Basic Concepts and Residential Status — Practice

Question 1

Mr. Rao, an Indian citizen who has never left India, is present in India for 90 days in the previous year 2025-26 and for 380 days in the four years immediately preceding. Determine his residential status, stating which condition is satisfied.

Accepted Answer

Mr. Rao is resident in India for the previous year 2025-26. Section 6(1) provides that an individual is resident if he satisfies either of two basic conditions: presence in India for 182 days or more in the previous year, or presence for 60 days or more in the previous year together with 365 days or more in the four years immediately preceding it. Mr. Rao's 90 days in the previous year does not satisfy the first condition, which requires 182 days. But it exceeds the 60-day threshold of the second condition, and his 380 days in the preceding four years exceeds the 365-day requirement of that condition. Since he has never left India, none of the exceptions relaxing the 60-day condition to 182 days apply to him; those exceptions are confined to an Indian citizen leaving for employment abroad, or a citizen or person of Indian origin visiting India from abroad, neither of which describes Mr. Rao's situation. He therefore satisfies the second basic condition in its ordinary, unrelaxed form and is resident in India for the year.

Question 2

Ms. Iyer, an Indian citizen, leaves India on 1 October 2025 to take up employment in Germany, having been in India for the preceding 184 days of the previous year 2025-26. Determine her residential status, explaining the exception that applies.

Accepted Answer

Ms. Iyer's stay in India before departure is 184 days, but the relevant exception must still be checked because she is an Indian citizen leaving India for the purposes of employment outside India. For such a person, the 60-day limb of the second basic condition is replaced by 182 days, so that only the unmodified 182-day first basic condition, or the enhanced 182-day version of the second condition, can bring her within residence — the ordinary 60-day threshold does not apply to her at all for this year. Since her presence in India before departure is 184 days, which exceeds 182, she satisfies the first basic condition in its own right, without needing to rely on the relaxed second condition. She is therefore resident in India for the previous year 2025-26. Had her presence before departure been, say, 170 days, she would not have satisfied the first condition, and because the second condition's 60-day limb is unavailable to her as an emigrating employee, she would not have been able to rely on the four-preceding-years limb either, however long her presence had been in earlier years — she would simply be non-resident for the year, illustrating the practical effect of the exception: it makes it materially easier for an emigrating citizen to become non-resident in the year of departure.

Question 3

Mr. Sharma, a person of Indian origin resident abroad, visits India during the previous year 2025-26 and is present for 130 days. His total income from Indian sources, excluding all foreign income, is ₹18 lakh for the year. He was present in India for 400 days during the preceding four years. Determine his residential status.

Accepted Answer

Mr. Sharma is resident in India for the previous year 2025-26. As a person of Indian origin visiting India from abroad, the ordinary relaxation for a visiting citizen or PIO would replace the 60-day limb with 182 days. But a further refinement applies where such a person's total income, other than income from foreign sources, exceeds 15 lakh during the previous year: in that case the relaxed 182-day figure is itself narrowed to 120 days, so that the second basic condition becomes 120 days or more in the previous year together with 365 days or more in the preceding four years. Mr. Sharma's total income other than foreign-source income is 18 lakh, exceeding the 15 lakh threshold, so the 120-day version of the condition applies to him rather than the 182-day version. His presence of 130 days in the previous year exceeds 120, and his 400 days in the preceding four years exceeds 365, so both limbs of the narrowed second basic condition are satisfied and he is resident. Had his qualifying income been 12 lakh, below the 15 lakh threshold, the ordinary 182-day relaxation would have applied instead, and his 130 days would have been insufficient, leaving him non-resident on these facts.

Question 4

Mr. Kapoor, an Indian citizen, structures his affairs so that he is not resident in India under any of the ordinary tests, and is also not liable to tax in any other country by reason of domicile, residence or any similar criterion. His total income other than foreign-source income is ₹22 lakh for the previous year. Advise on his residential status, and state the purpose of the provision that governs it.

Accepted Answer

Mr. Kapoor is deemed to be resident in India for the previous year, notwithstanding that he satisfies none of the ordinary presence-based tests. The Act provides that an Indian citizen having total income, other than income from foreign sources, exceeding 15 lakh during the previous year, is 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 criterion of a similar nature. Mr. Kapoor's qualifying income of 22 lakh exceeds the 15 lakh threshold, and the facts state he is not liable to tax anywhere else on the relevant basis, so both conditions for deemed residency are met. He is treated as resident in India for the year despite his ordinary physical presence being insufficient under section 6(1)'s basic conditions. The purpose of the provision is to close a gap that would otherwise allow a wealthy Indian citizen to arrange travel and domicile so as to be resident nowhere at all, and therefore taxed nowhere on income that is not sourced in any particular country — a so-called stateless person for tax purposes. By deeming such an individual resident in India, the provision ensures that citizenship-linked economic interest of this scale does not escape taxation altogether. An individual deemed resident under this provision is, however, always treated as resident but not ordinarily resident, so the full global scope of ROR taxation does not automatically follow from the deeming.

