Explain the Provisions of Income Tax Act for an Individual, if he is a) Resident b) Not Ordinarily Resident c) Non-Resident
In India, the taxability of an individual depends on his residential status as per the Income Tax Act, 1961. The Act classifies individuals into three categories:
- Resident
- Not Ordinarily Resident (NOR)
- Non-Resident (NR)
1. Resident
An individual is considered a resident in India if he satisfies any one of the following conditions:
- He is in India for 182 days or more during the previous year, OR
- He is in India for 60 days or more during the previous year AND has been in India for at least 365 days during the last 4 years.
Tax Provisions for Residents:
- Global income is taxable in India.
- Income earned in India or outside India is taxable.
- Eligible for all deductions and exemptions under the Income Tax Act.
2. Not Ordinarily Resident (NOR)
A resident individual is treated as NOR if:
- He has not been a resident in India in 9 out of 10 previous years preceding the relevant year, OR
- He has been in India for 729 days or less during the last 7 years preceding the relevant year.
Tax Provisions for NOR:
- Income earned or received in India is taxable.
- Income from a business controlled or profession set up in India is also taxable.
- Foreign income (earned and received outside India) is NOT taxable.
3. Non-Resident (NR)
An individual is a non-resident if he does not satisfy any of the conditions of a resident.
Tax Provisions for NR:
- Only income earned or received in India is taxable.
- Foreign income is completely exempt.
- NRs cannot claim some deductions available to residents (like under Section 80C, 80D, etc.)
Summary Table:
| Status | Income Taxable in India |
|---|---|
| Resident | Global income (India + Foreign) |
| NOR | Income earned in India + Business/profession controlled from India |
| Non-Resident | Only Indian income |
Conclusion
Residential status is important for determining tax liability in India. Residents pay tax on their entire income, NORs on limited foreign income, and NRs only on Indian income. Understanding these provisions helps in proper tax planning and compliance.