Deemed Resident Section 6(1A) of The Income-Tax Act,1961

UNDERSTANDING DEEMED RESIDENT: SECTION 6(1A) OF THE INCOME-TAX ACT,1961

The Finance Act 2020 introduced the concept of Deemed Resident by amending the Income Tax Act 1961 and by adding Section 6(1A) to the Act. Section 6(1A) of the act reads:

(1A) Notwithstanding anything contained in clause (1), an individual, being a citizen of India, having a total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year shall be 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 criteria of similar nature

In Simpler terms:

An Individual, being an Indian Citizen, having a total income, other than the income from foreign sources (i.e., income which accrues or arises outside India (except income from a business controlled from or profession set up in India) and which is not deemed to accrue or arise in India), exceeding 15 lakhs during the previous year would be deemed to be resident in India in that previous year, if he is not liable to pay tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature. However, this provision will not apply in the case of an individual who is a resident of India in the previous year as per Section 6(1).

Indian Citizen: The newly added section takes into purview only individuals who are citizens of the country and not Persons of Indian origin. An Individual under the act would be considered as a Person of Indian Citizen if he or either of his parents or any of his grandparents are born in Undivided India (i.e. before 1947). (1) However an Indian Citizen under the Act means a person who if born:(2)

1. On or after 26th January 1950 but before 1st July 1987: shall attain Indian citizenship irrespective of the citizenship of his parents

2. On or after 1st July 1987 but before 3rd December 2004: shall attain Indian Citizenship if either of his parents is Indian Citizens at the time of his birth.

3. On or after 3rd December 2004 and till date: shall attain citizenship only if both his parents are a citizen of India at the time of his birth

Foreign Source Income: Any Income which Accrues or arises outside India and which is not deemed to accrue or arise in India as per Section 9 of the Income Tax Act, 1961 shall be regarded as Income from Foreign source. However, if such Income arises outside India from a profession set up in India or a Business controlled from India, such Income shall not be regarded as Income from a Foreign source for the purpose of this section.

Therefore any individual is an Indian Citizen and having a Total Income of more than 15 lakhs excluding income from foreign sources shall be regarded as a Deemed Resident and shall be made liable to pay tax in India.

Tax-Free Territories: However to avoid unwanted hardship on any assessee, this section shall not be applicable to any individual paying tax in any other country or territory.

Therefore, the intention of the legislature can be clearly sought after analyzing each of the significant terms in the newly added section, i.e., An individual being an Indian Citizen and deriving more than 15 lakhs in Income from India and not being liable to pay tax in any other country owing to his residence or domicile shall be regarded as Deemed Resident and shall be made liable to pay tax in India.

Note: If an assessee is regarded as Deemed Resident under Section 6(1A) he shall always be regarded as R+NOR under the Income Tax Act.

Example: If Mr. A is an Indian Citizen and resides in a tax-free nation and derives a total Income of 43,00,000. The total Income so derived consist of

1. Income arising in India: 8,00,000

2. Income deemed to arise in India as per Section 9: 12,00,000.

3. Income Arising outside India and received outside India: 23,00,000

In the above-stated example, Foreign source Income would be 23,00,000. Therefore, we will disregard such income while calculating the “Total Income” as per Section 6(1A). Income except foreign source Income would include point 1 and point 2 of the above example which would total out to be 20,00,000 (Which is more than 15,00,000).

Therefore, in the above example, Mr. A would be regarded as a Deemed Resident as he satisfies all the conditions under the section.

REFERENCES:

1. Section 115C, Income Tax Act,1961

2. Section 3, Income Tax Act, 1961

Article by - Siddharth Sharma

B.A.LLB

DES Shri Navalmal Firodia Law College, Pune