Question 5

Ms. Fernandes has been found resident in India for the previous year 2025-26. She was resident in India in 1 of the preceding 10 previous years and was present in India for 750 days during the preceding 7 years. Determine whether she is ordinarily resident or not ordinarily resident, explaining both additional conditions and why the outcome follows.

Accepted Answer

Ms. Fernandes is resident but not ordinarily resident for the previous year 2025-26, despite satisfying one of the two additional conditions, because both must be satisfied together and she fails the other. An individual who is resident under the basic conditions is further tested against two additional conditions to determine whether she is ordinarily resident: she must have been resident in India in at least 2 out of the 10 previous years immediately preceding the relevant previous year, and she must have been in India for 730 days or more during the 7 years immediately preceding that year. Both conditions must be satisfied for ordinarily resident status; if either fails, the individual, though resident for the year, is resident but not ordinarily resident. Ms. Fernandes has been resident in only 1 of the preceding 10 years, falling short of the 2-year requirement, even though her 750 days of presence in the preceding 7 years comfortably exceeds the 730-day requirement of the second condition. Because the first additional condition is not satisfied, she fails the combined test regardless of satisfying the second, and she is resident but not ordinarily resident for 2025-26. The consequence for her scope of total income is significant: as RNOR she will not be taxed on ordinary foreign-source income, such as foreign investment income unconnected to any Indian business, whereas an ordinarily resident individual would be taxed on that income as part of her global income.

Question 6

State the residential status test for a Hindu undivided family and for a foreign company, and explain the concept of place of effective management and why it looks past the location of formal board meetings.

Accepted Answer

A Hindu undivided family is resident in India in any previous year except where, during that year, the control and management of its affairs is situated wholly outside India; if control and management is even partly in India, the HUF is resident, and only a wholly foreign situs of control and management makes it non-resident. Control and management here refers to the seat of the controlling and directing power, the place where the real decision-making authority sits, not the location of the family's business operations, which may be spread across several places while decision-making remains concentrated in one. An Indian company is always resident in India regardless of where its control and management is situated, a rule stated without qualification. Any other company, that is a foreign company, is resident in India in a previous year if its place of effective management in that year is in India, place of effective management being defined as the place where key management and commercial decisions necessary for the conduct of the business of the entity as a whole are, in substance, made. The phrase in substance is the operative word and is deliberately chosen: POEM does not ask where the board formally convenes or where minutes record a meeting as having taken place, but where the decisions genuinely originate, precisely because a company seeking to avoid Indian residence could otherwise hold purely formal board meetings in a low-tax jurisdiction while the persons who actually decide the company's direction operate from India, and a test keyed only to the formal location would fail to capture the substance of where the business is truly managed.

Question 7

Mr. Verma is resident but not ordinarily resident for the previous year 2025-26. During the year he earns: salary received in India for services rendered in India (₹15 lakh); rental income from a house property in London, received directly into his London bank account (₹8 lakh); and profits from a business in Singapore that he manages and controls entirely from his office in Mumbai (₹20 lakh). Compute what is taxable in India, with reasons for each item.

Accepted Answer

Mr. Verma's scope of total income as an RNOR includes income received or deemed received in India, income accruing or deemed to accrue in India, and, in addition to a full resident but unlike a full non-resident, foreign income only where it is derived from a business controlled from India or a profession set up in India; other foreign-source income is excluded. Taking each item: the salary of 15 lakh, received in India for services rendered in India, falls within income received in India and is also income accruing in India, so it is fully taxable regardless of residential status, and would be taxable even for a non-resident. The London rental income of 8 lakh is income accruing outside India, received outside India, from a source unconnected to any Indian business or profession — it is ordinary foreign investment income and is precisely the category of foreign income an RNOR is not taxed on; it would be taxable only if Mr. Verma were resident and ordinarily resident, taxed on global income. The Singapore business profits of 20 lakh present the case the RNOR exception is designed for: although the income accrues outside India, the business is controlled from India, since Mr. Verma manages and controls it entirely from his Mumbai office, and the RNOR scope expressly includes foreign income derived from a business controlled from India. This 20 lakh is therefore taxable in India despite Mr. Verma's RNOR status, while the London rental income of 8 lakh is not. Total income taxable in India is 15 lakh plus 20 lakh, that is 35 lakh, with the 8 lakh rental income excluded.

