taxable Income of Sumit Bansal for the Assessment
Year 2023-24
ROR NOR NR
(Rs.) (Rs.) (Rs.)
(1) Income received in India,
wherever it accrues
Salary received in India for
services rendered in Singapore. 3,90,000 3,90,000 3,90,000
(2) Income accrued in India,
wherever received
i) Profit earned from business 1,50,000 1,50,000 1,50,000
in Bangalore
ii) Income from profession in 3,60,000 3,60,000 3,60,000
India but received in
Germany 15
 3) Income accrued and received
outside India
i) Property income in Uganda 5,00,000 - -
ii) Agricultural income in Kenya 1,60,000 - -
iii) Profits of a business carried 2,20,000 2,20,000 -
on in Nepal but controlled
from India
Total Income 17,80,000 11,20,000 9,00,000

6. KINDS OF INCOME
It appears from the scope of total income that four types of incomes form part
of the tax liability. They are:
I) Income received in India. (Section 7)
2) Income deemed to be received in India. (Section 7)
3) Income accruing or arising in India. (Section 9)
4) Income deemed to accrue or arise in India. (Section 9)
Let us now discuss them in detail. -

I. Income Received in India

Any income received in India, during the previous year by an assessee is
taxable, irrespective of the residential status of the assessee and the place of
accrual of such income. The receipt of income refers to the income received by
the assessee for the first time under his control. But, once amount is received
as income, any remittance of the amount to another place does not result in
receipt. It is not necessary that income should be received in cash, it may be
received in kind also, for example, rent free accommodation and certain other
facilities provided to an employee are taxable as ‘salary’ in the hands of the
employee though the income is not received in cash. Though income may be
received in kind, it should be equivalent of cash or should be in money’s
worth.

In case of non-resident, their foreign income is not assessable unless it is

received in India. At the time the money is received in India, it is received as
income from an outside source; such receipt will not be an income receipt. If a
non – resident had already received money outside India as income or exempt
income and he has transferred the money into India, in any year, such transfer
will not count as income.

II. Income Deemed to be Received in India

The given below incomes shall be deemed to be received in India in the
previous year:
i) The contribution made by the central Government in the previous year
to the account of an employee under a pension scheme u/s 80CCD.
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 ii) Contribution made by the employer to the recognized provident fund in
excess of 12% of the salary of the employee is the income deemed to be
received.

iii) Interest credited to the recognized provident fund of the employee which
is in execs of 9.5% p.a is the income deemed to be received.

iv) When an employee, who is member of an unrecognized provident fund,

becomes member of a recognized provident fund, the accumulated
amount transferred to a recognized provident fund from the unrecognized
provident fund, is termed as ‘transferred balance’. Employer’s
contribution and interest, thereon, induced in the transferred balance, is
the income deemed to be received.

III. Incomes Accruing or Arising in India

Income is said to be received, when it reaches the assessee, but where the right
to receive the income becomes vested in the assessee, it is said to accrue or
arise. Accrual of income means a stage, where the assessee has acquired a
right to receive such income, when the same income is received in the
accounting year, it is said to arise. Income accrues when the right to receive it
comes into existence; but it arises when the method of accounting shows it in
the shape of profits or gains.

The income must accrue or arise in India. If it accrues or arises outside India;
it cannot be taxed in the hands of person who is non-resident in India.

IV. Income Deemed to Accrue or Arise in India

The given below incomes shall be deemed to accrue or arise in India:
i) Income from a business connection in India: Any income which arises,
directly or indirectly, from any acting or a business connection in India, is
deemed to be earned in India. Business connections may be in several
forms: formation of a subsidiary company in India to carry business of the
non – resident parent company, branch office in India or an agent of an
organization of non – resident in India.

ii) Income from any property, asset or source of income situated in India:
Any income which arises from any property, movable or immovable,
tangible, or intangible which is situated in India is deemed to accrue or
arise in India.

iii) Income from interest, royalty or technical fee is deemed to accrue or arise
in India, if it is payable by: -

1) Government, or

2) A person who is a resident in India and use for the purpose of

business or profession in India.

3) A person who is a non–resident in India provided, the interest is

17
payable in respect of money borrowed and used for business or
profession carried on in India.

18
iv) Salary payable by the Government to a citizen of India for the services
rendered outside India.
v) Any salary payable for services rendered in India will be regarded as
income earned in India.
vi) Income from the transfer of any capital asset situated in India regardless
of the residential status of the transferor or transferee would be deemed to
be income accruing or arising in India and would be taxable.

Check Your Progress C

1) State whether the following statements are True or False:
a) It is not necessary that income should receive in cash.
b) The incidence of tax of an assessee depends on residential status of
the tax payer.
c) Dividend paid by an Indian company outside India is not an
‘Income deemed to accrue or arise in India.
2) Name the different kinds of Income.
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
3) Explain ‘Income deemed to be received in India.’
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......................................................................................................................
......................................................................................................................
......................................................................................................................

