CMA Intermediate · Direct and Indirect Taxation

Residential Status and Scope of Total Income: formula sheet

Full chapter guide

Key formulas

Tax year (general rule): Tax year = 12 months of the financial year starting 1 April (1 April to 31 March); Section 3(1). Tax year 2026-27 runs from 1 April 2026 to 31 March 2027.
Tax year for a new business or source: Tax year = date of setting up (or date source arises) to 31 March of that financial year; Section 3(2). For a business or profession newly set up, or a source newly coming into existence, the tax year can be shorter than 12 months.
Person and assessee: Every assessee is a person; not every person is an assessee; Person is the taxable unit. Assessee is a person liable to tax or other sum, or under proceedings, or deemed an assessee.
Residential status is year-specific: Residential status is decided separately for each tax year (section 6(1)); The same person can be resident in one tax year and non-resident in another.
Writing the period: Write the period as: tax year 2026-27 (1 April 2026 to 31 March 2027); Section 3 defines "tax year". Stating the dates makes your answer clear.
Basic condition (a): Days in India in the tax year ≥ 182; Section 6(2)(a). Satisfying this alone makes the individual resident.
Basic condition (b): Days in the tax year ≥ 60 AND days in the preceding 4 years ≥ 365; Section 6(2)(b). Both parts must be met. Count days cumulatively, not as continuous stay.
Exception for outbound citizen: Citizen leaving India for employment abroad or as crew of an Indian ship: only 182-day test applies; Section 6(3). Condition (b) is switched off for the year of leaving.
Exception for visiting citizen or PIO: Visit to India: 60 days → 120 days if total income (excluding foreign-source income) > ₹15 lakh; Sections 6(4) and 6(5). Applies to a citizen or person of Indian origin who is outside India and visits. Income must exceed ₹15 lakh, not just equal it.
Deemed resident: Citizen + not liable to tax in any other country by domicile, residence or similar criteria + total income (excluding foreign-source income) > ₹15 lakh; Section 6(7). Such a person is treated as resident but is RNOR under section 6(13)(c). Does not apply if already resident under section 6(2) to (6).
RNOR test 1: NR in 9 of the 10 preceding tax years; Section 6(13)(a)(i).
RNOR test 2: In India for 729 days or less in the 7 preceding tax years; Section 6(13)(a)(ii). Meeting either test 1 or test 2 makes the resident an RNOR.
RNOR test 3: Citizen or PIO + total income (excluding foreign-source income) > ₹15 lakh + in India 120 days or more but less than 182 days; Section 6(13)(b). This applies to the visiting citizen or PIO who is resident under the 120-day rule.
RNOR test 4: Citizen deemed resident under section 6(7); Section 6(13)(c).
Firm, AOP, BOI, other persons (except company): Resident if control and management is wholly or partly in India; non-resident if wholly outside India; Only two statuses. No RNOR. Tested for each tax year.
HUF - basic test: Resident if control and management of its affairs is wholly or partly in India; else non-resident; Control is usually where the karta takes decisions.
HUF - ordinarily resident test: Resident HUF is ROR if its manager satisfies both: resident in at least 2 of the 10 preceding tax years AND stay of 730 days or more in the 7 preceding tax years; otherwise RNOR; The two conditions are applied to the manager's history. The manager's own residence in the current tax year is not required. Failing either condition makes the HUF RNOR.
Indian company: Always resident in India; Even if all decisions are taken abroad.
Foreign company: Resident only if place of effective management is in India in that tax year; otherwise non-resident; POEM = where key management and commercial decisions for the business as a whole are in substance made.
Scope by status: ROR: Indian + foreign income | RNOR: Indian income + foreign income from business controlled in India or profession set up in India | NR: Indian income only; Indian income means received, accruing or arising, or deemed so, in India.
ROR (resident and ordinarily resident): Taxable = income received or deemed received in India + income accruing or arising (or deemed) in India + income accruing or arising outside India; Worldwide income. Where it was received does not matter.
RNOR (resident but not ordinarily resident): Taxable = income received or deemed received in India + income accruing or arising (or deemed) in India + foreign income from a business controlled in India or a profession set up in India; Other foreign income, such as foreign rent, interest or dividend received abroad, is not taxable.
Non-resident (NR): Taxable = income received or deemed received in India + income accruing or arising (or deemed) in India; Foreign income received abroad is not taxable, even if the business is controlled from India.
Remittance rule: Income earned and received outside India, later remitted to India = not taxed again as received in India; Taxable only if it falls in a category taxable by its own nature, for example RNOR foreign business income controlled from India.
Order of working: Residential status first, then source and place of receipt of each item; Tag every item as Indian-source, foreign-source and received in India or received abroad.
Resident (section 5(1)): Total income = income received or deemed received in India + income accruing or arising (or deemed) in India + income accruing or arising outside India; The third limb is cut down for a not ordinarily resident person: foreign income is included only if derived from a business controlled in or a profession set up in India.
Non-resident (section 5(2)): Total income = income received or deemed received in India + income accruing or arising (or deemed) in India; Foreign income that is not received in India is outside the net, unless it is deemed to accrue in India.
Balance sheet rule (section 5(3)): Foreign income is not deemed received in India only because it is taken into account in a balance sheet prepared in India; Use it to reject the argument that book entries in India make foreign income taxable.
No double inclusion (section 5(4)): Income included as accrued or arisen is not included again as received in India; Taxed once. The same income is not added on the receipt basis after the accrual basis.
Business connection: Taxable amount = only the part of income attributable to operations carried out in India; Full profit of the non-resident is not taxed, only the India-attributable part.
Executor: who is taxed (s. 312(1)): One executor → taxed as an individual; more than one executor → taxed as an AOP; Executor includes an administrator or any person administering the estate (s. 312(3)).
Residential status of executor (s. 312(2)): Executor's status for the estate = status of the deceased for the tax year of death; Executor's own residential status is not used for the estate income.
Separate assessment (s. 312(4) and (5)): Estate assessed separately from executor's own income; one assessment per completed tax year or part, from date of death to complete distribution; Always show the estate computation separately from the executor's personal computation.
Specific legatee (s. 312(6)): Estate income = Income of the estate − income distributed to or applied for a specific legatee in that year; The excluded income is taxed in the legatee's total income for that tax year.
Representative assessee list (s. 303(1)): Agent of non-resident | Guardian or manager of minor, mentally ill or unsound mind person | Court of Wards, Administrator-General, Official Trustee, receiver or manager | Trustee under written trust | Trustee under oral trust; Each is a representative only for the income received or receivable for another.
Limit on legal representative (s. 302(4)): Liability of legal representative ≤ extent to which the estate can meet the liability; Under s. 302(5) and (6), if he creates a charge on, disposes of or parts with estate assets while tax is unpaid, he is personally liable up to the value of those assets.
Retention of tax (s. 305): Representative may recover tax paid from the principal, or retain it from money in his hands; If there is disagreement on the estimate, he gets a certificate from the Assessing Officer; the final amount recoverable from him cannot exceed the certificate, except to the extent of additional assets of the principal in his hands.

