The Income Tax Act of India is a comprehensive law that governs the taxation system in India. It has various sections that outline the various aspects of taxation. One such important section is Section 6, which defines the residential status of an individual for the purpose of taxation. In this blog, we will discuss the various provisions of Section 6 and its implications for taxpayers.
Section 6 of the Income Tax Act, 1961, outlines the criteria for determining the residential status of an individual. It is important to determine the residential status of an individual as it impacts the taxation of their income in India. The section defines three types of residential status – resident, non-resident, and resident but not ordinarily resident (RNOR).
Resident Status
An individual is considered a resident of India if they satisfy any of the following conditions:
- They have been in India for 182 days or more in the financial year; or
- They have been in India for 60 days or more in the financial year and have been in India for 365 days or more in the preceding four financial years.
If an individual meets any of the above conditions, they are considered a resident for tax purposes in India.
Non-Resident Status
An individual who does not meet any of the conditions mentioned above is considered a non-resident for tax purposes.
Resident But Not Ordinarily Resident (RNOR) Status
An individual who qualifies as a resident of India but does not meet the conditions of being an ordinary resident is considered an RNOR. To be considered an ordinary resident, an individual must have been a resident of India for two out of the ten preceding financial years or have been in India for 730 days or more in the seven preceding years.
Tax Implications of Residential Status
The residential status of an individual impacts the taxation of their income in India. Resident individuals are taxed on their global income, i.e., income earned both in India and abroad. Non-resident individuals are taxed only on the income earned in India. RNOR individuals are taxed on their Indian income and income earned abroad if it is received or deemed to be received in India.
Furthermore, the tax rates applicable to residents and non-residents are different. The tax rates for residents are higher than those for non-residents. Therefore, it is essential to determine the residential status of an individual correctly to ensure that they are taxed in accordance with the law.
Conclusion
Section 6 of the Income Tax Act outlines the criteria for determining the residential status of an individual. It is important to determine the residential status of an individual correctly as it impacts the taxation of their income in India. Resident individuals are taxed on their global income, while non-resident individuals are taxed only on the income earned in India. RNOR individuals are taxed on their Indian income and income earned abroad if it is received or deemed to be received in India. Therefore, it is essential to understand the provisions of Section 6 to ensure that individuals are taxed in accordance with the law.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
Q: What is the importance of Section 6 of the Income Tax Act?
A: Section 6 of the Income Tax Act defines the criteria for determining the residential status of an individual for the purpose of taxation. It is important to determine the residential status of an individual as it impacts the taxation of their income in India.
Q: What are the different types of residential status under Section 6 of the Income Tax Act?
A: There are three types of residential status defined under Section 6 – resident, non-resident, and resident but not ordinarily resident (RNOR).
Q: How is the residential status of an individual determined under Section 6?
A: The residential status of an individual is determined based on their physical presence in India during a financial year and the preceding four financial years.
Q: What are the conditions that determine the residential status of an individual as a resident under Section 6?
A: An individual is considered a resident of India if they satisfy any of the following conditions:
- They have been in India for 182 days or more in the financial year.
- They have been in India for 60 days or more in the financial year and have been in India for 365 days or more in the preceding four financial years.
Q: What are the tax implications of being a resident, non-resident, or RNOR?
A: Resident individuals are taxed on their global income, i.e., income earned both in India and abroad. Non-resident individuals are taxed only on the income earned in India. RNOR individuals are taxed on their Indian income and income earned abroad if it is received or deemed to be received in India.
Q: Are the tax rates applicable to residents and non-residents the same?
A: No, the tax rates applicable to residents and non-residents are different. The tax rates for residents are higher than those for non-residents.
Q: What are the consequences of misrepresenting one’s residential status under Section 6?
A: Misrepresenting one’s residential status under Section 6 can result in penalties and prosecution under the Income Tax Act. It is important to determine the residential status correctly to avoid any legal issues.
