It is critical for the Income Tax Department to establish a taxable individual’s or company’s residence status. It is especially important during the tax filing season. In reality, this is one of the variables used to determine a person’s taxability.
An individual’s taxability in India is determined by his residential status under the income tax act in India for any given fiscal year. The phrase “residential status” was coined by India’s income tax rules and should not be confused with an individual’s citizenship in India.
An individual may be an Indian citizen but become a non-resident for a certain year. Similarly, a foreign citizen may become a resident of India for income tax purposes in a given year.
It is also worth noting that the residential status as per income tax differs to sorts of people, such as an individual, a corporation, a company, and so on, decided differently.
Income Tax Law has divided the residence status of an individual in India into three categories based on the length of time he or she has lived in India. An individual’s residential status will include his or her current fiscal year as well as previous years of stay.
The following categories are used to classify an individual’s residence status.
Individuals are deemed to be residents of India under Section 6(1) of the Income Tax Act if they meet the following conditions: If he/she stays in India for 182 days or more in a fiscal year, or if he/she stays in India for 60 days or more in a fiscal year, and if he/she stays in India for 365 days or more in the four years immediately before the previous year and comes under ordinary resident in income tax.
According to section 6(6) of the Income Tax Act of 1961, there are two criteria under which an individual will be considered a “Resident and Ordinarily Resident” (ROR) in India.
When an assessee meets the following fundamental requirements, he or she will be regarded as RNOR: If an individual stays in India for a time of 182 days or more in a fiscal year; or if he/she stays in India for a period of 60 days in a fiscal year and 365 days or more in the four preceding fiscal years.
An Assessee, on the other hand, will be classified as a Resident but Not Ordinarily Resident (RNOR) if they meet one of the following fundamental conditions:
An individual will be eligible for Non-Resident (NR) status if he or she meets the following criteria:
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For a Resident
A resident will be taxed in India on his total income, which includes money generated in India as well as income obtained outside of India.
For NR and RNOR
Their tax burden in India is limited to the income they make in the country. They are not required to pay any tax in India on their international earnings. Also, in the event of double taxation of income, when the same income is taxed in India and overseas, one may rely on the Double Taxation Avoidance Agreement (DTAA) that India would have signed with the other nation to avoid paying taxes twice.