CA Pankaj Goel(www.capankajgoel.com)
CA Pankaj Goel(www.capankajgoel.com)
CA Pankaj Goel(www.capankajgoel.com)
CA Pankaj Goel(www.capankajgoel.com)
CA Pankaj Goel(www.capankajgoel.com)
CA Pankaj Goel(www.capankajgoel.com)
CA Pankaj Goel(www.capankajgoel.com)
CA Pankaj Goel(www.capankajgoel.com)
Taxability of Income in India
Person
Resident and
Ordinarily Resident
Resident and NotOrdinarily Resident
NonResident
1 Income Received in India
Taxable
Taxable
Taxable
2 Income Earned/Accrued/Arisen in India
Taxable
Taxable
Taxable
Taxable
Taxable
Taxable
3
Income deemed to be
Earned/Accrued/Arisen in India*
4 Income Earned/Received Outside India
a
From a business/profession setup or
controlled from India
Taxable
Taxable
NonTaxable
b
From a business/profession setup or
controlled from outside India
Taxable
Non-Taxable
NonTaxable
Taxable
Non-Taxable
NonTaxable
c Any other Income
When
an
individual
is
said
to
be
resident
in
An individual is said to be resident in India if he satisfies any one of the following two conditions:
India?

He is in India for a period or periods amounting in all to 182 days or more in the relevant previous
year; or

He is in India for 60 days or more during the relevant previous year and has been in India for 365
days or more during 4 previous years immediately preceding the relevant previous year.
Concession
in
There are two concession given to following persons:

certain
cases:
In case of an individual, who is a citizen of India and who leaves India in any previous year for the
purpose of employment outside India, the period of 60 days, in condition No. 2, supra, shall be
substituted by 182 days i.e., he shall not be a resident of India unless his stay in India is at least
182 days during the relevant previous year in which he leaves India.
Similarly in case of an individual who is a citizen of India and who leaves India in any previous year as a
member of the crew of an Indian ship, the period of 60 days will be substituted by 182 days.
CA Pankaj Goel(www.capankajgoel.com)
As per the Explanation, an Indian citizen leaving India during the previous year for the purpose of
employment outside India shall get the benefit of extended 182 day rule. Therefore, to get the benefit of
the extended stay one should satisfy the following twin conditions:
� The individual should be an Indian citizen; and
�
He should leave India during the previous year for the purpose of employment outside India.
CA Pankaj Goel(www.capankajgoel.com)
Assuming that the first condition is satisfied, the question that arises for consideration is whether the
employees deputed outside India or sent outside India for onsite assignment would satisfy the second
condition. To answer this question one has to interpret the above underlined words.
The above underlined words have not been defined under the Act. At first blush it would appear
that to take benefit of the Explanation, an individual would have to show that he has taken a new
job outside India. He would then be leaving the country to take-up such employment. The
relaxation would then be available only to a person taking-up a job abroad and not to a person
who is sent by the Indian employer for deputation or onsite assignment abroad.
The Bombay Tribunal in the case of K Y Patel 33 ITD 714 held that a person merely undertaking tours
abroad in connection with his employment in India would not be eligible for this relaxation. In this case the
assessee was employed by an Indian company and was paid salary in India. The assessee was on tour
to foreign country on 12 occasions. Based on the above facts, the Tribunal held that “context in which the
word 'leaves' has been used in the Explanation (a) to clause (c) of sub-section (1) of section 6 can have
only a restricted and well defined meaning inasmuch as 'leaving' should not only be physical one but
also with the intention of staying abroad on a permanent or semi-permanent basis. Merely
undertaking tours abroad in connection with one's employment in India cannot attract the
application of Explanation (a) so as to convert a resident into a non-resident”
As per the Concise Oxford Dictionary the term
“employment” means the action or the condition of employing; a person’s work or profession.
As per P Ramanatha Aiyar’s Advanced Law Lexicon, third edition the term “employment” includes
services or occupation in which a person works for another and in which there is a relationship of
employer and employee.
Therefore, “for the purpose of employment outside India” could also mean for the purpose
of rendering service outside India. The employee, who renders service abroad, under a contract of
service, could also then fall under the Explanation.
The Explanation does not restrict itself to a new employer-employee relationship coming
into existence. If such were the intention, the explanation would probably have more appropriately
used the words – “to take-up a new employment outside India”.
Authority for Advance Ruling (AAR) had an occasion to consider a similar situation in the case of
British Gas India P Ltd 2006-TIOL-06-ARA-IT. In this case, British Gas India (P) Ltd, part of the BG
Group, a leading international energy company with expertise across the natural gas spectrum had
assigned certain employees including Mr. Manish Gupta to BG Group entities outside India. Mr. Manish
Gupta was working with the Indian company from February 2002. With effect from July 1, 2005, he was
deputed to BG, UK, for two years. In the financial year 2005-06, he spent less than 182 days in India. The
question was whether he should be considered a non-resident for tax deduction at source.
The AAR observed that "A careful reading of Explanation (a) of section 6 would show that the
requirement of the Explanation is not leaving India for employment but it is leaving India for the purposes
of employment outside India. For the purpose of the Explanation, an individual need not be an
unemployed person who leaves India for employment outside India. Therefore, the fact that Manish
Gupta was already an employee at the time of leaving India is hardly material or relevant. For all these
CA Pankaj Goel(www.capankajgoel.com)
reasons, we hold that Manish Gupta is not a resident in India in the financial year 2005-06 (Emphasis
Supplied).
The Bangalore Tribunal in the case of Ram Sagar Chaudhari Vs. III ITD (1989) 31 ITD 21 has
also taken a similar view. In this case the assessee was deputed to Nigeria by its employer on 29-6-1980.
The Tribunal observed that the assessee was eligible for benefit under Explanation to section 6(1) and
held as follows:
“The assessee was a citizen of India. He had left India in the previous year ended on 31-3-1981
for the purpose of employment in Nigeria. Hence, as he was not in India during that year for 182 days, he
could not be regarded as being a resident within the meaning of section 6(1)(c) either, by virtue of the
Explanation which had been on the statute with effect from 1-4-1983.”
2. Conclusion:
Based on the above it can be argued that the benefit of Explanation under section 6(1)
should be available to employees deputed outside India. However in case of employees who are
sent for onsite assignments for shorter period the benefit of Explanation under section 6(1) may
not be available. This for the reason that in such a case, leaving India is in connection with
employment and not for the purpose of employment.

