ICAI Notes: Residence and Scope of Total Income | Taxation for CA Intermediate PDF Download

 Page 1


    
 
CHAPTER 
2 
LEARNING OUTCOMES
A 
RESIDENCE AND  
 SCOPE OF TOTAL  
 INCOME   
After studying this chapter, you would be able to-  
? appreciate the provisions for determining the residential 
status of different persons; 
? apply the relevant provisions to determine the residential 
status of different persons; 
? examine the scope of income of a person based on his 
residential status;  
? apply the relevant provisions to determine the total income 
of a person based on his residential status. 
© The Institute of Chartered Accountants of India
Page 2


    
 
CHAPTER 
2 
LEARNING OUTCOMES
A 
RESIDENCE AND  
 SCOPE OF TOTAL  
 INCOME   
After studying this chapter, you would be able to-  
? appreciate the provisions for determining the residential 
status of different persons; 
? apply the relevant provisions to determine the residential 
status of different persons; 
? examine the scope of income of a person based on his 
residential status;  
? apply the relevant provisions to determine the total income 
of a person based on his residential status. 
© The Institute of Chartered Accountants of India
 
INCOME TAX LAW 
2.2 
Residence and Scope of Total Income 
Residential Status
[Section 6]
Individual/HUF
Resident
Resident 
and 
ordinarily 
resident
Resident 
but not 
ordinarily 
resident
Deemed 
resident 
(Individual)
Non-
resident
Firm/LLP/ 
AOP/BOI/  
company 
etc.
Resident
Non-resident
Scope of Total Income    
[Section 5]
Resident 
and 
ordinarily 
resident
Global 
income is  
taxable in 
India
Resident but 
not ordinarily 
resident
Income which 
is received/ 
deemed to be 
received/ 
accrued or 
arisen/ 
deemed to 
accrue or 
arise in India 
Income which 
accrues or 
arises outside 
India being 
derived from a 
business 
controlled in 
or profession 
set up in India
Non-
resident
Income 
received/ 
deemed 
to be 
received/ 
accrued 
or arisen/ 
deemed 
to  accrue 
or arise in 
India
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
Page 3


    
 
CHAPTER 
2 
LEARNING OUTCOMES
A 
RESIDENCE AND  
 SCOPE OF TOTAL  
 INCOME   
After studying this chapter, you would be able to-  
? appreciate the provisions for determining the residential 
status of different persons; 
? apply the relevant provisions to determine the residential 
status of different persons; 
? examine the scope of income of a person based on his 
residential status;  
? apply the relevant provisions to determine the total income 
of a person based on his residential status. 
© The Institute of Chartered Accountants of India
 
INCOME TAX LAW 
2.2 
Residence and Scope of Total Income 
Residential Status
[Section 6]
Individual/HUF
Resident
Resident 
and 
ordinarily 
resident
Resident 
but not 
ordinarily 
resident
Deemed 
resident 
(Individual)
Non-
resident
Firm/LLP/ 
AOP/BOI/  
company 
etc.
Resident
Non-resident
Scope of Total Income    
[Section 5]
Resident 
and 
ordinarily 
resident
Global 
income is  
taxable in 
India
Resident but 
not ordinarily 
resident
Income which 
is received/ 
deemed to be 
received/ 
accrued or 
arisen/ 
deemed to 
accrue or 
arise in India 
Income which 
accrues or 
arises outside 
India being 
derived from a 
business 
controlled in 
or profession 
set up in India
Non-
resident
Income 
received/ 
deemed 
to be 
received/ 
accrued 
or arisen/ 
deemed 
to  accrue 
or arise in 
India
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
RESIDENCE AND SCOPE OF TOTAL INCOME 
 
 
2.3 
1. RESIDENTIAL STATUS [SECTION 6] 
The incidence of tax on any assessee depends upon his residential status under 
the Act. For all purposes of income-tax, taxpayers (individuals and HUF) are 
classified into three broad categories on the basis of their residential status viz . 
(1) Resident and ordinarily resident  
(2) Resident but not ordinarily resident 
(3) Non-resident  
Taxpayers (other than individuals and HUF) are classified into two broad 
categories on the basis of their residential status viz. 
(1) Resident  
(2) Non-resident  
Residential Status 
(Section 6)
Individual/HUF
Resident
Resident and 
ordinarily 
resident
Resident but 
not ordinarily 
resident
Deemed 
resident 
(Individual)
Non-resident
Firm/AOP/Local 
Authority/Company etc.
Resident
Non-resident
© The Institute of Chartered Accountants of India
Page 4


    
 
