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Wednesday, 24 February 2016


Non Residents


2.1 The persons who are liable to pay income tax and against whom proceeding for assessment are taken under the Act, are known as 'Assessees'. These persons can be natural persons or artificial juridical persons like, corporations, local authorities etc. For the purpose of assessment, two or more persons earning income jointly also form a separate entity 'firm' or 'association' or 'persons'. The persons forming an assessable entity can be :-

  1. an individual,
  2. a Hindu Undivided Family,
  3. a corporation,
  4. a firm,
  5. an 'association or persons' or 'body of individuals',
  6. a local authority,
  7. any other artificial juridicial person not falling in any of the above categories.

Different rules for computation of income and tax exist for different types of persons.

2.2 All the persons, are further categorised on the basis of their residence in the taxable territory i.e. India. The residential status of a person is necessary to be known, as the tax liability is dependent on such status. Based on residence, a person can be:-

    1. resident; or 
    2. non-resident

2.3 In order to be a resident, an individual should have been present in India in the previous year for at least 182 days. This period of 182 days need not be continuous. Special rules exist for the person who left India in any earlier year and has been visiting India so that his total stay in the preceding four years has been at least 365 days. Such a person is considered resident even if in the previous year under consideration, he stays in India for 60 days only. This rule, however, does not apply to a member of the crew of an Indian ship and to a citizen of India or a person of an Indian origin (Known as Non-resident Indian). The residence of such persons is under all circumstances governed by the general condition i.e., they become residents only if their stay in any particular year is 182 days or more.

2.3.1 We may take a few instances to make the position clear :-

  1. A person leaves India for the first time on 1st August, 1996 and remains out of India in the remaining part of the financial year. His period of stay in India in the previous year 1996-97, being less than 182 days, he is not a resident for that year.
  2. A person leaves India in December 1996 and continues to remain abroad in the remaining part of the financial year. His period of stay in India being more than 182 days, he will be a 'resident' in the previous year 1996-97.
  3. A person leaves India in 1993. In the financial year 1993-94 to 1996-97 he visited India several times and the total period of stay during these four years was 400 days. During the financial year 1997-98, he came to India for total period of 180 days. Although his stay in India in the financial year 1997-98 is less than 182 days, he becomes a 'resident1 by virtue of the fact that his stay in the preceding four years was more than 365 days and he was in India for more than 60 days in the year under consideration.
  4. In the above examples, if the person was a member of the crew of an Indian ship or a citizen of India or a person of Indian origin, he would not have become a 'resident' for the year 1997-98 since his period of stay in India in that year was less than 182 days.

2.3.2 A 'firm' or 'an  association  of  persons',  is  generally 'resident'. The only exception is a firm whose control and management during the year is wholly from outside India.

2.3.3 A company is 'resident' if it is an Indian Company. All the companies formed and registered in India under the Indian Companies Act and the Government corporations are 'Indian companies'. Even the company registered outside India can be resident if the control and management of its affair during that year is wholly from India.

2.4 All those persons who are not 'residents' are called 'non­residents'.

2.5 There is a special Category of  'resident' persons, known as 'not ordinarily residents' in India. This category is carved out of the category of residents for those who have for a long time remained out of India arid for reason of the prescribed period of stay in any particular year acquire the status of resident in that year. This is to ensure that they are not saddled with higher tax liability of a resident by casual change in status. In order to fall in this category, one must satisfy either of the following two conditions:-  

  1. he should not have had the status of 'resident' in nine out of ten preceding previous years; or
  2. he should not have stayed in India for an aggregate period of 732 days or more in the preceding seven previous years.

A person, for example, who went out of India in April, 1984 and was non-resident for 84-85 to 92-93 will, even if he remains in India for 182 days in 93-94 and becomes resident in that year, get this special category of 'not ordinarily resident' because he was not 'resident' in nine out of preceding ten years.

2.6  Based on the residential status of a tax payer and the place where the income is earned, the income that is included in the total income is as under:- 


2.6.1  Since a 'resident' is liable to pay tax in India on his 'total world income', it is possible that he may have to pay tax on his foreign income in that country also, where it is earned. Such situation leads to double taxation of the same income - in India and again in the country where it is earned. To avoid such a situation, the Government of India has entered into agreements for avoidance of double taxation with different countries, a discussion about which is made in Chapter XII.

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