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According to the Income Tax Act, 1961, taxation depends on the resident status of an individual/company. Although you have read about the different categories classified under the income tax rules, there is a possibility that you are unsure of how they vary. It is recommended to understand it with the following examples:

  1. Resident
  2. Resident Not Ordinarily Resident
  3. Non-Resident

1. Resident

A resident taxpayer is an individual who satisfies one of the following conditions:

  • Resides in India for a minimum of 182 days in a year.
  • Has resided in India for a minimum of 365 days in the immediately preceding four years. In addition, he must reside in India for a minimum of 60 days in the current financial year.

  • Consider the case of Mr D, Business Head for Asia Pacific regions for a private firm. Mr D was born and brought up in India. He has to travel to various locations of the continent for business purposes. He has spent 200 days travelling in the current financial year. Also, he has been travelling abroad from the past two years and has stayed out of India for about 400 days in this period.

    When you consider this information to figure out the resident status of Mr D, you will understand that he has only spent 165 days in India during the current financial year. That proves the first condition wrong. It is given that Mr D has been travelling only from the past two years.

    Also, it is said that he has travelled for 400 days in the past two years. That means, in the past four years, Mr D has stayed in India for more than 365 days (1061 days). You must remember that he has stayed for 165 days in the current year. Therefore, the second condition holds good. Mr D is a resident taxpayer.

    2. Resident Not Ordinarily Resident

    There is a further classification under the resident status – Resident Ordinarily Resident (ROR) and Resident Not Ordinarily Resident (RNOR). If both the conditions below are met, he will be a ROR:

  • He has resided in India for at least 2 out of 10 immediate previous years.
  • He has resided in India for at least 730 days in seven immediately previous years.

  • Considering the example of Mr D, both the conditions are satisfied. Therefore, he can be considered as Resident Ordinarily Resident.

    Alternatively, consider that he had to work from the headquarters of his firm, located in Kota Kinabalu, Malaysia for the past six years. He has only visited his parents for a week, twice a year during this time. That means, he has resided in India for 449 days in the past six years and the same applies for the current financial year too. In this case, one condition is not met. Therefore, Mr D is RNOR.

    3. Non-Resident

    An individual who does not fall under either of the above categories can be considered as a non-resident. For example, Ms G went to London to join a reputed university for a graduation course (three years). While studying there, her professor suggested her to join a post-graduate course at the same university (two years).

    She had to get an internship certificate to complete the course. Upon completion, the firm offered her a permanent position. She has been an employee there for the past four years. That is, Ms G has stayed out of India for nine years now. She receives rental income from the property that she inherited from her parents. Both the conditions applicable for ROR are not satisfied. That makes Ms G a non-resident.

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