Residential Status Sec 6 of Income tax act 1961

 Section 6 of the Income Tax Act :

Pertains to the determination of residential status for individuals and other entities for the purpose of income tax assessment. Understanding one’s residential status is crucial, as it influences tax liabilities on income earned. Here’s a comprehensive overview of Section 6, including its provisions, implications, and relevance:

Overview of Section 6 of the Income Tax Act

1. Definition of Residential Status:

• The residential status under Section 6 helps classify taxpayers as Resident, Not Ordinarily Resident (NOR), or Non-Resident (NR), based on specific criteria.

2. Residency Conditions:
Under Section 6, an individual can be classified based on the following criteria:

• Resident in India: An individual is considered a resident in India if they fulfill any one of the following conditions:

  • Have stayed in India for at least 182 days during the current previous year.
  • Have stayed in India for at least 60 days during the current previous year and have also stayed for 365 days or more during the four years preceding the current year.

• Non-Resident (NR): An individual is classified as a non-resident if they do not meet either of the conditions mentioned above.

• Not Ordinarily Resident (NOR): An individual can qualify as a NOT ordinarily resident if:

  • They have been a non-resident in India in 9 out of 10 previous years immediately preceding the relevant year, or
  • They have been in India for less than 730 days during the last 7 years preceding the relevant year.

3. Special Conditions for Certain Individuals:
Certain special conditions apply to Indian citizens and persons of Indian origin when they are visiting India. For example:

• The 60 days' residence requirement may be extended to 182 days if the individual is a citizen of India and is on a visit to India or a person of Indian origin.

4. Implications of Residential Status:

• Tax Liability: The residential status determines whether an individual is taxed on their global income or only on income sourced within India:
  • Residents are taxed on global income.
  • Non-residents are taxed only on income earned or accrued in India.
  • Not Ordinarily Residents are taxed on Indian income and income from foreign sources that are accrued in India.

5. Important Considerations:

• Determination of Period: The day of arrival in or departure from India is considered when evaluating the duration of stay.
• Purpose of Visit: While the purpose does not alter the residency status, it can sometimes support clarification in complex cases (e.g., work assignments, medical treatment).
• Filing Requirements: A resident must file income tax returns irrespective of their income level, while a non-resident is generally required to file a return only if their income exceeds the basic exemption limit.

6. Compliance and Reporting:

• It's important for taxpayers to accurately determine their residential status to comply with tax obligations.
• Misclassification can lead to penalties and legal issues with the tax authorities.

Conclusion:

Understanding Section 6 of the Income Tax Act is essential for individuals to comply with income tax regulations and to ascertain their tax liabilities accurately. Individuals should periodically review their residential status, especially if their personal circumstances change, such as moving to or from India.