Residential Status of Individual - Section 6 of Income Tax Act, 1961

 

Residential Status of an Individual

 

Finance Act 2020 has heralded a momentous variation in determination of Residential status of an Individual, which was hitherto exclusively based on an Individual stay in India.

By virtue of amendment in section 6, residential status of an individual (From Assessment year 21-22 and onwards) inter-alia, is made contingent upon citizenship of an Individual, Total Income and his residential status in other country.

Ø  The residential status of an individual will be determined as under;-

a)      Not being Citizen of India and person of Indian Origin

Particulars	Stay in India in PY (Days)	Stay in Indian in Preceding 4 PY (Days)	Total Income, other than income from  foreign Source, in PY	Remarks
Normal Stay in India	182 days or more	Any number of Days	Any Amount	Resident. Section  6(1)(a)
Normal Stay in India	60 days or more	365 days or more	Any Amount	Resident. Section  6(1)(c)

 

b)      Citizen of India

Particulars	Stay in India in PY (Days)	Stay in Indian in Preceding 4 PY (Days)	Total Income, other than income from foreign Source, in PY	Remarks
Normal Stay in India	182 days or more	Any number of Days	Any Amount	Resident. Section  6(1)(a)
Normal Stay in India	60 days or more	365 days or more	Any Amount	Resident. Section  6(1)(c)
Normal Stay in India	Less than 60 Days	Any number of Days	Exceeding 15 lacs	Resident but not ordinary Resident, if he is not resident of any other country. Section 6(1A)
Leaves India as member of crew of an Indian ship or for employment outside India	182 days or more	Any number of Days	Any Amount	Resident. Clause (a) to Explanation 1 to section 6(1)
Leaves India as member of crew of an Indian ship or for employment outside India	Less than 182 days	Any number of Days	Exceeding 15 lacs	Resident but not ordinary Resident, if he is not resident of any other country. Section 6(1A)
Individual stays outside India and comes on visit to India	182 days or more	Any number of Days	Any Amount	Resident. Clause (b) to Explanation 1 to section 6(1)
Individual stays outside India and comes on visit to India	120 days or more	365 days or more	Exceeding 15 lacs	Resident but not ordinary Resident. Clause (b) to Explanation 1 to section 6(1)
Individual stays outside India and comes on visit to India	120 days or more but less than 182 days	Less than 365 days	Exceeding 15 lacs	Resident but not ordinary Resident, if he is not resident of any other country. Section 6(1A)
Individual stays outside India and comes on visit to India	Less than 120 days	Any number of Days	Exceeding 15 lacs	Resident but not ordinary Resident, if he is not resident of any other country. Section 6(1A)

 

c)       Person of Indian Origin

Particulars	Stay in India in PY (Days)	Stay in Indian in Preceding 4 PY (Days)	Total Income, other than income from foreign Source, in PY	Remarks
Normal Stay in India	182 days or more	Any number of Days	Any Amount	Resident. Section  6(1)(a)
Normal Stay in India	60 days or more	365 days or more	Any Amount	Resident. Section  6(1)(c)
Who stays outside India and comes on visit to India	182 days or more	Any number of Days	Any Amount	Resident. Clause (a) to Explanation 1 to section 6(1)
Who stays outside India and comes on visit to India	120 days or more	365 days or more	Exceeding 15 lacs	Resident but not ordinary Resident. Clause (b) to Explanation 1 to section 6(1)

 

 

Ø  Determination of Total Income, other than Income from foreign source

 

1.       Explanation, after Section 6(5) defines Income from foreign source , as Income which  accrue outside India (except Income derived from a business controlled in or a profession set up in India) and which is not deemed to accrue or arise in India

2.       Ignoring the technicalities associated with determination of Total Income, which is dealt at point no. 3, the Total Income, in literal sense,  for purpose of section 6 will be computed in following manner,  exemplified by way of illustration as under:-

a)      Domestic Income – Rs. 10,00,000 (A)

b)      Income from foreign Sources

i)                    Income from business (in foreign Country) controlled in India – Rs. 3,00,000 (B)

ii)                   Other foreign source Income – Rs. 12,00,000 (C)

c)       Total Income for the purpose of Section 6 = A+B, i.e. Rs. 13,00,000

3.       Present amendment in section has created situation of Catch-22 for Individual, enunciated as under

a)      Section 5 – Total Income of Individual is based on Residential Status

b)      Section 6 – Residential Status of Indian Citizen is also dependent upon Total Income

c)       Example – Suppose Mr. X , an Indian Citizen has following income particulars for PY 20-21

i)                    Stay in India in FY 20-21- 40 days and he is not treated as resident of any other foreign country.

ii)                   Income accrued in India – Rs. 6,00,000

iii)                 Income accrued from foreign business, controlled in India – Rs. 9,10,000

d)      In above example,  following consequences emerges

i)                    Rs. 9,10,000 is taxable in the hands of Mr. X, when he is treated as “Resident but not ordinarily resident”

ii)                   Under amended section 6(1A), he is treated as “Resident but not ordinarily resident” when his total income exceeds Rs. 15 lacs and calculation of total income is dependent upon residential status.

iii)                Thus total income cannot be computed till residential status is determined (As per section 5) and residential status cannot be finalized, till total income is calculated (section 6)- Catch 22 situation

 

e)      In view of above, in my humble submission, we need to resort to intention behind enactment of said legislation i.e. Heydon’s Rule of Interpretation of Statue. The amendment was done to tax the High income individual, who are managing their stay in India in such a way that, they are not resident of India (Non-resident) and hence their income from business carried outside India, but controlled from India, remains out of taxation purview. To determine, High Income individual, a benchmark of 15 lacs is fixed under law. Thus, the “total income” as envisaged in section 6 should be determined in literal sense ignoring the residential status. Post determination of “Total Income”, residential status be determined as per amended section 6.