In case of an individual, who is a citizen of India, or is a person of Indian origin, who, being
outside India, comes on a visit to India in any previous year, the period of 60 days in the second
condition given above, will be substituted by 182 days i.e., he shall not be a resident unless his
stay in India is at least 182 days during the relevant previous year in which he visits India.
Important Notes
In computing the period of 182 days, the day he enters India and the day he leaves India should
both be treated as stay in India. However, in borderline cases where stay in India is near about
182 days his stay in India has to be calculated on hourly basis and a total of 24 hours will be
taken as one day. For example, if a person is in India for 82 days and 6 hours and then again he
comes to India for 20 days and 20 hours, his stay in India will be taken as 103 days.
The individual is treated as being in India if he is at any place within the territorial waters of India.
Question: A citizen of USA has been staying in India since 1984. He leaves India on 16-7-2007 on a
visit to USA and returns on 4-1-2008. Determine his residential status for the previous year 200708.
When an individual is said to be resident and ordinarily resident in India?
An individual who is resident in India, shall be resident and ordinarily resident in India if he satisfies both
the
following
conditions:
(a) He has been resident in India for at least 2 out of 10 previous years immediately preceding the
relevant previous year. This means that he must have satisfied any one of the conditions, with exceptions
(given above) for being a resident for at least 2 out of 10 previous years immediately preceding the
relevant previous year.
and
CA Pankaj Goel(www.capankajgoel.com)
(b) He has been in India for 730 days or more, during seven previous years immediately preceding the
relevant
previous
year.
When an individual is said to be resident but not ordinarily resident in India? [Section 6(6)(a)]: An
individual who is resident in India is said to be "not ordinarily resident in India" if he does not satisfy any or
both of the conditions mentioned in clause (a) and (b) in the same para above.
When an individual is said to be non-resident in India [Section 2(30)] An individual is said to be a
non-resident,
if
he
is
not
a
resident
in
India.
Question:Indian citizen and businessman Shri Raj Gopal, who resides in Jaipur, went to Germany for
employment purposes on 15-8-2007 and came back to India on 10-11-2008. He has never been out of
India in the past.


Determine residential status of Shri Raj Gopal for the assessment year 2008-09.
Will your answer be different if he had gone on a leisure trip?
Question: Mr. Border, an Australian cricketer has been coming to India for 100 days every year since
1995-96:


Determine his residential status for the assessment year 2008-09.
Will your answer be different if he has been coming to India for 110 days instead of 100 days
every year.

