Solved! Tax Liability Based on Residental Status of Assessee

knp gst
Oct 19, 2019
2 min read

Determining the residential location of the taxpayer is equally important for the tax department as verifying other documents. But why? Well, it is already known that the earnings of the registered taxpayer from any source present (property or business) in India are taxable under the law. Another major factor that determines the tax liability of an assessee is his residential status in the country during the financial year.

As per experts, the residential status of the taxpayer means the number of days he was physically present in the country during a financial year and the preceding ten financial years. A Non-Resident/Resident but not ordinarily resident taxpayer has tax liability only on India-sourced income/income received in India whereas a Resident and Ordinarily Resident is taxable on worldwide income.

Categories of Taxpayer’s Residential Status:

The government has made segments to classify the residential status of the taxpayers in India to put them under categories of various taxable income. Look under which category you are.

Resident and Ordinarily Resident (ROR)

Taxpayers are considered Residents and Ordinarily Residents if they meet one of two criteria:

The total no. of days he stayed in India during the relevant financial year is 182 days or more.
The total number of days he stayed in India during the current financial year is 60 days or more.
If the total no. of days he stayed in India collectively for the past 4 financial years is 365 days.

For individuals with a total income of more than Rs 15 lakh other than from foreign sources, the period will be reduced to 120 days or more new amendment as of the financial year 2020-21.

Resident but Not Ordinarily Resident (RNOR)

If the taxpayer meets both conditions, he is considered an ordinary resident:-

Taxpayers’ collective stay in India should be 730 days or more for 7 consecutive financial years preceding the current financial year.
If he has been an Indian resident for at least 2 years from 10 previous financial years preceding the current financial year.

Therefore, if any individual fails to satisfy even one of the above conditions, he would be an RNOR.