Question 8

Define previous year, assessment year and assessee, and explain the general relationship between the previous year in which income is earned and the assessment year in which it is taxed, noting the exception category.

Accepted Answer

Previous year is the financial year immediately preceding the assessment year, running from 1 April to 31 March, and it is the year in which income is actually earned by the assessee. Assessment year is the period of twelve months commencing on 1 April every year, immediately following the previous year, being the year in which the income of the previous year is assessed and brought to tax. Assessee means a person by whom any tax or any other sum of money is payable under the Act, and the definition extends beyond a person owing tax on his own income to include a person in respect of whom any assessment proceeding has been taken, whether for his own income, for income of another person for which he is assessable, or for a loss or a refund; a person deemed to be an assessee under any provision; and a person deemed to be an assessee in default, such as one who has failed to deduct tax at source, even though the underlying tax was never his own liability in the ordinary sense. The general rule is that income of the previous year is taxed in the immediately following assessment year, at the rates prescribed by the Finance Act applicable to that assessment year, and not at the rates in force during the year the income was actually earned. The exception category, called cases of accelerated assessment, taxes previous year income in the same year it is earned rather than waiting for the following assessment year, and covers situations such as the income of a person about to leave India permanently, the income of a business that is discontinued, and the income of an association of persons or body of individuals formed for a particular event and likely to be dissolved within the same year, in each case because waiting until the ordinary assessment year would risk the tax becoming unrecoverable.

Question 9

Mr. Anand fails to deduct TDS on a payment he made, and is proceeded against for this default although the tax involved was never his own income. Explain whether he is an 'assessee' under the Act, and why.

Accepted Answer

Mr. Anand is an assessee. Section 2(7) defines assessee to include, among other categories, a person who is deemed to be an assessee in default under any provision of the Act, and a person who fails to deduct tax at source on a payment he was required to deduct on is deemed an assessee in default under the TDS provisions. This is so even though the tax in question was never Mr. Anand's own income or his own tax liability in the ordinary sense — it was tax he was obligated to withhold from someone else's payment and remit to the government. The definition's third limb exists precisely to bring such a person within the machinery of assessment, recovery and penalty that the Act applies to assessees generally, since without it a person who defaults on a withholding obligation would sit outside the assessment framework despite owing the government money because of that default.

Question 10

Distinguish an association of persons from a body of individuals under the Income-tax Act, and state which category a group combining a company and two individuals to jointly execute a construction contract would fall into.

Accepted Answer

Both are within the inclusive definition of person under section 2(31), but they are distinguished by the character of the combination and its membership. An association of persons involves persons, who may include non-individual entities such as companies or firms, combining together with a common purpose or common action and with the object of earning income, involving some element of joint volition or agreement to act together. A body of individuals is a narrower category confined to individuals only, without necessarily the same degree of common purpose or joint venture character an association of persons implies; it typically describes individuals who, without a formal combination for a common business purpose, are collectively entitled to some income, such as co-heirs jointly inheriting an income-generating asset. The group described, combining a company and two individuals to jointly execute a construction contract, is an association of persons rather than a body of individuals, for two independent reasons: first, its membership includes a non-individual entity, a company, which a body of individuals cannot; and second, the members have combined with a clear common purpose and joint volition to execute a specific contract together for profit, which is exactly the character an association of persons requires.

Question 11

Explain the structure of section 4, the charging section, and why tax rates change every year while the Income-tax Act's computational rules generally do not.

Accepted Answer

Section 4 charges income-tax for any assessment year at the rates prescribed by the relevant Finance Act, in respect of the total income of the previous year of every person, subject to and in accordance with the other provisions of the Act. Its structure deliberately splits the charge into two components with different sources: the Income-tax Act itself supplies the enduring computational machinery — the definitions, the five heads of income, the deductions, the set-off rules, the exemptions — which is not re-legislated every year and remains stable across assessment years except when Parliament specifically amends it; the Finance Act, passed annually alongside the Union Budget, supplies the rates of tax applicable for that particular assessment year and any specific annual changes to thresholds or provisions the government wishes to make for that year. This split explains why slab rates, surcharge rates, and specific monetary thresholds are revised from year to year as economic conditions and government priorities change, while the underlying architecture of how income is computed, which head an item of income falls under, and what deductions are available, remains comparatively stable and does not require annual re-enactment. A candidate answering a computation question must therefore always confirm which assessment year's Finance Act rates apply, even while relying on Income-tax Act provisions that may not have changed for many years.

Question 12

State the general rule linking previous year income to the assessment year in which it is taxed, and describe two situations falling within the exception category of accelerated assessment, explaining why the exception exists.

