The determination of your residential status is crucial as it determines the scope of your tax liability in India. For tax purposes, the Income Tax Act classifies individuals into three categories based on their residential status: resident, non-resident, and resident but not ordinarily resident.
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What is the Physical Presence Test?
It is the primary criterion to determine your residential status is the number of days you spend in India during a financial year (April 1 to March 31). The following rules apply:
- If you are present in India for 182 days or more in the financial year, you are considered a resident.
- You are regarded as a resident if you have spent at least 60 days in India during the current financial year and at least 365 days throughout the preceding four financial years.
- If neither of the above conditions is met, you are considered a non-resident.
Are there any Exceptions for Indian Citizens and Persons of Indian Origin?
If you are a person of Indian origin (PIO) or a citizen of India, the physical presence test is modified. In this case, the 60-day rule mentioned above is increased to 182 days for being considered a resident.
Are there any other factors regarding residential status?
Yes, apart from the physical presence test, other factors may be considered in determining your residential status, such as the nature and purpose of your stay in India, your residential status in previous years, and the location of your economic and vital interests.
Does my residential status have any tax Implications?
Your residential status has significant tax implications. As a resident, your global income, including income earned outside India, is taxable in India. On the other hand, as a non-resident, only money earned in India or income received in India or deemed to have been obtained in India is taxable to a non-resident.
Will I be required to file tax returns?
Depending on your residential status, you will need to file the appropriate income tax return (ITR) form. For residents, ITR-1, ITR-2, or other applicable forms may be required, while non-residents typically file ITR-2 or ITR-3.
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