CHAPTER 
2 
LEARNING OUTCOMES
A 
RESIDENCE AND  
 SCOPE OF TOTAL  
 INCOME   
After studying this chapter, you would be able to-  
? appreciate the provisions for determining the residential 
status of different persons; 
? apply the relevant provisions to determine the residential 
status of different persons; 
? examine the scope of income of a person based on his 
residential status;  
? apply the relevant provisions to determine the total income 
of a person based on his residential status. 
© The Institute of Chartered Accountants of India
 
INCOME TAX LAW 
2.2 
Residence and Scope of Total Income 
Residential Status
[Section 6]
Individual/HUF
Resident
Resident 
and 
ordinarily 
resident
Resident 
but not 
ordinarily 
resident
Deemed 
resident 
(Individual)
Non-
resident
Firm/LLP/ 
AOP/BOI/  
company 
etc.
Resident
Non-resident
Scope of Total Income    
[Section 5]
Resident 
and 
ordinarily 
resident
Global 
income is  
taxable in 
India
Resident but 
not ordinarily 
resident
Income which 
is received/ 
deemed to be 
received/ 
accrued or 
arisen/ 
deemed to 
accrue or 
arise in India 
Income which 
accrues or 
arises outside 
India being 
derived from a 
business 
controlled in 
or profession 
set up in India
Non-
resident
Income 
received/ 
deemed 
to be 
received/ 
accrued 
or arisen/ 
deemed 
to  accrue 
or arise in 
India
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
RESIDENCE AND SCOPE OF TOTAL INCOME 
 
 
2.3 
1. RESIDENTIAL STATUS [SECTION 6] 
The incidence of tax on any assessee depends upon his residential status under 
the Act. For all purposes of income-tax, taxpayers (individuals and HUF) are 
classified into three broad categories on the basis of their residential status viz . 
(1) Resident and ordinarily resident  
(2) Resident but not ordinarily resident 
(3) Non-resident  
Taxpayers (other than individuals and HUF) are classified into two broad 
categories on the basis of their residential status viz. 
(1) Resident  
(2) Non-resident  
Residential Status 
(Section 6)
Individual/HUF
Resident
Resident and 
ordinarily 
resident
Resident but 
not ordinarily 
resident
Deemed 
resident 
(Individual)
Non-resident
Firm/AOP/Local 
Authority/Company etc.
Resident
Non-resident
© The Institute of Chartered Accountants of India
 
INCOME TAX LAW 
2.4 
The residential status of an assessee must be ascertained with reference to each 
previous year. A person who is resident and ordinarily resident in one year may 
become non-resident or resident but not ordinarily resident in another year or 
vice versa. 
The provisions for determining the residential status of assessees are: 
1.1 Residential Status of Individuals 
1.  Residential status on the basis of number of days of stay in India - 
Under section 6(1), an individual is said to be resident in India in any 
previous year, if he satisfies any one of the following conditions: 
(i) He has been in India during the previous year for a total period of 182 
days or more, or 
(ii) He has been in India during the 4 years immediately preceding the 
previous year for a total period of 365 days or more and has been in 
India for at least 60 days in the relevant previous year. 
 If the individual satisfies any one of the conditions mentioned above, he is a 
resident. If both the above conditions are not satisfied, the individual is a 
non-resident. 
• The term “stay in India” includes stay in the territorial waters 
of India (i.e. 12 nautical miles into the sea from the Indian 
coastline). Even the stay in a ship or boat moored in the 
territorial waters of India would be sufficient to make the individual resident 
in India.  
• It is not necessary that the period of stay must be continuous or active nor 
is it essential that the stay should be at the usual place of residence, business 
or employment of the individual. 
• For the purpose of counting the number of days stayed in India, both the date 
of departure as well as the date of arrival are considered to be in India. 
• The residence of an individual for income-tax purpose has nothing to do 
with citizenship, place of birth or domicile. An individual can, therefore, be 
resident in more countries for tax purposes than one even though he can have 
only one domicile. 
© The Institute of Chartered Accountants of India
Page 5


    
 
CHAPTER 
2 
LEARNING OUTCOMES
A 
RESIDENCE AND  
 SCOPE OF TOTAL  
 INCOME   
After studying this chapter, you would be able to-  
? appreciate the provisions for determining the residential 
status of different persons; 
? apply the relevant provisions to determine the residential 
status of different persons; 
? examine the scope of income of a person based on his 
residential status;  
? apply the relevant provisions to determine the total income 
of a person based on his residential status. 
© The Institute of Chartered Accountants of India
 
