Section 6 Residence in India.

Income-tax Act, 2025 [As Passed]

At a Glance

This document is Clause 6 of the Income Tax Bill, 2025 - Old Version, setting out statutory tests for residence in India for tax purposes. It matters because residential status determines tax liability (scope of taxable income) and affects individuals, companies, HUFs and other persons; it also interacts with thresholds for higher-income persons. Effective date or decision date: Not stated in the document.

Background & Scope

Statutory hooks: Clause 6 is drawn as the residence provision in the Income Tax Bill, 2025. It provides the statutory criteria for determining residence of persons in India for a tax year. Coverage includes individuals, Hindu undivided families, firms, associations of persons, companies and "every other person." Definitions or specific explanations supplied in the clause include a working definition of "place of effective management" for companies and a contained definition of "income from foreign sources" relevant to certain sub-sections. No further definitions (e.g., "person of Indian origin") are provided in the text.

Statutory Provision Mode

Text & Scope

Clause 6 establishes multiple streams for determining residential status:

• Individuals: Two primary tests - (a) physical presence of 182 days or more in the tax year; or (b) presence of 60 days or more in that year and 365 days or more in the four preceding years (the "60/365" test).
• Exceptions to (b): (i) not applicable to citizens who leave India as crew of an Indian ship or for employment outside India; (ii) not applicable to citizens or persons of Indian origin who, while being outside India, come on a visit to India in any tax year - subject to an income-linked modification (sub-section (5)).
• Crew of foreign-bound ships: For Indian citizens who are crew of foreign-bound ships, the counting of days is to be determined by prescribed manner and conditions.
• Deemed residence irrespective of physical presence: An individual will be deemed resident if (i) citizen of India; (ii) not liable to tax elsewhere by domicile/residence or similar criteria; and (iii) has total income exceeding Rs. 15 lakh during the tax year (excluding income from foreign sources).
• HUFs, firms and associations: Resident in India unless control and management of affairs is situated wholly outside India in the tax year.
• Companies: Resident if Indian company or if place of effective management (POEM) is in India for that tax year. POEM is defined as the place where key management and commercial decisions necessary for the conduct of business of the company as a whole are, in substance, made.
• Every other person: Resident unless control and management of affairs is situated wholly outside India in that year.
• Deeming across sources: If a person is resident for any source of income, they shall be deemed resident for each of the other sources in that year.

Interpretation

The clause combines objective day-count criteria with subjective control/management tests. The inclusion of a deeming rule (sub-section (12)) is plainly intended to avoid source-by-source fragmentation of residency. The income-linked deeming rule in sub-section (7) (and linked sub-section (5) modifying the 60-day threshold to 120 days for higher incomes) shows a legislative intent to capture high-income citizens/PIOs who are effectively not taxed elsewhere. The POEM formulation follows established international practice and jurisprudence but is applied statutorily here.

Exceptions/Provisos

Key carve-outs are:

• Sub-section (3): the 60/365 test does not apply for citizens who leave as crew of an Indian ship or for employment outside India (excludes certain emigrating/working abroad persons from being treated as residents solely due to short visits).

• Sub-section (4): visiting citizens/PIOs coming on a visit are exempt from (2)(b), but sub-section (5) modifies this where total income (excluding foreign sources) exceeds Rs. 15 lakh - then the 60-day threshold is increased to 120 days for that year.

• Sub-section (8): sub-section (7) (deemed residence for persons not taxable elsewhere) does not apply where the person is resident under the earlier sub-sections (2)-(6) (i.e., physical presence tests take precedence).

Illustrations

• Example 1: An individual present in India for 190 days in the tax year - resident under clause 6(2)(a). (Derivable from text.)

• Example 2: A citizen of Indian origin who spent 70 days in India in the tax year and 400 days in the prior four years - resident under clause 6(2)(b), unless exempted under clause 6(4) and income-triggered clause 6(5) applies. (Derivable from text.)

• Example 3: A foreign company with POEM in India because key management decisions are made in India - resident under clause 6(10). (Derivable from text.)

Interplay

The clause references the Merchant Shipping Act, 1958 for definition of "Indian ship" and contemplates rules/prescription for counting days for ship crew; no other Rules/Notifications/Circulars are mentioned. The provision for POEM aligns with international tax principles and likely interacts with tax treaty tie-breaker rules, though such interplay is Not stated in the document.

Differences between Section 6 (Income-tax Act, 2025 [As Passed]) and Clause 6 (Income Tax Bill, 2025 - Old Version) and their Practical Impact

• Sub-section (4) wording and qualification:

  • Old Version (Clause 6): Sub-section (4) states the proviso that sub-section (2)(b) shall not apply in the case of an individual who (a) is a citizen of India or a person of Indian origin; and (b) who being outside India, comes on a visit to India in any tax year (no additional qualification).

  • As Passed (Section 6): Sub-section (4) is similar but is followed by sub-section (5) which introduces a condition: if that person's total income (other than income from foreign sources) exceeds Rs. 15 lakh in that year, sub-section (2)(b) applies as if "sixty days" were substituted with "one hundred and twenty days".

