Tax Residency for Indian Citizens and NRIs: Understanding Section 6(1) and 6(1A).

 Section 6(1) of the Income Tax Act of 1961 states the following :

An individual will be treated as a Resident in India in any previous year if they meet one of the following conditions:

- They are in India for a period of 182 days or more during the previous year.

- They are in India for a period of 60 days or more during the previous year and 365 days or more during the 4 years immediately preceding the previous year.

However, an exception exists for Indian citizens and persons of Indian origin who visit India. In their case, the 60-day period in the second condition is substituted with 182 days. The same concession is provided to Indian citizens who leave India as a crew member or for the purpose of employment outside India. The Finance Act of 2020 amended this exception, stating that if an Indian citizen or person of Indian origin earns a total income (excluding income from foreign sources) of more than ₹15 lakh during the previous year, the 60-day period in the second condition is substituted with 120 days. The Finance Act of 2020 also introduced Section 6(1A), which deems an Indian citizen earning a total income of more than ₹15 lakh (excluding income from foreign sources) as a Resident in India if they are not liable to pay tax in any country.

Here's an example to illustrate how Section 6(1) of the Income Tax Act works:

Suppose Mr. Kumar, an Indian citizen, leaves India on December 15, 2022, for employment in the USA. He returns to India on June 15, 2023.

In this case:

- Mr. Kumar was in India for 15 days (December 1-15, 2022) in the financial year 2022-23.

- He was in India for 180 days (January 1, 2023 - June 15, 2023) in the financial year 2023-24.

Since Mr. Kumar was not in India for 182 days or more in either financial year, he would not be considered a Resident in India under Section 6(1) of the Income Tax Act. However, he may still be liable to pay tax in India on his income earned in India. 

FAQs related to Section 6(1) of the Income Tax Act:

Q: What does Section 6(1) of the Income Tax Act deal with?

A: It deals with the residential status of an individual for income tax purposes.

Q: Who is considered a resident under Section 6(1)?

A: An individual who meets one of the two conditions: (a) stays in India for 182 days or more in a financial year, or (b) stays in India for 60 days or more in a financial year and 365 days or more in the four years preceding the financial year.

Q: What is the exception for Indian citizens and persons of Indian origin?

A: They are considered residents if they stay in India for 182 days or more in a financial year, even if they don't meet the 365-day condition.

Q: How does this section impact tax liability?

A: Residents are taxed on their global income, while non-residents are taxed only on income earned in India.

Q: Can an individual be a resident in India and a tax resident in another country?

A: Yes, this is possible due to differing tax laws and residency criteria.

Q: How does Section 6(1) impact NRIs (Non-Resident Indians)?

A: NRIs may be considered residents under certain conditions, affecting their tax liability in India.

According to Section 6(1A) of the Income-tax Act :

- An individual who is a citizen of India will be considered a resident in India for a previous financial year if they are not "liable to tax" in any other country or territory due to factors such as domicile, residence, or similar tax criteria in India.

- This rule applies to Indian citizens whose total taxable Indian income (income earned in India) during the financial year exceeds ₹15 lakhs.

- If an NRI's taxable Indian income surpasses ₹15 lakhs and their stay in India extends to 120 days or more, they must also evaluate whether their stay in India during the immediately preceding four financial years totals 365 days or more.

Here's an example to illustrate how Section 6(1A) of the Income Tax Act works:

Suppose Mr. Sharma, an Indian citizen, works in Dubai and has a total income of ₹20 lakhs in the financial year 2022-23. He visits India for 150 days during the year.

In this case:

- Mr. Sharma's income exceeds ₹15 lakhs.

- He is not liable to pay tax in Dubai (as Dubai does not impose income tax).

- He has spent 150 days in India, which is more than the specified 120 days.

Therefore, Mr. Sharma will be considered a Resident in India for the financial year 2022-23, as per Section 6(1A) of the Income Tax Act. He will be liable to pay tax in India on his global income.

FAQs related to Section 6(1A) of the Income Tax Act:

Q: What is the purpose of Section 6(1A)?

A: To prevent tax evasion by individuals taking advantage of no-tax or low-tax jurisdictions.

Q: Who does Section 6(1A) apply to?

A: Indian citizens or persons of Indian origin who are not liable to tax in any country or territory.

Q: What is the income threshold for Section 6(1A) to apply?

A: Total income (excluding foreign sources) exceeds ₹15 lakhs.

Q: What is the tax implication?

A: Such individuals will be taxed on their global income in India.

Q: Does it apply to NRIs (Non-Resident Indians)?

A: Yes, if they meet the specified conditions.

Q: Are there any exceptions?

A: Yes, for bona fide workers or employees outside India, and those outside India for specified medical treatment or education.

Q: From when is Section 6(1A) applicable?

A: From the Assessment Year 2021-22 onwards.

Q: Can an individual be a resident in India and a tax resident in another country under Section 6(1A)?

A: Yes, this is possible due to differing tax laws and residency criteria.