The terms citizen, nationality and domicile are different to residential status of a person. The residential status of a person in India is based on two different Acts viz. (i) Income Tax Act, 1961, ( I.T. Act) (ii) Foreign Exchange Management Act 1999. Under Income Tax Act, the residential status of a person is decided on the basis of number of days he stays in India whereas under FEMA, it is the intention of a person to be in India or outside India would be an important factor in determining his residential status.
A ‘person resident in India’ is defined in Section 2(v) of FEMA, 1999 as a person residing in India for more than one hundred and eighty-two days (182 days) during the course of the preceding financial year but does not include-
(A) A person who has gone out of India or who stays outside India, in either case-
(i) For or on taking up employment outside India, or
(ii) For carrying on outside India a business or vocation outside India, or
(iii) For any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;
(B) A person who has come to or stays in India, in either case, otherwise than-
(i) For or on taking up employment in India, or
(ii) For carrying on in India a business or vocation in India, or
(iii) For any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;
(C) Any person or body corporate registered or incorporated in India,
(D) An office, branch or agency in India owned or controlled by a person resident outside India,
(E) An office, branch or agency outside India owned or controlled by a person resident in India
Summary of A, B, C, D, and E above:
In a nutshell, ‘person resident of India’ includes persons of India (except those staying abroad for work or business or other purpose) and foreign persons who come to India or stay in India for employment, carrying out business or other purpose. Even office, branch or agency can be ‘person’.
As per provisions of income tax rules, an Individual who fulfills any of the following conditions mentioned in section 6(1)* is treated as RESIDENT.
(a) If he is in India during the relevant previous year for a period amounting in all or in aggregate to 182 days or more.
(b) If he was in India for a period or periods amounting in all to 365 days or more during the four years preceding the relevant previous year
A resident may either qualify as an “ordinarily resident” or “not ordinarily resident”. A person who fulfills following two conditions is determined as “ordinarily resident”.
(i) He should have been resident in India in nine out of the ten previous years preceding the previous year in which he is a resident in India as per basic conditions under section 6(1) of IT act.
(ii) He should have been in India for a period or periods amounting in all to 730 days or more during the seven years preceding that previous year.
If he does not fulfill any of the above two conditions, he will be treated as “not ordinarily resident”.
Let us take an example of Mr. AB D’villier a South African Citizen and Cricketer. Mr. AB D’Villier has been participating in Indian Premier League (IPL) since 2007-08 and he has been coming to India every year for 100 days for the purpose of practicing and playing matches. Now we have to determine the residential status of Mr. AB D’Villier in India for the assessment year 2019 -20 as per income tax act of India.
- AB D’Villier has been in India for more than 60 days during the relevant previous year and for 400 days during four years preceding the relevant previous year. Therefore, he is a RESIDENT of India.
- During 7 years preceding the previous year, he is in India for only 700 days. Since he was not in India for 730 days during preceding 7 years, he shall, therefore, be a resident but ‘NOT ORDINARILY RESIDENT’.
- In case Mr.D’Villier was in India for more than 730 days instead of 700 days during the above period he is considered as ‘RESIDENT AND ORDINARILY RESIDENT’.
“Ordinarily resident” needs to pay tax on global income and are required to report assets held outside India in the income-tax return.
A “not ordinarily resident” and a “non- resident” needs to pay tax only on: income received in India or deemed to be received in India; and income accruing or arising in India or deemed to accrue or arise in India.
Related article: Overseas Citizen of India (OCI) and Person of Indian Origin