Question: X came to India from America for the first time on 2-10-2006. He returned to his home
country after staying in India upto 28-9-2007. Will he be a resident in India for the assessment
years 2007-08 and 2008-09?
Residential Status of Hindu Undivided Family (HUF) [Section 6(2)]
When
is
HUF
said
to
be
a
resident
in
India?
A HUF is said to be resident in India in any previous year in every case except where during that year the
control
and
management
of
its
affairs
is
situated
wholly
outside
India.
When
is
HUF
said
to
be
a
Non-Resident?
A HUF is said to be non-resident in India if during the previous year, the control and management of its
affairs
is
situated
wholly
outside
India.
In other words it will be non-resident in India if no part of the control and management of its affairs is
situated
in
India.
CA Pankaj Goel(www.capankajgoel.com)
Control and management refers to the decisions taken regarding affairs of the HUF. The control
and management lies at the place where decisions regarding the affairs of the HUF are taken.
Once the HUF is a resident in India, it is to be further determined whether it is:


resident and ordinarily resident in India; or
resident but not ordinarily resident in India.
When
is
HUF
said
to
be
a
resident
and
ordinarily
resident
in
India?
The HUF shall be said to be resident and ordinarily resident in India if the karta of the HUF satisfies both
the
following
conditions:
(a) He (Karta) must be resident in at least 2 out of 10 previous years immediately preceding the relevant
previous
year;
and
(b) He must be in India for at least 730 days during 7 previous years immediately preceding the relevant
previous
year.
When is HUF said to be resident but not ordinarily resident in India? [Section 6(6)(b)]: A HUF,
which is resident in India, is said to be resident but not ordinarily resident in India during the relevant
previous year, if the manager (Karta) of the HUF does not satisfy any one, or both, of the conditions
mentioned
in
clause
(a)
and
(b)
above.
Residential Status of Firm, Association of Persons (AOP), Body of Individuals (BOI) and of other
persons (except companies) [Sections 6(2) and 6(4)]
These
entities
may
either
be
resident
or
non-resident
in
India
for
any
previous
year.
When
is
a
Firm,
AOP,
BOI,
etc.
said
to
be
resident
in
India?
A firm, AOP, etc. is said to be resident in India in any previous year in all cases except where during that
year the control and management of its affairs is situated wholly outside India. In the case of a firm, the
control and management is in the hands of the partners and therefore, if the partners generally meet in
India regarding the affairs of the firm, then the firm is said to be resident in India.
When
is
a
Firm,
AOP,
BOI,
etc.
said
to
be
Non-Resident
in
India?
If the control and management of the affairs of these entities is wholly out of India during the relevant
previous year then they are said to be non-resident. In other words, to be Non-Resident, no part of the
control
and
management
should
be
in
India.
Residential Status of a Company [Section 6(3)]
When
is
a
company
said
to
be
A Company is said to be a resident in India in any previous year if:

it is an Indian company, or
resident
in
India?
CA Pankaj Goel(www.capankajgoel.com)

during the relevant previous year, the control and management of its affairs is situated wholly in
India.
When
is
a
company
said
to
A Company will be a non-Resident in any previous year if:


be
Non-resident
in
India?
it is not an Indian company; and
the control and management of its affairs is situated wholly or partially outside India.
Question 1: R was born on 5th April, 1995 in India & he later on took the citizenship of U.S.A. Neither his
parents nor his grand parents were born in divided/undivided India. R in this case shall be:



Citizen of India
Person of India origin
A foreign national
Question 2 : Determine the residential status of the following: 
R a person of Indian origin visited India on 3-10-2007 and plans to stay here for 185 days. During
4 years prior to previous year 2007-08, he was in India for 750 days. Earlier to that he was never
in India. For assessment year 2008-09, R shall be?

R, a citizen a India is employed on an Indian ship. During the previous year 2007-08 he leaves
India for Germany on 15-9-2007 for holidays and returned on 1-4-2008. He had been nonresident for the past 3 years. Earlier to that he was permanently in India. For assessment year
2008-09, R shall be?

R Ltd., is registered in U.K. The control and management of its affairs is wholly situated in India.
R Ltd., shall be?

