RESIDENT AND NON-RESIDENT
All of us are familiar with the term “citizen” of a country. Broadly a citizen is someone who belongs to a country and who has full political rights like right to vote, enjoy civil liberties and are allowed to hold public office.
However for the purpose of tax calculation and for calculating parameters like national income, we need to know whether a person (or an institution like a company) is a resident or a non-resident of the country.
Although the concept of resident and non-resident is in itself vast, we will restrict ourselves to understanding them from an exam point of view.
By definition resident or normal resident of a country refers to an individual or an institution who ordinarily resides in that country and whose centre of economic interest also lies in that country. The term resident is used to include both individuals (like you and me) and institutions (like a company).
We will broadly understand what ordinarily and center of economic interest means by taking example of India
In the definition, ordinarily implies that the individual has to fulfill certain duration of stay in the country. In Indian tax laws, below criteria of stay needs to be fulfilled -
1. The individual has stayed in India for 182 days or more in the financial year. So if someone has stayed for 182 days or more in FY 2019-20 (between 1st April 2019 and 31st March 2020) , then the individual would be considered a resident of that financial year
2. The individual has stayed in India for 60 days or more in the financial year and his total stay in the earlier four financial years is for 365 days or more. So if someone has stayed for 60 days or more between 1st April 2019 and 31st March 2020 and a total of 365 days or more between 1st April 2015 – 31st March 2019, then the individual is considered a resident of the financial year FY 2019 -20.
In the definition, centre of economic interest implies two things:
1. The resident lives within the domestic territory of India. We will define domestic territory in an upcoming lesson.
2. The resident carries out basic economic activities of earnings, spending and accumulation of wealth from that location.
Apart from the above criteria there are special cases like:
1. If an employee is working under the payroll of an Indian company (say TCS) and he or she goes abroad for work, the employee would still considered a resident of India.
2. Indian Government employees and crew members of an Indian ship are considered resident of India regardless of their stay outside India.
Please note that there are many other criteria for defining residents of India but we will stick to the below for the sake of simplicity
Now if a student from Sri Lanka comes to India for higher studies and stays in India for more than 182 days, will he or she be considered a resident of India?
How about a person from Indonesia who has come for medical treatment in India and had to stay for more than 182 days? Will the person be considered a resident of India?
The answer is “No” in both cases. This is because although they fulfill the criteria of staying over 182 days, they do not fully fulfill the criteria of ‘centre of economic interest’ (accumulation of wealth)
If an individual does not satisfy any of the above conditions, she will be considered a non-resident in India.