Residential Status and Taxation for Individuals

Residential status played a crucial role in determining the taxation of income for individuals. The Income Tax Act provided clear provisions to ascertain residential status, considering factors such as the total stay in India and the individual’s origin.

Meaning of Residential Status:

Residential status served as the primary determinant in computing taxes for individuals. It categorized individuals into three types: Resident Ordinarily Resident, Resident Not Ordinarily Resident, and Non-resident. The tax liability on certain income relied heavily on the residential status of the individual, including the consideration of staying within the territorial waters of India.

Importance of Determining Residential Status:

The determination of residential status occurred annually, implying that an individual could be a resident in one year and a non-resident in another. Section-6 of the Income Tax Act outlined criteria for determining residential status, subsequently impacting the taxability of income.

Residential Status in case of Individuals:

As per Sec.6 of the Income Tax Act, an individual who met specific conditions, such as staying in India for 182 days or more during the previous year or meeting certain stay criteria over preceding years, was considered a resident. Exceptions were outlined for Indian citizens leaving the country for employment or as crew members.

Recent Amendments as per Finance Act, 2020:

The Finance Act of 2020 introduced amendments, including changes to the criteria for determining residency, especially for Indian citizens or Persons of Indian Origin, and the inclusion of individuals deemed as residents in India under certain conditions.

Taxation of Individuals based on Residential Status under Income Tax Act:

The taxability of income was contingent upon the individual’s residential status as per the Income Tax Act. Therefore, the same income could be taxable for one individual but not for another, depending on their residential status.

Meaning of some Important Terms:

Certain terms like “Income Deemed to Accrue or Arise in India” and “Business Connection established in India” held significance in determining tax liabilities, particularly concerning income derived from Indian sources or business activities conducted within India.

Conclusion:

Understanding residential status under the Income Tax Act was pivotal in determining the taxability of income. It served as the foundation upon which taxation principles were established. Therefore, seeking assistance to ascertain one’s residential status was essential for accurate tax filing.