Whether you are a resident of India or someone who went to study outside but keeps visiting your country every year, it is crucial to identify your residential status as a taxpayer. It is necessary to know your Residential Status for Income Tax in India as different taxpayers are segregated under different categories and are made to fulfill their tax responsibilities as per their status. Your resident status can help define all things tax related for you, such as tax planning and tax filing. Let’s understand the importance of residential status under the Income Tax Act in depth.
Significance of residential status
As a resident of the country, it is imperative to pay taxes. Although it may seem unfair to some people that the money which they have earned through their blood and sweat is going to the government, it is high time everyone understands that the money will be put towards the development of the nation and it will only come back to us in different ways.
A person may not be a citizen of India and still be eligible to pay taxes as per their residential status income tax. While everyone should pay taxes, their residential status plays a significant role in defining what the taxes will look like. As per the residential status of an individual, their payable tax, tax exemptions, and income tax returns are determined.
Different Types of Residential Status Under the Income Tax Act
The Income Tax Act of 1961 has divided the types of residential status into three categories. This classification has been done by keeping the duration of the stay of the taxpayer in the country in mind. The three different types of residential status are as follows:
- Resident and Ordinarily Resident
- Resident but Not Ordinarily Resident (RNOR)
- Non – Resident (NR)
Resident and Ordinarily Resident (ROR)
An individual will be considered a resident if he meets the following criteria:
- Their stay is equal to or more than 182 days in a financial year in India.
- Their stay is equal to or more than 365 days in four preceding financial years in India.
Someone who does not fulfill these conditions will not be considered a Resident and Ordinarily Resident (ROR) under the Income Tax Act.
Something to remember – The individual needs to be physically present in the country on all the days for them to be counted. The Residential Status for ITA can also be counted on an hourly basis. If there is any confusion in the calculation process for the dates on which the taxpayer arrives in the country and leaves it, they can be taken into considered and added to the total number. Moreover, the taxpayer doesn’t need to stay in one place for the entire duration. They can leave the visit the country back again as many times as they desire.
Resident but Not Ordinarily Resident (RNOR)
The residential status of a person will be resident but not ordinarily resident if he fulfills the following conditions:
- If the individual has been a non-resident in the country for 9 out of 10 years preceding the financial year, which is being taken into consideration. Or if they have been in India for 729 days or less during the seven years preceding the financial year in question.
- If the individual was a resident of India for 2 out of 10 years for the previous financial year.
- If they are a person of Indian origin (PIO) or a citizen of India who has been in India for 129 days or more but less than 182 days, with a total income of more than 15 lakh rupees in the relevant financial year, their residential status meaning will stand to be RNOR.
Non – Resident (NR)
The Residential Status for Income Tax in India for someone who only stays in India for less than 181 days in a financial year will be NR or non-resident. Anyone who fails to fulfill the conditions present for the previous categories will be considered a non-resident under the Income Tax Act.
The residential status for taxpayers has been mentioned in section 6 under the Income Tax Act 1961. It classifies the residential status of taxpayers under three categories. The residential status income tax classification includes Resident and Ordinarily Resident, Resident but Not Ordinarily Resident, and Non – Resident. An individual can figure out which category they fall under depending upon the duration of their stay in the country in a financial year.