Page 31 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes the residential status of person. All residents are taxable for all their income, including income
outside India. Non residents are taxable only for the income received in India or Income accrued
in India. Not Ordinarily Residents are taxable in relation to income received in India or income
accrued in India and income from business or profession controlled from India.

2.1 Residential Status (Section 6)

The incidence of tax on any assessee depends upon his residential status under the Act. Therefore,
after determining whether a particular amount is capital or revenue in nature, if the receipt is of
a revenue nature and chargeable to tax, it has to be seen whether the assessee is liable to tax in
respect of that income. The taxability of a particular receipt would thus depend upon not only the
nature of the income and the place of its accrual or receipt but also upon the assessee’s residential
status.
The following norms one has to keep in mind while deciding the residential status of an
assessee:
1. Different taxable entities: All taxable entities are divided in the following categories for the
purpose of determining residential status:

(a) An individual;
(b) A Hindu undivided family;

(c) A firm or an association of persons;
(d) A joint stock company; and

(e) Every other person.
2. Different residential status: An assessee is either: (a) resident in India, or (b) non-resident
in India.

However, a resident individual or a Hindu undivided family has to be (a) resident and
ordinarily resident, or (b) resident but not ordinarily resident.

All other assessee who includes a firm, an association of persons, a joint stock company
and every other person) can either be:
(a) Resident in India; or
(b) Non-resident in India.
3. Residential status for each previous year: Residential status of an assessee is to be
determined in respect of each previous year as it may vary from previous year to previous
year.
Different residential status for different assessment years: An assessee may enjoy different
residential status for different assessment years. For instance, an individual who has been
regularly assessed as resident and ordinarily resident has to be treated as non-resident in a

particular assessment year if he satisfies none of the conditions of section 6(1).
5. Resident in India and abroad: It is not necessary that a person, who is “resident” in India,
cannot become “resident” in any other country for the same assessment year. A person
may be resident in two (or more) countries at the same time. It is, therefore, not necessary
that a person who is resident in India will be non-resident in all other countries for the
same assessment year.

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