Residence in India [Test for Individual – Resident]

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Clause (1) of section 6 lays down two alternative tests for an individual to qualify as ‘Resident’ in India; on satisfying either of them, an individual becomes Resident in India (excepting the cases covered by explanation):

Test 1: Clause (1)(a)

If during the relevant previous year, he is physically present in India for a period aggregating to 182 days or more; or

Test 2: Clause (1)(c)

If he is physically present in India for a period aggregating to 365 days or more in the 4 immediately preceding years and 60 days or more in the relevant previous year.

The aforesaid rule of residence is subject to exceptions. By virtue of Explanation 1(a) to section 6(1) in the case of an Indian citizen who leaves India in the relevant previous year as a member of the crew of an Indian ship as defined in section 3(18) of the Merchant Shipping Act, 1958 or for the purpose of employment outside India, the period of 60 days referred to in section 6(1) (c) will be extended to 182 days.

Explanation 1(b) grants a beneficial regime to Non-Resident Indians who come to visit India in any previous year. In such a situation, 60 days referred to in section 6(1)(c) will be extended to 182 days. However, with effect from Financial Year starting on 1 April 2020, if the said persons have total income, other than the income from foreign sources, exceeding fifteen lakhs rupees during the previous year, then 60 days mentioned above will be substituted by 120 days.

As per Explanation 2 (inserted with effect from April 1, 2015), while, in the case of an Indian citizen and a member of the crew of a foreign bound ship leaving India, the period of stay in India shall in respect of such voyage, be determined in the manner and subject to such conditions as prescribed under Rule 126 of Income-tax Rules, 1962. 

Clause 1A, added by the Finance Act, 2020, provides that notwithstanding anything contained in clause (1), an individual, being a citizen of India, having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year shall be deemed to be resident in India in that previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.

An Explanation to clause 1A has been inserted by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, for the Financial Year starting from 1 April 2020, which provides that “for the removal of doubts, it is hereby declared that this clause shall not apply in case of an individual who is said to be resident in India in the previous year under clause (1)”.

As per Rule 126, the period or periods of stay in India, in respect of an eligible voyage, will not include the period beginning on the date entered into the Continuous Discharge Certificate in respect of joining the ship by the individual and ending on the date entered into this certificate in respect of signing off by that individual from the ship in respect of that voyage. Terms viz. Continuous Discharge Certificate and eligible voyage in the context of shipping activities are also separately defined under the above Rules.

Therefore, an Indian citizen or a person of Indian origin (not having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year) can stay in India upto 364 days in two years, if he plans his visit in such way.

For the purposes of this section, the expression ‘income from foreign sources’ means income which accrues or arises 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.

If the assessee’s stay in India is of the requisite duration, he would be deemed to be a resident although he may put up at hotels, and not always at the same hotel, and never for long together.

Again, a person might well be compelled to reside here completely against his will, the exigencies of business often forbid the choice of residence, and though a man may make his home elsewhere and stay in this country only because business compels him nonetheless, if the conditions of section 6 are satisfied he must be held to be a resident. In law a man may be resident in two different countries, in the same year, although he can have only one domicile.

As per the clarification issued by the CBDT on 08 May 2020, for determining the residential status during the previous year 2019-20, in respect of an individual will not include:

  • the period of lockdown post March 22, 2020, in case he was unable to leave India
  • his period of quarantine on or after March 1, 2020
  • the period of stay in India from March 22, 2020 to his departure if he has departed on an evacuation flight on or before March 31, 2020

Important Judicial Precedents & Board Circulars:

  1. Indian members of the crew of a foreign going Indian ship would be non-resident in India, if they are on board such ship outside the territorial waters of India for 182 days or more during any year. Accordingly, such seaman will be charged to tax in India only in respect of earnings received in India or the earnings for the period when they are working within Indian waters on coastal ships etc [Circular No. 586, dated November 28, 1990]
  2. While deciding the residential status of an assessee, the Assessing Officer should consider the provisions of both sections 6(1)(a) and 6(1)(c) and this is mandatory requirement of law [Vijay Mallya v. ACIT [2003] 263 ITR 41 (Calcutta HC)]. Each of the two tests requires the personal presence of the assessee in India in the course of the previous year.
  3. The Bombay High Court in CIT v. Indo Oceanic Shipping Co. Ltd. [2001] 247 ITR 247 has, held that, merely because the contract is entered in India, it will not be the conclusive test to decide as to whether an employee was employed in India or outside India. The terms of the contract, the nature of the work, the nature of business and all other relevant facts are required to be considered to decide as to whether the employment was in India or outside India. There is no merit in the contention of the department that for the purposes of the Act, remuneration paid to an employee working on an Indian ship would show that the employee was employed in India and not outside India. There was also no merit in departments’ contention that ship bearing Indian flag constitutes Indian territory and remains so even when it goes outside territorial waters of the country. Indian ships operating beyond Indian territorial waters do not come within the term “India” as defined in section 2(25A).
  4. For calculating period of stay in India for the purpose of determining residential status of an individual under section 6(1)(a) number of days during which he was present in India in a previous year including days of arrival and departure have to be taken into account. Even if for some hours on these dates a person can be said to have been out of India, it would have to be taken that, the person was in India on these dates however short the period may be. [See P. No. 7 of 1995, In re. [1997] 223 ITR 462 (AAR Delhi)]
  5. The Delhi High Court in CIT v. Suresh Nanda [2015] 375 ITR 172 has held that in determining the residential status of assessee in India during relevant assessment year, number of days of his forced stay due to untenable impounding of assessee's passport were to be excluded while computing days of his stay in India for purposes of Section 6(1)(a) of the Act. This ruling does not seem to be consistent
  6. As Rowlart J. observed in Levene V.I.R. (13 TC 468) a complete wanderer, an absolute tramp or a rich person of the same type wandering from hotel to hotel and never staying two nights in the same place may still be a resident although he cannot be called a resident in any particular spot. Stay on a yacht moved in the territorial waters of India would be stay in India for the purpose of section 6. 
  7. For the purpose of Explanation (a) to section 6(1)(c), ‘employment’ includes self employment like business or profession taken up by assessee abroad [CIT v. O. Abdul Razak [2011] 337 ITR 350 (Kerela HC) & ACIT v. Jyotinder Singh Randhawa [2014] 64 SOT 323 (Delhi Tribunal)]
  8. Return to India after resigning from job abroad is not visit to India under explanation (b) to section 6(1)(c). [Mrs. Smita Anand, China In re [2014] 362 ITR 38 (AAR)]
  9. A careful reading of Explanation (a) would show that the requirement of the Explanation is not leaving India for employment but it is leaving India for the purposes of employment outside India. For the purpose of the Explanation (a), an individual need not be an unemployed person who leaves India for employment outside India. [British Gas India (P.) Ltd., In re [2006] 285 ITR 218 (AAR)]
  10. In K. Sambasiva Rao v. ITO [2014] 62 SOT 167, the Hyderabad Tribunal has held that for the purpose of determining residential status in India under section 6, the term 'going abroad for purpose of employment' means travelling abroad on business visa to take up any employment or for any business carried outside India.

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