SUMMARY OF SECTION 6 AS PER AMENDEMENTS BY FINANCE ACT, 2020
It is necessary to determine the residential status of an individual to know the taxability of income in India. There has been an amendment in section 6 as per the Finance Act dated as on 27.03.2020. The said amendments are applicable from 01.04.2021.
As per Section 6(1)
For the purposes of this Act,—
(1) An individual is said to be resident in India in any previous year, if he—
(a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more ; or
(b) [***]
(c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.
Explanation. 1—In the case of an individual,—
(a) being a citizen of India, who leaves India in any previous year as a member of the crew of an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted ;
(b) being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted.
Amendment “in case of the citizen or person of Indian origin having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year,” for the words “sixty days” occurring therein, the words “one hundred and twenty days” had been substituted
Explanation 2.—For the purposes of this clause, in the case of an individual, being a citizen of India and a member of the crew of a foreign bound ship leaving India, the period or periods of stay in India shall, in respect of such voyage, be determined in the manner and subject to such conditions as may be prescribed.
Newly inserted as per Finance Act, 2020
“(1A) Notwithstanding anything contained in clause (1), an individual, being a citizen of India, having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year shall be deemed to be resident in India in that previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature;
| Note : Foreign Source of Income as define in Finance Act,2020
“INCOME FROM FOREIGN SOURCES” means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India). |
Example: For Instance, a person who is citizen of India employed in Oman (Pays no taxes in Oman) have following income during the financial year and have not visited India in that financial year
Salary from Oman = INR 60,00,000
Rental Income from India = INR 6,00,000
Income from professional accruing outside India from set up in India = INR 10,00,000
Ans : As per newly inserted section, although person have not stayed in India even for a single day and he is not liable to tax in Oman, he will be considered to be DEEMED RESIDENT IN INDIA and his total income other than income from foreign sources (i.e INR 16,00,000) as exceeds 15,00,000 will be taxable in India.
Before insertion of this clause, as person has not been in India for single day . Hence, condition of 182 days is not satisfied. So, a person was considered as Non Resident Indian and only his Indian Sourced income i.e INR 6,00,000 was taxable in India and Income from Profession i.ee INR 10,00,000 was not taxable in India.
Now as per the amendment, deemed resident will have same taxation treatment as a resident but not ordinarily resident person. Taxability of Income discussed on last page.
As Per Section 6 (6),
A person is said to be “not ordinarily resident” in India in any previous year if such person is—
(a) an individual who has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less; or
| As per Finance Bill
The budget proposed to change the Condition of 9 out 10 previous years preceding that previous year to 7 out 10 previous years preceding that previous year and to remove the condition of 729 days or less in preceding 7 years. However, the Finance Act passed has not brought out any changes to implement proposed in the Finance Bill. Therefore the earlier two conditions remain the same to determine the non ordinary resident of an Individual. |
As per Section 6 (2) (FOR HUF, FIRM, AOP)
A Hindu undivided family, firm or other association of persons is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India.
As Per Section 6 (6) (For HUF)
A person is said to be “not ordinarily resident” in India in any previous year if such person is—
(a) a Hindu undivided family whose manager has been a non-resident in India in nine out of the ten previous years preceding that year
or
(b) has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less.
Amendment
or
(c) a citizen of India, or a person of Indian origin, having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year, as referred to in clause (b) of Explanation 1 to clause (1), who has been in India for a period or periods amounting in all to one hundred and twenty days or more but less than one hundred and eighty-two days; or
(d) a citizen of India who is deemed to be resident in India under clause (1A).
Newly inserted as per Finance Act, 2020
“(1A) Notwithstanding anything contained in clause (1), an individual, being a citizen of India, having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year shall be deemed to be resident in India in that previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature;
| As per Finance Bill
The budget proposed to change the Condition of 9 out 10 previous years preceding that previous year to 7 out 10 previous years preceding that previous year and to remove the condition of 729 days or less in preceding 7 years. However, the Finance Act passed has not brought out any changes to implement proposed in the Finance Bill. Therefore the earlier two conditions remain the same to determine the non ordinary resident of an Individual. |
| Note : Foreign Source of Income as define in Finance Act,2020
“INCOME FROM FOREIGN SOURCES” means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India). |
As Per Section 6 (3) (For Company)
A company is said to be a resident in India in any previous year, if—
(i) it is an Indian company;
or
(ii) its place of effective management, in that year, is in India.
Explanation.—For the purposes of this clause “place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of business of an entity as a whole are, in substance made.
As Per Section 6 (4),
Every other person is said to be resident in India in any previous year in every case, except where during that year the control and management of his affairs is situated wholly outside India.
As Per Section 6 (5),
If a person is resident in India in a previous year relevant to an assessment year in respect of any source of income, he shall be deemed to be resident in India in the previous year relevant to the assessment year in respect of each of his other sources of income.
Summarized by : CA Devi Dadhaniya
Contact Details
Email: devidadhaniya@gmail.com
Number: +91 9426125553
Disclaimer: This Article is based on the Relevant Provisions of the Act. All the information provided, may be used for any purpose only after professional advice in no event will be liable for any direct and indirect result from this Article. This is only a knowledge sharing initiative.
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