The Income Tax Act, Section 6

The Income Tax Act, Section 6

Introduction

Section 6 of the Income Tax Act provides provisions about residence in India. Individuals must be aware of their residential status for the prior year when filing their income taxes. An individual’s taxability is determined by his or her residency status in the tax year. 

Section 6 of the Income Tax Act divides citizens into three categories for simplicity of taxes based on their residence. The categories are as follows:

  • Resident but Not Ordinarily Resident (RNOR)
  • Resident but Ordinarily Resident (ROR) 
  • Non-Resident (NR)

Individual income taxes are levied based on the above-mentioned categories. This is why it is critical to understand your residency status before filing income tax returns. 

The Importance of Residence for Income Tax 

The determination of one’s residence status is critical since it affects the amount of tax that an individual must pay. For example, if a person is a resident of India, he or she must pay tax on global income even if he or she qualifies for DTAA (Double Taxation Avoidance Agreement) benefits. An NR or RNOR, on the other hand, must pay tax on income earned solely in India.

Here are the specifics for eligible and ineligible taxpayers in various scenarios:

          Income of the Resident

ROR

RNOR

NR

Income acquired or generated in India, regardless of its source 

Yes

Yes

Yes 

Income earned in India or expected to be earned in India during the fiscal year specified, regardless of source 

Yes 

Yes 

Yes

Income earned and received outside of India from other sources during the fiscal year in question.

Yes 

No 

No 

Income is earned outside of India, but the firm is run from India.

Yes 

Yes 

No 

Exceptions Regarding an Individual’s Residential Status in India

  • If an individual is a resident of India and needs to leave the nation for work, the second of the above-mentioned requirements will be null and void; only the first will apply.
  • If a person of Indian descent lives in a foreign country but visits India during a fiscal year, just the first requirement applies.
the-income-tax-act-section-6

Eligibility Criteria to Fulfil for Qualifying as a Resident of India

Section 6 of the Income Tax Act specifies the requirements that an individual must meet in order to be recognised as a resident of India. They are as follows:

  • In the fiscal year, the individual must spend at least 182 days in India.
  • The individual must have lived in India for at least 60 days in that fiscal year and at least 365 days in the four preceding years.

If a person does not match either of the aforementioned criteria, he or she is classified as a Non-Resident Indian (NRI).

There are now additional requirements to be considered an Ordinarily Resident. The following conditions are discussed:

  • An individual must have lived in India for 7 consecutive fiscal years prior to the FY in question.  
  • An individual must have lived as an Indian citizen for two consecutive fiscal years in the ten fiscal years preceding the fiscal year in question.

Furthermore, the following characteristics must be met in order to be classified a Not Ordinarily Resident:

  • A person must have been an NRI for 9 of the previous 10 years. 
  • A person has spent less than or equivalent to 729 days in India in the previous seven years. 
  • The individual must be an Indian citizen with a total income of more than Rs. 15 lakh (excluding foreign income). Furthermore, the applicant must have been in India for more than 120 days but less than 182 days. 
  • A person must be an Indian Deemed Resident.

Conclusion 

Section 6 of the Income Tax Act deals with the determination of residential status for taxation purposes in India. It outlines the conditions under which an individual can be considered a resident or a non-resident. The section specifies different criteria for determining the residential status based on the individual’s presence in India during a financial year. The conclusion of Section 6 emphasizes that the residential status of an individual is crucial for determining the scope of their taxable income in India and their eligibility for certain tax benefits and exemptions. Compliance with the provisions of Section 6 is essential for accurate income tax calculation and filing.