Accepted Answer

The general rule is that income of the previous year is taxed in the assessment year immediately following it, at the rates applicable for that later assessment year, rather than being taxed in the same year the income was earned. This works well for an ongoing taxpayer whose affairs will still be traceable and collectable a year later. But the Act recognises specific situations where waiting for the ordinary assessment year to tax previous year income would risk the tax becoming difficult or impossible to collect, and it provides for accelerated assessment in those cases, taxing the income in the same year it is earned rather than the following year. Two such situations are, first, the income of a person who is about to leave India permanently or is not likely to return, where waiting a year to assess would allow the person to leave the jurisdiction with no continuing presence against which to enforce collection; and second, the income of a business that is discontinued during the year, where the business entity or its books may not readily exist or be traceable a year later once operations have ceased. In both cases, and in the further categories the Act recognises such as an association of persons or body of individuals formed for a particular event and likely to be dissolved within the same year, the underlying concern is the same: the ordinary one-year lag between earning and assessment presupposes a taxpayer who will still be reachable when assessment time comes, and accelerated assessment addresses the situations where that assumption breaks down.

Question 13

Ms. Bhatia, an Indian citizen, has lived and worked in the UK for the past 15 years, visiting India briefly each year. In the previous year 2025-26 she visits India for 95 days. Her total income other than foreign-source income is ₹9 lakh. Determine her residential status, and state, without needing exact figures, the general scope of income that would be taxable in India if she were found resident.

Accepted Answer

As an Indian citizen who is outside India and comes on a visit to India during the previous year, Ms. Bhatia falls within the category for whom the ordinary 60-day limb of the second basic condition is replaced by 182 days, and since her qualifying income of 9 lakh does not exceed the 15 lakh threshold that would otherwise narrow that figure to 120 days, the applicable second condition for her is 182 days in the previous year together with 365 days or more in the preceding four years. Her presence of 95 days in the previous year does not satisfy the first basic condition, which requires 182 days, and it also falls short of the 182-day version of the second condition applicable to her as a visiting citizen, so neither basic condition is satisfied regardless of how many days she accumulated in the preceding four years, since the 60-day limb she might otherwise have relied on does not apply to her category at all. She is therefore non-resident in India for 2025-26. Had she instead been found resident, on different facts, the scope of income taxable would depend further on whether she qualified as ordinarily resident or not ordinarily resident; but as a non-resident on these actual facts, only income received or deemed received in India, and income accruing or deemed to accrue in India, would be taxable, with any genuine foreign-source income, such as her UK employment income, remaining entirely outside the Indian tax net.

Question 14

Mr. Chandra wins ₹5,00,000 in a televised quiz competition based on general knowledge. State whether this is taxable, under what head, and cite the basis for including it as income even though it does not arise from any employment, business or investment.

Accepted Answer

The winnings are taxable as income under the head Income from Other Sources. Section 2(24), which defines income inclusively rather than exhaustively, expressly includes winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort, or from gambling or betting of any form or nature. A televised quiz competition based on general knowledge falls within the broad category of games of any sort for this purpose, and the winnings are accordingly income notwithstanding that they arise from a one-off contest bearing no connection to Mr. Chandra's employment, business or any investment he holds. This inclusive approach to defining income is precisely why the definition extends well beyond profits and gains from a source in the ordinary commercial sense: the legislature deliberately drafted section 2(24) to capture windfall and chance-based receipts of this kind, which would not obviously fall within an ordinary, narrower notion of income as the fruit of a productive source, and taxed them specifically, in the case of such winnings, at a flat rate under a special provision rather than at the assessee's ordinary slab rates.

Question 15

Define immovable property and movable property under the General Clauses Act, 1897, as relevant background to their use in the Income-tax Act, and classify a standing crop not yet harvested and a right of way over land.

Accepted Answer

Under the General Clauses Act, 1897, whose definitions inform usage across Central Acts including in specific contexts within the Income-tax Act, immovable property includes land, benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth. Movable property means property of every description except immovable property, defined residually rather than by any positive list of its own. A right of way over land is immovable property, being a benefit arising out of land within the express words of the definition, notwithstanding that it is an intangible right rather than the physical land itself. A standing crop not yet harvested presents a more nuanced case: while growing and rooted, it is attached to the earth and shares some characteristics of immovable property, but a standing crop is generally treated as movable property once its purpose is understood to be severance and sale, since crops are grown with the intention of being cut and removed rather than remaining permanently attached, distinguishing them from trees or other things genuinely intended to remain fixed to the land indefinitely.

Practice — Basic Concepts and Residential Status

Sign in to save attempts to your dashboard and track your accuracy over time

Find a verified tutor

Join a live course

Browse coaching centres

About

Categories

Support

Documentation

Get Study Tips & Updates

Download Our App

Download for iOS

Download for Android

Popular Cities