7. INCIDENCE OF TAX
The below table 3.1 summarizes the provisions regarding incidence of tax.

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 Table 3.1: Provisions regarding incidence of tax
Particulars of Income Whether taxable
Resident Non- Non-
and Ordinarily Resident
Ordinarily Resident (NR)
Resident (RNOR)
(ROR)
1) Income received or deemed to be Yes Yes Yes
received in India whether earned
in India or elsewhere.
2) Income which accrues or arises or Yes Yes Yes
is deemed to accrue or arise in
India during the previous year,
whether received in India or
elsewhere.
3) Income which accrues or arises Yes Yes No
outside India and received outside
India from a business controlled
from India.
4) Income which accrues or arises Yes No No
outside India and received outside
India in the previous year from any
other source.
5) Income which accrues or arises No No No
outside India and received outside
India during the years preceding
the previous year and remitted to
India during the previous year.

8. LET US SUM UP
The tax liability of a person is based on his residence in India in the previous
year. On the basis of residence, the persons are divided into three categories
‘namely’ (a) Resident (b) Not ordinarily resident (c) Non-resident. Further, the
categories of persons for tax liability have been classified into four groups
‘namely’ (a) Individual (b) Non-company plural entities (c) Company (d) Any
other person.

The rules for determining the residential status are not the same for all the
groups. Different conditions are to be satisfied by the concerned assessee to be
a resident in India.
An Individual and a Hindu Undivided Family can be a resident, not ordinarily
resident and non-resident. A firm, association of persons, a company and any
other person can never be a not ordinarily resident. They can be either resident
or non-resident.

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Five types of incomes have been mentioned for the purpose of tax liability.
a) Income received in India.
b) Income deemed to be received in India.
c) Income accruing or arising in India.
d) Income deemed to accrue or arise in India.
e) Income accrued and received outside India.
Tax incidence on a taxpayer in India depends upon his residential status.
Whether an income earned by an individual, in or outside India, is taxable in
India depends on the residential status of the individual rather than on his
citizenship. People are often under the wrong impression that taking up foreign
citizenship helps obtain tax benefits. However, the Income Tax Act, 1961
(Act) does not provide tax benefits based on a person’s citizenship.

A Resident and ordinarily resident is subject to tax on his global income in

India. Resident and non –ordinarily resident and non-residents are generally
subject to tax in India only in respect of India source income (that is, income
received, accruing, or arising in India or deemed to be received, accrued or
arisen in India).

9. KEY WORDS
Incidence of Tax: Tax liability of an assessee.
Indian Company: A company registered in India under the Companies Act,
1956.
Karta: The head of the Hindu Undivided Family is the Karta.
Residential Status: Residential status forms the basis for categorization of
Income tax assessee as resident/not ordinarily resident/non-resident. Different
rules have been laid down for determining various types of assessee.

10. ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress A
4) Non-resident
5) Not ordinarily resident
6) Resident and ordinarily resident
Check Your Progress B
1) i) True ii) True iii) False iv) True
4) Non-resident
5) Not ordinarily resident
Check Your Progress C
1) a) True b) True c) False

11. TERMINAL QUESTIONS/ EXERCISES

1) Explain the provisions of Income Tax Act for an individual, if he is a
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 a) Resident b) Not Ordinarily Resident c) Non-Resident
2) What are the different categories into which the assessee is divided on the
basis of residence?
3) State the conditions which a Hindu Undivided Family has to fulfil in
order to be called as resident in India.
4) Explain the scope of total income under the Income Tax Act 1961.
5) What are the criteria for determining the residence of a firm and a company?
6) What is the basis of charge of income tax? Give the rules for determining
this.
7) Mr. Lohit, non-Indian citizen, came to India for the first time on July 13,
2022 and stayed up to January 28, 2023. Determine his residential status
for the assessment year 2023-24.
[Answer: Not Ordinarily Resident]
8) Mr. Prakash left India for Kuwait on September 15, 2016 to take up a job
in an electronic firm there. He returned to India on March 15, 2023 with
an idea to settle in India forever. What will be his residential status for the
previous year 2022-23.
[Answer: Non-Resident]
9) A Hindu Undivided Family is carrying on a business in manufacturing of
coir at Delhi. The Karta is a resident in India for the previous year 2022-
23. The control and management of affairs are wholly situated in India.
Determine the residential status of HUF for the assessment year 2023-24
[Answer: Resident and Ordinarily Resident]
10) Onida shipping company registered in India is dealing in cargo. The
control and management of its affairs are situated partly in India and
partly in U.K. Determine the residential status of the company in India.
[Answer: Resident]
11) ABC is a partnership firm dealing in Unani medicines in India. The
control and management of its affairs are wholly situated in Bhutan.
Determine the residential status of the firm in India.
[Answer: Non-Resident]

Note: These questions and exercises will help you to understand the
unit better. Try to write answers for them, but do not submit your
answers to the University. These are for your practice only.

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