Quick revision

Status comes first. Fix it before you test any income.
A resident is taxed on income received in India, accruing or arising in India, and accruing or arising outside India.
A not ordinarily resident is taxed on foreign income only if it is derived from a business controlled in or a profession set up in India.
A non-resident is taxed only on income received or deemed received in India, or accruing or arising (or deemed to) in India.
Income that accrues outside India is not deemed received in India only because it is in a balance sheet prepared in India.
Income already included as accrued or arisen is not included again as received in India.
Individual status depends on days of stay; company and firm status depends mainly on control and management.
Always name the tax year in your answer, never use the old term assessment year.
An executor is taxed as an individual if there is one, and as an association of persons if there are more than one.
The executor's residential status is that of the deceased for the tax year of death.
Income of the estate distributed to a specific legatee is excluded from the executor's income and taxed in the legatee's income.
Executor assessments are separate from the executor's own income and are made for each tax year until complete distribution.

Common mistakes

Treating person and assessee as the same thing. Fix: Remember that person is the taxable unit and assessee needs liability, proceedings or deeming. A person with no tax liability and no proceedings is not an assessee.
Writing the period without the term "tax year" or without its dates. Fix: Use the term defined in section 3 and add the dates, for example tax year 2026-27 (1 April 2026 to 31 March 2027).
Applying the 60 plus 365 day test to a citizen who left India for employment abroad. Fix: Read the purpose of travel first. For employment abroad or Indian ship crew, only 182 days counts.
Using 120 days for every visiting person of Indian origin. Fix: Use 120 days only when income other than foreign-source income exceeds ₹15 lakh. Otherwise the limit is 60 days.
Applying the 182-day stay test to a firm or HUF. Fix: Use the days-of-stay tests only for an individual. For a HUF, only the manager's 10-year and 7-year history is used, and only to decide ROR or RNOR. A firm, AOP or other person is tested by control and management.
Calling a foreign-managed Indian company non-resident. Fix: An Indian company is always resident. The POEM test is only for foreign companies.
Taxing a non-resident or RNOR on foreign income just because it was remitted to India. Fix: If the income was earned and received abroad, the later remittance is not a fresh receipt in India. Check the original place of receipt.
Treating RNOR exactly like a non-resident. Fix: For RNOR, add foreign income from a business controlled in India or a profession set up in India. A non-resident gets no such add-on.
Taxing a non-resident on foreign income because it appears in Indian books or balance sheet. Fix: Remember section 5(3): taking foreign income into account in a balance sheet prepared in India is not receipt in India.
Taxing the full global profit of a non-resident with a business connection in India. Fix: Include only the part attributable to operations carried out in India.

Exam tips

In MCQs, the usual trap is the statement "every person is an assessee". It is false. The correct direction is that every assessee is a person.
Always write "tax year" with the dates, such as tax year 2026-27 (1 April 2026 to 31 March 2027). This shows you know the 2025 Act.
If a question gives a business start date mid-year, apply section 3(2) before any other step and count the months.
In written answers, name the type of person first, because the residential status rule in section 6 depends on it.
Keep the exact definition of assessee from your ICMAI study material ready for short notes, and add a one-line example.
Underline the citizenship, the purpose of travel and the income figures in the question. They decide which exception applies.
Write the tax year first and count days only within 1 April to 31 March.
In a written answer, give the section number against each test. It earns step marks even if a number slips.