Explain the relationship between residential status and incidence of tax

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explain the relationship between residential status and incidence of tax

Or What is the relationship between residential status and incidence of tax? Tax liability of an assessee varies with his residence or residential status. Hence, the . Individual Tax Payers are either “resident in India” or “non resident in India”. Relationship between residential status and Incidence of Tax. Tax incidence on an assessee depends on his residential status. . In order to understand the relationship between residential status and tax liability, one must .

Residential Status and Tax Incidence under the Income Tax Act

Therefore, the determination of the residential status of a person is very significant in order to find out his tax liability. The 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. The foreign investors may be Indian nationals residing outside India, person of Indian origin and other foreign investors including corporations. Similarly, under FEMA, clause u of Section 2, person includes all the above categories and also any agency, office or branch owned or controlled by any such person.

Broadly, an assessee may be resident or non-resident in India in a given previous year. Under Section 6 1an individual is said to be resident in India in any previous year if he satisfies any one of the following basic conditions: He is in India in the previous year for a period of at least days or, He is in India for a period of at least 60 days during the relevant previous year and at least days during the four years preceding that previous year.

In case an Indian citizen leaves India for employment abroad in any year for the purpose of employment or where an individual, who is a citizen of India, leaves India as a member of the crew of an Indian shipor where an Indian citizen or a person of Indian Origin, who has settled abroad, comes on a visit to India in the previous year, shall not attract clause b of the basic conditions Therefore, such individuals may stay in India upto days in a given previous year without becoming resident in India for that previous year.

An individual who does not satisfy either of the above basic conditions is non-resident for that previous year. A Hindu Undivided Family HUF is said to be resident in India if control and management of its affairs is wholly or partly situated in India during the relevant previous year.

As per Section 6 2a partnership firm or an association of persons are said to be resident in India if control and management of their affairs are wholly or partly situated within India during the relevant previous year. They are, however, treated as non-resident if control and management of their affairs are situated wholly outside India.

Explained: How your residential status determines tax incidence

As per Section 6 3an Indian company is always resident in India. A foreign Company is resident in India only if, during the previous year, control and management of its affairs is situated wholly in India.

  • Residential Status and Tax Incidence under the Income Tax Act
  • Residential Status and Tax Incidence under the Income Tax Act, FEMA and Companies Act

Where part or whole of control and management of the affairs of a foreign company is situated outside India, it shall be treated as a non-resident company. As per Section 6 4every other person is resident in India if control and management of his affairs is, wholly or partly, situated within India during the relevant previous year.

Residential Status of Individual and Incidence of Income Tax(posavski-obzor.info)

On the other hand, every other person is non-resident in India if control and management of its affairs is wholly situated outside India. Section 2 v provides that a person residing in India for more than days during the course of the preceding financial year is a person resident in India.

explain the relationship between residential status and incidence of tax

An Indian citizen who stays abroad for employment or for carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay is a non-resident persons posted in U. Non-resident foreign citizens of Indian origin are treated on par with non-resident Indian citizens.

Explanation to Clause e of Part I of the Schedule provides that a resident in India includes a person who has been staying in India for a continuous period of not less than twelve months immediately preceding the date of his appointment as a managerial person and who has come to stay in India for taking up employment in India or for carrying on a business or vocation in India.

explain the relationship between residential status and incidence of tax

Under FEMA, the residential status is not only to be determined for a particular point of time, it is an ongoing process and is relevant for determining whether an individual can undertake a particular transaction at that particular point of time.

July 10, 2: Under the Income Tax Act, the residential status of an individual is determined on the basis of period of stay of taxpayers in India.

explain the relationship between residential status and incidence of tax

Tax incidence on a taxpayer in India depends upon his residential status. Whether an income earned by an individual, in or outside India, is taxable in India depends on the residential status of the individual rather than on his citizenship.

People are often under the wrong impression that taking up foreign citizenship helps obtain tax benefits.

Residential Status and Incidence of Tax on Income under Income Tax Act, 1961

Taxing jurisdiction There are three different principles adopted internationally to identify the tax jurisdiction of the income of an individual. These principles—citizenship principles, source principle and residence principle are adopted by different countries as per their choice. In the US, income is taxed based on citizenship and source based principles, whereas India follows the residence based and source based taxation system.

explain the relationship between residential status and incidence of tax

Under citizenship based taxation, income is taxed on the basis of citizenship of the taxpayer, whereas under residence based taxation system, income is taxed on the basis of residential status of the taxpayer.

It provides that RORs shall be required to pay tax on their worldwide income whereas RNORs are required to pay tax only on Indian income, plus any income accruing outside India from a business controlled in or profession set up in India. However, non-residents are taxed only on income that has its source in India.