  • Practical impact: The As Passed version explicitly links a threshold (Rs. 15 lakh income) to the shorter residence threshold for returning NRIs/PIOs, thereby subjecting higher-income short-term visitors to a longer day-count (120 days) to trigger residency. The Old Version already included a similar concept in sub-section (5) but the placement/wording differs slightly. The practical effect is to increase the exposure to Indian residence taxation for higher-income citizens/PIOs who visit India for between 60-120 days (Old Bill: applied similarly but textual differences may affect interpretation of applicability period).

• Sub-section numbering and minor drafting differences (companies/persons): - Old Version (Clause 6) sub-section (10)(a)(ii) ends with "and" linking to (b), while As Passed uses slightly different punctuation and phrase order ("A company is said to be a said to be a resident..." contains a typographical duplication in the As Passed text).

  • Practical impact: Largely drafting/typographical; potential ambiguity in As Passed (typo) could invite clarification but substantively the test for company residence (Indian company or place of effective management in India) remains the same.

• Sub-section (4) exception scope language:

  • Old Version: Sub-section (4) states the proviso without stating any saving or subject to clause (5); clause (5) exists but refers to "for that year".

  • As Passed: Sub-section (4) is expressly followed by "subject to the provisions of sub-section (5)", making the relationship explicit.

  • Practical impact: Clarifies legislative intent in As Passed that the exception for citizens/PIOs visiting India is subject to income-based modification in sub-section (5). The Old Version left the relationship implicit and could have been read more ambiguously. The clarification reduces interpretive dispute.

• Sub-section (6) drafting difference regarding prescription of conditions:

  • Old Version: the total number of days for crew of a foreign-bound ship "shall be determined in such manner and subject to such conditions, as prescribed."

  • As Passed: similar wording but As Passed adds an introductory clause in (6) and slightly reorders words; substance unchanged.

  • Practical impact: No substantive change; administrative prescription remains the mechanism to calculate days for crew.

• Sub-section (7) capitalization/typography and sequencing:

  • Old Version: sub-section (8) begins with "sub-section (7) shall not apply..." (lowercase S).

  • As Passed: stylistically consistent capitalization.

  • Practical impact: Purely typographical; no substantive difference.

• Sub-section (12) wording:

  • Old Version: "he shall be deemed to be resident in India in that tax year for each of the other sources of income."

  • As Passed: "he shall be deemed to be resident in India in that tax year for each of his other sources of income." -

  • Practical impact: Minor clarification in As Passed making the deeming rule expressly apply to all sources; substance unchanged.

• Sub-section (13)(b)(ii) linkage to sub-section (5):

  • Old Version: refers to "during the tax year, as mentioned in sub-section (5)".

  • As Passed: similar cross-reference retained. -

  • Practical impact: No substantive change.

• Overall: Differences are predominantly drafting clarifications, a small typographical duplication in As Passed, and clearer express linkage between the visiting citizen/PIO exception and the income-based modification. Substance of the residency tests - 182-day test, 60-day/365-day test (with modification to 120 days where income threshold met), deemed residence where not taxable elsewhere, company/PEM tests, and not ordinarily resident conditions - remain substantially intact between the Old Bill and As Passed text. Practically, the As Passed text reduces ambiguity on the interplay of sub-sections (4) and (5) and potentially increases residency capture for higher-income returning citizens/PIOs.

Practical Implications

• Compliance areas: Taxpayers must maintain precise day-count records, evidence of employment abroad, and documentation of domicile/residence for foreign jurisdictions where claiming non-liability to tax elsewhere (sub-section (7)). The 60/365 test subject to modification to 120 days for higher incomes introduces an income verification obligation for returning visitors.
• Risk areas: Individuals with income above Rs. 15 lakh who visit India for short periods may inadvertently become tax residents if they fail to monitor days (especially between 60-120 days). The deeming rule (sub-section (7)) creates a risk for high-earners not taxed elsewhere to be captured as Indian residents.
• Record-keeping: Maintain passports with entry/exit stamps, employer records, contracts, pay slips, foreign tax residency certificates (if claiming tax liability elsewhere), board minutes and decision-making records for companies (to support POEM analysis). (These are suggested by the text; specific forms/timelines are Not stated in the document.)

Key Takeaways

• The clause retains the classical 182-day and 60/365 day-count tests for individuals.
• Exceptions protect certain emigrating crew and employees abroad, and visiting citizens/PIOs - but are subject to an income-based modification.
• A new-style deeming test captures citizens with >Rs. 15 lakh income who are not taxable elsewhere.
• Companies are resident if Indian or if POEM is in India; POEM is defined by locus of key management decisions.
• A deeming provision binds residence across all income sources once resident for any source.
• Documentation and day-count evidence are critical to avoid inadvertent residency; where specifics of administrative procedure are required, they are Not stated in the document.
• Clause is drafted to broaden capture of high-income citizens/PIOs and to align company residence tests with international practice; certain drafting clarifications are present but much remains to be elaborated by rules or guidance.

Full Text:

Section 6 Residence in India.