Residential Status under Section 6 and the Scope of Taxable Income in India
This article explains how residential status is determined under Section 6 of the Income-tax Act, 1961, how it fixes the range of income chargeable under Section 5, and how Section 9 and two Supreme Court decisions apply to non-residents.
Status is the first step in any computation for an individual with a cross-border element. A wrong classification changes the whole base: foreign income is outside the net for one category and inside it for another, and the error flows into return form, schedule FA reporting and treaty claims.
Constitutional basis
A State may tax on the basis of source (income earned within its territory) or on the basis of residence (the earner's connection with the State). The Indian charge uses both. Parliament's power to tax income other than agricultural income rests on Entry 82 of the Union List, and Section 4 and Section 5 then determine the extent by reference to residence and place of receipt or accrual.
Determining residence of an individual
Residence is a function of physical presence during the previous year. Citizenship, intention and the place where payment is made do not decide it. An individual is resident in India in a previous year if either condition in Section 6(1) is met:
- Stay in India for 182 days or more during the previous year.
- Stay for 60 days or more during the previous year and 365 days or more during the four years immediately preceding.
If neither condition is satisfied, the individual is non-resident for that year. Status is determined year by year and can change.