NEW DELHI: The definition of a resident for Income Tax purposes is now stayed in India limited to 120 days as compared to 182 days earlier. As per amendments in the Finance Act 2020, an Indian citizen or Person of Indian Origin, having income in the previous year exceeding Rs 15 lakh excluding the income from foreign source, who visits India for a period of 120 days or above will be a resident as per the Income Tax Act.
According to the explanation inserted by the amendment vide Finance Act 2020, “income from foreign source” means income accruing or arising outside India except the income derived from a business controlled in or profession set up in India.
The change in definition of the resident is aimed at widening the tax base. There was some confusion on the definition of a resident when the budget was announced.
This has been clarified by the exception after passing of Finance Act on March 23.
The determination of the residential status under Income Tax Act plays a vital role in to determine whether a person comes under the tax net or not. Section 6 of the Income Tax Act deals with the concept of resident for Income tax purposes and the Finance Act 2020 has amended this provision.
Earlier, any Indian citizen or Indian-origin individual who left India and visited India would have been a resident if the period of stay was 182 days or more.
The second condition which must be satisfied is that the Indian citizen/Indian Origin person has an income of Rs 15 lakh and above, excluding the income from foreign source, then they will fall into the category of resident.
The concept of deemed resident is introduced vide the Finance Act, 2020. For an ordinary resident, all income is taxable in India including the income earned outside India. For a not-ordinarily resident, the income earned or accrued in India is alone taxable. The resident who does not fall into the category of not-ordinarilyy resident will come under the category of resident. For deemed resident, income earned or accrued in India exceeding 15 lakh is taxable. However, for a non-resident, income is not taxable.
According to the Income Tax Act’s Section 6(6) (a), a person is not ordinarily resident if he has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, 729 days or less.
The budget proposed to change the condition of nine years out of 10 to seven out of 10 and to remove the condition of 729 days or less in preceding seven years. However, the Finance Act passed has not brought out any changes to implement this proposal in the Finance Bill. Therefore the earlier two conditions remain the same to determine the non ordinarily resident of an individual.
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