R, a foreign national but a person of Indian origin visited India during previous year 2007-08 for
181 days. During 4 preceding previous years he was in India for 400 days. R shall be?
Question 3 : State True and False




An Indian company is always resident in India.
A foreign company in always non-resident in India.
Salary payable by a company to an Indian citizen for services rendered outside India is an
income which is deemed to accrue or arise in India.
Salary payable by the Government to an Indian citizen who is non-resident in India for service
rendered outside India is not taxable in India.
Question 4 : Dividend paid by an Indian company outside India is:

taxable in India in the hands of the recipient
CA Pankaj Goel(www.capankajgoel.com)


exempt in the hands of recipient
taxable in the hands of the company and exempt in the hands of the recipient
Question 5 : 'U' was born in 1975 in India. His parents were also born in India in 1948. His grand parents
were, however, born in England. 'U' was residing in India till 15-3-2005. Thereafter, he migrated to
England and took the citizenship of that country on 15-3-2007. He visits India during 2007-08 for 90 days.
Determine
the
residential
status
of
'U'
for
assessment
year
2008-09.
Question 6 : Mr. Kohli, a citizen of India, is an export manager of Arjun Overseas Limited, an Indian
Company, since 1-5-2003. He has been regularly going to USA for export promotion. He spent the
following
days
in
U.S.A.
for
the
last
five
years:
Previous
31-3-2004
31-3-2005
31-3-2006
31-3-2007
31-3-2008
year
ended
No.
of
319
150
270
310
295
days
spent
in
USA
days
days
days
days
days
Determine his residential status for assessment year 2008-09 assuming that prior to 1-5-2003 he had
never
traveled
abroad.
Determine the residential status in the following cases for the assessment year2008-09:




The control and management of a HUF is situated in India. The manager of the H.U.F. visited
England with his wife from 14-8-2007 to 30-6-2008. Earlier to that he was always in India.
A company, whose registered office is in America, is partly controlled and managed from its
branch established in India.
In a partnership firm, there are three partners namely A, B and C. A and B reside in India while C
lives in Germany. The firm is fully controlled by C. During the previous year, Mr. C stayed for 6
months in India.
A V.I.P. Club is in India, whose director Mr. X belongs to China. The Club is controlled fully by Mr.
X. In the previous year. Mr. X did not come for a single day to India.
Territorial waters, or a territorial sea, as defined by the 1982 United Nations Convention on the Law of
the Sea[1], is a belt of coastal waters extending at most twelve nautical miles from the baseline (usually
the mean low-water mark) of a coastal state. The territorial sea is regarded as the sovereign territory of
the state, although foreign ships (both military and civilian) are allowed innocent passage through it; this
sovereignty also extends to the airspace over and seabed below.
The term "territorial waters" is also sometimes used informally to describe any area of water over which a
state has jurisdiction, including internal waters, the contiguous zone, the exclusive economic zone and
potentially the continental shelf.
Territorial waters, or a territorial sea, as defined by the 1982 United Nations Convention on the Law of
the Sea[1], is a belt of coastal waters extending at most twelve nautical miles from the baseline (usually
the mean low-water mark) of a coastal state. The territorial sea is regarded as the sovereign territory of
CA Pankaj Goel(www.capankajgoel.com)
the state, although foreign ships (both military and civilian) are allowed innocent passage through it; this
sovereignty also extends to the airspace over and seabed below.
The term "territorial waters" is also sometimes used informally to describe any area of water over which a
state has jurisdiction, including internal waters, the contiguous zone, the exclusive economic zone and
potentially the continental shelf.
CA Pankaj Goel(www.capankajgoel.com)
Synopsis of the Citizenship Act, 1955
Introduction
The Constitution of India provides for a single citizenship for the entire country. The provisions relating to
citizenship at the commencement of the Constitution are contained in Articles 5 to 11 in Part II of the
Constitution of India. The Citizenship Act enacted by the Parliament in 1955 provides for acquisition and
determination of citizenship.
Modes of acquiring Indian citizenship
By Birth (section 3)
A person born in India on or after 26th January 1950 but before 1st July 1987 is a citizen of India by birth
irrespective of the nationality of his parents. A person born in India on or after 1 st July 1987, is considered
as a citizen of India only if either of his parents is a citizen of India at the time of his birth. Further, those
born in India on or after 7th January 2004 are considered citizens of India only if both of their parents are
citizens of India or one of whose parents is a citizen of India and the other is not an illegal migrant at the
time of their birth.
By Descent (section 4)
A person born outside India on or after 26th January 1950 but before 10th December 1992 is a citizen of
India by descent, if his father was a citizen of India at the time of his birth. A person born outside India on
or after 10th December 1992, is considered as a citizen of India if either of his parents is a citizen of India
at the time of his birth. From 07th January 2004, a person born outside India shall not be a citizen of India
by virtue of this Section, unless his birth is registered at an Indian consulate within one year of the date of
birth or with the permission of the Central Government, after the expiry of the said period. An application,
for registration of the birth of a minor child, to an Indian consulate under Section 4(1) shall be made in
Form I and shall be accompanied by an undertaking in writing from the parents of such minor child that he
or she does not hold the passport of another country.
By Registration (section 5)
Citizenship of India by registration can be acquired by –
a. a.
persons of Indian origin, who or either of whose parents was born in undivided India and
who are ordinarily resident in India for seven years;
b. persons of India origin who are ordinarily residents in any country or place outside undivided
India;
c. persons who are or have been married to a citizen of India and who are ordinarily resident in
India for five years;
d. minor children both whose parents are Indian citizens;
e. a citizen of Singapore and Canada who is resident in India for five years and eight years
respectively.
By Naturalisation (section 6)
CA Pankaj Goel(www.capankajgoel.com)
Citizenship of India by naturalisation can be acquired by a foreigner who is ordinarily resident in India for
twelve years (continuously for the twelve months preceding the date of application and for eleven years in
the aggregate in the fourteen years preceding the twelve
months).
CA Pankaj Goel(www.capankajgoel.com)
RECEIPT vs. REMITTANCE
The “receipt” of income refers to the first occasion when the recipient gets themoney under his control.
Once an amount is received as income, any remittanceor transmission of the amount to another place
does not result in “receipt” at theother place.
ACTUAL RECEIPT vs. DEEMED RECEIPT
It is not necessary that an income should be actually received in India in order to
attract tax liability. An income deemed to be received in India in the previous year
is also included in the taxable income of the assessee. The Act enumerates the
following as income deemed to be received in India:









