How do you determine an individual’s residential status under Indian income tax, and why does it matter?
What the interviewer wants to hear
- Day-count tests in the financial year and earlier years
- Resident, resident but not ordinarily resident, non-resident
- Special rules for Indian citizens working abroad and visiting
- Residents taxed on worldwide income; non-residents on Indian income
- Treaty tie-breaker when resident in two countries
Model answer
Residential status is decided each year based mainly on the number of days the person is physically in India. The basic test is being in India for 182 days or more in the financial year; there is also a combined test using days in the year and the previous four years, with special rules for Indian citizens who leave for employment abroad or visit while living abroad, and for high-income individuals. A resident is then tested further to see if they are ordinarily resident or not ordinarily resident, based on earlier years. It matters because it decides what is taxable: a resident and ordinarily resident is taxed on worldwide income, a not ordinarily resident mostly on Indian income, and a non-resident only on income received or arising in India. For clients working in the Gulf, I track travel dates carefully, and if they are resident in two countries, I apply the treaty tie-breaker rules.
Can you answer it under time pressure?
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