by Incidence of Tax refers to the extent and scope of an individual’s total income that becomes taxable in India, determined entirely by their residential status under Section 6 of the Income Tax Act, 1961. Based on the number of days of physical presence in India during the relevant previous year (and preceding years), an individual is classified as Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), or Non-Resident (NR). Each category carries a distinct scope of taxable income under Section 5 ranging from global income for ROR to only India-sourced income for Non-Residents making residential status the foundational determinant of an individual’s overall tax liability.
Illustration 1: Resident and Ordinarily Resident
Mr. A, a Resident and Ordinarily Resident in India, earns ₹8,00,000 salary in India and ₹3,00,000 interest from a bank account in the USA.
Solution:
Since Mr. A is ROR, his global income is generally taxable in India.
Total income = ₹8,00,000 + ₹3,00,000 = ₹11,00,000
Therefore, ₹11,00,000 is included in his total income, subject to applicable deductions and provisions.
Illustration 2: Resident but Not Ordinarily Resident
Mr. B, an RNOR in India, earns ₹7,00,000 from a business in India and ₹4,00,000 from a business in the UK. The UK business is controlled and managed from the UK.
Solution:
Indian business income is taxable in India. Foreign business income is generally not taxable merely because Mr. B is resident, since the foreign business is not controlled from India.
Taxable income = ₹7,00,000
Illustration 3: Non Resident
Mr. C, a Non Resident in India, earns ₹6,00,000 from employment in Dubai and ₹4,00,000 rent from a house property situated in India.
Solution:
Salary earned outside India is generally outside the Indian tax scope for an NR, while rent from property situated in India is taxable in India.
Income taxable in India = ₹4,00,000
Illustration 4: ROR with Foreign Income
Mr. D, an ROR, earns ₹5,00,000 from an Indian business and ₹2,50,000 dividend from a foreign company.
Solution:
An ROR is generally taxable on global income. Therefore, both Indian and foreign income are included.
Total income = ₹5,00,000 + ₹2,50,000 = ₹7,50,000
Illustration 5: RNOR with Foreign Income
Mr. E, an RNOR, earns ₹5,00,000 from an Indian profession and ₹3,00,000 interest from a foreign bank account. The interest is received outside India.
Solution:
Indian professional income is taxable in India. Foreign interest income is generally not taxable merely because Mr. E is resident as an RNOR.
Income taxable in India = ₹5,00,000
Illustration 6: NR with Indian and Foreign Income
Mr. F, a Non Resident, earns ₹3,00,000 interest from an Indian bank and ₹5,00,000 salary from employment in Singapore.
Solution:
Interest from an Indian source is taxable in India, subject to the applicable provisions. Foreign salary is generally outside the Indian tax scope for an NR.
Income taxable in India = ₹3,00,000
Illustration 7: RNOR and Foreign Business Controlled from India
Mr. G, an RNOR, earns ₹6,00,000 from an Indian business and ₹4,00,000 from a business situated in the USA. The foreign business is controlled from India.
Solution:
Indian business income is taxable. Foreign business income is also taxable because the business is controlled from India.
Total income taxable in India = ₹10,00,000
Illustration 8: ROR and Foreign Salary
Mr. H, an ROR, earns ₹9,00,000 salary from employment in India and ₹5,00,000 salary from employment outside India.
Solution:
As an ROR, Mr. H is generally taxable on his global income.
Total income = ₹9,00,000 + ₹5,00,000 = ₹14,00,000
The applicable provisions relating to foreign tax credit or treaty relief may be considered separately.
