What Is Residential Status? | How to Determined Residential Status?

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Residential Status as per Income Tax Bill 2025

Your residential status under the Income Tax Bill 2025 plays a vital role in determining how much tax you pay on your income. If you’re classified as a resident, you may be taxed on your global income, whereas non-residents typically pay tax only on their India-sourced earnings. In this article, we’ll explain what “Residential Status” means under the proposed bill and how it affects your tax obligations.

Why Does Residential Status Matter?

The concept of Residential Status is crucial because it decides whether you’ll be taxed on your worldwide income or just the income you earn in India. By understanding these rules, you can plan your finances better, especially if you have international income or spend time abroad.

Criteria for Determining Residential Status

The Income Tax Bill 2025 uses a combination of day-count thresholds and specific conditions to classify individuals and entities as residents or non-residents.

1. Individual Taxpayers

Basic Rule: 182 Days

• If you’re in India for at least 182 days during the tax year, you’re considered a resident.

Alternate Rule: 60 Days + 365 Days Over 4 Yea

If you don’t meet the 182-day requirement, you can still be a resident if:

• You spend 60 days or more in India during the tax year, and
• You’ve been in India for a total of 365 days or more over the previous four years.

Exceptions for Indian Citizens Abroad

• If you’re an Indian citizen who’s gone abroad for employment or serving on an Indian ship, the 60-day rule might not apply. You may only need to meet the 182-day requirement.

High-Income Visitors

• If you’re an Indian citizen or a person of Indian origin visiting India, and your total income (excluding foreign income) exceeds ₹15 lakh, the 60-day threshold can be extended to 120 days. This ensures that high-income earners with significant ties to India are treated as residents even if they spend less time in the country.

2. Entities (Companies, HUFs, etc.)

• Companies: A company is considered a resident if it’s registered in India or its place of effective management (where major decisions are made) is in India.
• Hindu Undivided Families (HUFs), Firms, Associations: These entities are generally residents unless their control and management are entirely outside India for the entire tax year.

Impact on Your Tax Liability

Residents

• Global Income Taxation: Residents must pay tax on all their income, whether it’s earned in India or abroad.

Non-Residents

• India-Sourced Income: Non-residents are taxed only on income that’s earned or accrued in India.
• No Global Income Taxation: They don’t need to pay tax in India on their foreign earnings.

Practical Tips for Taxpayers

• Track Your Days
  Keep a detailed record of how many days you spend in India each year. This helps in determining if you meet the 60-day or 182-day requirement.
  
  
• Plan Your Visits
  If you’re an Indian citizen or person of Indian origin with high income, be mindful of the 120-day threshold to avoid unexpected residency classification.
  
  
• Review Foreign Earnings
  If you’re likely to be considered a resident, you’ll need to account for foreign income on your Indian tax return.
  
  
• Seek Professional Advice
  Given the complexity, consult a tax professional, especially if you have international income or split your time between India and another country.

FAQ: Residential Status as per Income Tax Bill 2025

What is residential status?

It’s a classification under Indian tax law that determines if you’ll be taxed on your global income or just India-sourced income.

How many days do I need to be in India to be a resident?

Generally, 182 days in a tax year. Alternatively, 60 days in a tax year plus 365 days in the previous four years can also qualify you as a resident.

What if I’m an Indian citizen working abroad?

If you’re employed abroad or serving on an Indian ship, you might only need to meet the 182-day condition to be considered a resident.

What is the 15 lakh threshold for high-income visitors?

If your total income (excluding foreign income) exceeds ₹15 lakh, the 60-day threshold can be extended to 120 days for that year.

Are companies treated differently?

Yes. A company is resident if it’s either registered in India or its place of effective management is in India.

Do non-residents pay tax on foreign income?

No. Non-residents are taxed only on their Indian-sourced income.

What if I’m a resident with foreign income?

As a resident, you’re liable to pay tax on your global income. You may, however, benefit from Double Taxation Avoidance Agreements (DTAA).

Does the new bill change the day-count thresholds significantly?

The fundamental day counts remain similar, but the bill introduces specific changes for high-income individuals and certain exceptions for those working abroad.

How do I maintain proof of my days in India?

Keep flight tickets, immigration stamps, and any relevant documentation that shows your entry and exit dates.

When will these rules come into effect?

Once the Income Tax Bill, 2025 is officially passed and notified, likely from the financial year following its enactment.

Understanding residential status under the Income Tax Bill, 2025 is crucial for accurate tax planning. By knowing how many days you can stay in India before becoming a resident, you can manage your finances better and avoid unexpected tax liabilities.