INCOME TAX LAW 
2.2 
Residence and Scope of Total Income 
Residential Status
[Section 6]
Individual/HUF
Resident
Resident 
and 
ordinarily 
resident
Resident 
but not 
ordinarily 
resident
Deemed 
resident 
(Individual)
Non-
resident
Firm/LLP/ 
AOP/BOI/  
company 
etc.
Resident
Non-resident
Scope of Total Income    
[Section 5]
Resident 
and 
ordinarily 
resident
Global 
income is  
taxable in 
India
Resident but 
not ordinarily 
resident
Income which 
is received/ 
deemed to be 
received/ 
accrued or 
arisen/ 
deemed to 
accrue or 
arise in India 
Income which 
accrues or 
arises outside 
India being 
derived from a 
business 
controlled in 
or profession 
set up in India
Non-
resident
Income 
received/ 
deemed 
to be 
received/ 
accrued 
or arisen/ 
deemed 
to  accrue 
or arise in 
India
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
RESIDENCE AND SCOPE OF TOTAL INCOME 
 
 
2.3 
1. RESIDENTIAL STATUS [SECTION 6] 
The incidence of tax on any assessee depends upon his residential status under 
the Act. For all purposes of income-tax, taxpayers (individuals and HUF) are 
classified into three broad categories on the basis of their residential status viz . 
(1) Resident and ordinarily resident  
(2) Resident but not ordinarily resident 
(3) Non-resident  
Taxpayers (other than individuals and HUF) are classified into two broad 
categories on the basis of their residential status viz. 
(1) Resident  
(2) Non-resident  
Residential Status 
(Section 6)
Individual/HUF
Resident
Resident and 
ordinarily 
resident
Resident but 
not ordinarily 
resident
Deemed 
resident 
(Individual)
Non-resident
Firm/AOP/Local 
Authority/Company etc.
Resident
Non-resident
© The Institute of Chartered Accountants of India
 
INCOME TAX LAW 
2.4 
The residential status of an assessee must be ascertained with reference to each 
previous year. A person who is resident and ordinarily resident in one year may 
become non-resident or resident but not ordinarily resident in another year or 
vice versa. 
The provisions for determining the residential status of assessees are: 
1.1 Residential Status of Individuals 
1.  Residential status on the basis of number of days of stay in India - 
Under section 6(1), an individual is said to be resident in India in any 
previous year, if he satisfies any one of the following conditions: 
(i) He has been in India during the previous year for a total period of 182 
days or more, or 
(ii) He has been in India during the 4 years immediately preceding the 
previous year for a total period of 365 days or more and has been in 
India for at least 60 days in the relevant previous year. 
 If the individual satisfies any one of the conditions mentioned above, he is a 
resident. If both the above conditions are not satisfied, the individual is a 
non-resident. 
• The term “stay in India” includes stay in the territorial waters 
of India (i.e. 12 nautical miles into the sea from the Indian 
coastline). Even the stay in a ship or boat moored in the 
territorial waters of India would be sufficient to make the individual resident 
in India.  
• It is not necessary that the period of stay must be continuous or active nor 
is it essential that the stay should be at the usual place of residence, business 
or employment of the individual. 
• For the purpose of counting the number of days stayed in India, both the date 
of departure as well as the date of arrival are considered to be in India. 
• The residence of an individual for income-tax purpose has nothing to do 
with citizenship, place of birth or domicile. An individual can, therefore, be 
resident in more countries for tax purposes than one even though he can have 
only one domicile. 
© The Institute of Chartered Accountants of India
RESIDENCE AND SCOPE OF TOTAL INCOME 
 
 
2.5 
Exceptions: 
The following categories of individuals will be treated as resident in India 
only if the period of their stay during the relevant previous year amounts to 
182 days or more. In other words, even if such persons were in India for 60 
days or more (but less than 182 days) in the relevant previous year, they will 
not be treated as resident due to the reason that their stay in India was for 
365 days or more during the 4 immediately preceding years. 
(1) Indian citizen, who leaves India during the relevant previous year as a 
member of the crew of an Indian ship or for purposes of employment 
outside India, or 
(2) Indian citizen or person of Indian origin
1
 who, being outside India 
comes on a visit to India during the relevant previous year. 
 However, such person having total income, other than the income 
from foreign sources [i.e., income which accrues or arises outside India 
(except income from a business controlled in or profession set up in 
India) and which is not deemed to accrue or arise in India], exceeding 
` 15 lakhs during the previous year will be treated as resident in India 
if - 
-  the period of his stay during the relevant previous year amounts 
to 182 days or more, or 
-  he has been in India during the 4 years immediately preceding 
the previous year for a total period of 365 days or more and has 
been in India for at least 120 days in the previous year. 
 Stay in India for 120 days in the relevant P.Y. is not a 
standalone condition. This condition requires stay in India 
for 120 days in the relevant P.Y. + 365 days in the 4 years 
immediately preceding the P.Y. 
1
A person is said to be of Indian origin if he or either of his parents or either of his grandparents 
was born in undivided India. 
© The Institute of Chartered Accountants of India