Interest credited to recognized provident fund account of an employee in
excess of 9.5 per cent.
Excess contribution of employer in the case of recognized provident fund (i.e.,
the amount contributed in excess of 12 per cent of salary).
Transfer balance.
Contribution by the Central Government to the account of an employee under
a pension scheme referred to in section 80CCD.
Tax deducted at source.
Deemed profit under section 41
MEANING OF ACCRUAL OF INCOME
Income accrued in India is chargeable to tax in all cases irrespective of residential
status of an assessee. The words “accrue” and “arise” are used in contradistinction
to the word “receive”. Income is said to be received when it reaches the assessee;
when the right to receive the income becomes vested in the assessee, it is said to
accrue or arise.
MEANING OF INCOME DEEMED TO ACCRUE OR ARISE IN INDIA
In some cases, income is deemed to accrue or arise in India under section 9 even though it may actually
accrue or arise outside India. Section 9 applies to all assessees irrespective of their residential status and
place of business. The categories of income which are deemed to accrue or arise in India are as under:
CA Pankaj Goel(www.capankajgoel.com)
CA Pankaj Goel(www.capankajgoel.com)
Important Points to be Borne in Mind while Determining the Residential Status of an Individual
a. Residential status is always determined for the Previous Year because the assessee has to
determine the total income of the Previous Year only. In other words, as the tax is on the income
of a particular Previous Year, the enquiry and determination of the residence qualification must
confine to the facts obtaining in that Previous Year.
b. If a person is resident in India in a Previous Year in respect of any source of income, he shall be
deemed to be resident in India in the Previous Year relevant to the Assessment Year in respect of
each of his other sources of Income. [Section 6(5)]
c. Relevant Previous Year means, the Previous Year for which residential status is to be determined
d. It is not necessary that the stay should be for a continuous period.
e. It is not necessary that the stay should be at one place in India.
f. Both the day of entry and the day of departure should be treated as the day of stay in India
[Petition No.7 of 1995 225 ITR 462 (AAR)]
g. Presence in territorial waters in India would also be regarded as stay in India.
h. A person is said to be of Indian Origin if he or either of his parents or any of his grand parents
was born in undivided India [Section 115C]
i. Offcial tours abroad in connection with employment in India shall not be regarded as employment
outside India.
j. A person may be resident of more than one country for any Previous Year.
k. Citizenship of a country and residential status of that country are two separate concepts. A
person may be an Indian national/Citizen but may not be a resident in India and vice versa.