Tax Laws and Practice · Classification and Tax Incidence on Companies

Residential Status of Companies under the Income-tax Act

Updated 11 October 2026 · Fact-checked

Under section 6(10) of the Income-tax Act, 2025, a company is resident in India in a tax year if it is an Indian company, or its place of effective management is in India in that year. If neither test is met, it is a non-resident. Check both tests, then conclude.

Understand Residential Status of Companies

Residential status decides how much of a company's income India can tax. A resident company is taxed on its global income. A non-resident company is taxed mainly on income connected with India. So the first thing you settle in any company tax question is its status.

For companies, the Act keeps it simple. Section 6(10)(a) says a company is resident in India in a tax year if either of two conditions is met: (i) it is an Indian company, or (ii) its place of effective management (POEM) is in India in that tax year. One condition is enough. A company that meets neither is a non-resident.

The first test is a matter of incorporation. An Indian company is one registered in India under the company law. If you see such a company in the question, stop there. It is resident, even if every director sits abroad and all business is done overseas.

The second test matters for foreign companies. Section 6(10)(b) defines POEM as a place where key management and commercial decisions necessary for the conduct of the business of the company as a whole are, in substance, made. The words "in substance" tell you to look at where decisions are really taken, not where the registered office or board meeting minutes say so. A foreign company run day to day from Mumbai can therefore become resident in India.

Two more points complete the picture. Status is worked out for each tax year separately, so a company can be resident in one year and non-resident in the next. Also, section 6(12) says that if a person is resident for any source of income, the person is resident for all other sources too. There is no "resident but not ordinarily resident" category for companies. That category applies only to individuals and HUFs.

Key rules to remember

Resident company: Resident = Indian company OR place of effective management (POEM) in India in that tax year; Section 6(10)(a). Either condition alone is enough. Test it year by year.
Non-resident company: Non-resident = not an Indian company AND POEM not in India in that tax year; Both tests must fail. A foreign company with POEM abroad is non-resident.
Place of effective management: POEM = place where key management and commercial decisions necessary for the conduct of the business of the company as a whole are, in substance, made; Section 6(10)(b). The test is substance, not the registered office.
One source resident, all sources resident: Resident for any source of income ⇒ resident for every other source in that tax year; Section 6(12). Status is a single status for the whole tax year.
ROR/RNOR for companies: Company status = Resident or Non-resident only; Not ordinarily resident applies to individuals and HUFs, not to companies.

How to solve Residential Status of Companies questions

Use the same short sequence for every question on a company's residential status. Always name the tax year, because status is decided for that year only.

1Note the tax year asked about and the type of company (Indian company or foreign company).
2Apply the first test: is it an Indian company? If yes, it is resident under section 6(10)(a)(i). Stop and conclude.
3If it is a foreign company, apply the second test: is its place of effective management in India in that tax year?
4To judge POEM, find where key management and commercial decisions for the business as a whole are in substance made. Look at the facts: where senior management sits and where major decisions are taken.
5Ignore weak facts such as registered office, bank accounts, or where meetings are formally recorded unless they show where decisions are really made.
6Conclude clearly: resident if either test is met, non-resident if both fail.
7State the consequence in one line: resident is taxed on global income, non-resident on India-related income, as the question requires.

Quickest way: Two-question check

When to use it: Use when the question is short, such as a 5-mark question or a part of a larger computation.

Ask 1: Is it an Indian company? Yes means resident. Write section 6(10)(a)(i).
Ask 2 (only if no): Where are key management and commercial decisions made in substance in this tax year? India means resident under section 6(10)(a)(ii).
If both answers are no, write non-resident. Add one line on the tax consequence.

Common mistakes in Residential Status of Companies

Saying a company is non-resident because all its directors and business are abroad, even though it is incorporated in India.
Students apply the POEM test first or think residence depends on where the business runs.
Fix: Always check the Indian company test first. An Indian company is resident regardless of where it is managed.
Treating the registered office or place of board meetings as the place of effective management.
The words "effective management" are read as formal management.
Fix: Use the definition: where key management and commercial decisions are made in substance. Look at who really takes the decisions.
Applying the 182-day or 60-day tests to a company.
Students mix up the individual rules in section 6(2) with the company rule in section 6(10).
Fix: Day-count tests are for individuals. A company is tested only by incorporation in India and POEM.
Calling a company 'resident but not ordinarily resident'.
The ROR, RNOR and NR labels are memorised for all persons.
Fix: Companies are only resident or non-resident. RNOR applies to individuals and HUFs.
Deciding status once and using it for all years.
Students forget that POEM can move from year to year.
Fix: State the tax year and test the facts for that year only.
Using the POEM wording from section 235(h) for this topic.
Section 235 also uses 'place of effective management', so students copy it.
Fix: Section 235(h) defines it only for the tonnage tax scheme for shipping companies. For residential status, use section 6(10)(b).

Worked examples

Example 1

Zenith Infra Ltd is incorporated in India under the Companies Act, 2013. Its directors live in Dubai and all board meetings are held there. Determine its residential status for the tax year 2026-27.

Show the solution

Provision: under section 6(10)(a), a company is resident in India if it is an Indian company or its place of effective management is in India in that tax year.
Facts: Zenith Infra Ltd is incorporated in India, so it is an Indian company.
Analysis: the first condition is met. Since either condition is enough, the location of directors and board meetings does not change the result.
The POEM test need not be applied.

Answer: Zenith Infra Ltd is a resident in India for the tax year 2026-27 under section 6(10)(a)(i), because it is an Indian company.

Example 2

Orion Trading Inc. is incorporated in Singapore. In the tax year 2026-27, its CEO and CFO work from its Bengaluru office and take all major commercial and strategic decisions there. The board in Singapore only signs what they decide. Determine its residential status.

Show the solution

Provision: section 6(10)(a) makes a company resident if it is an Indian company or its place of effective management is in India in that tax year. Section 6(10)(b) defines POEM as the place where key management and commercial decisions for the business as a whole are, in substance, made.
Test 1: Orion Trading Inc. is incorporated in Singapore, so it is not an Indian company.
Test 2: the key commercial and strategic decisions are in substance made by the CEO and CFO in Bengaluru. The Singapore board only approves them, so the formal approval does not decide the place.
Therefore the place of effective management is in India in the tax year 2026-27.
Conclusion by section 6(10)(a)(ii): the company is resident.

Answer: Orion Trading Inc. is a resident in India for the tax year 2026-27, because its place of effective management is in India, even though it is a foreign company.

Exam tips

Write the section number in your answer: section 6(10) for the company test and 6(10)(b) for the POEM meaning. ICSI-style answers give the provision, the facts, then a conclusion.
In fact-based questions, quote the phrase 'in substance' and link it to the facts. This shows you applied the test and did not just copy it.
Always name the tax year in the conclusion, since status is decided year by year.
Do not bring in the individual rules (182 days, 60 days, RNOR) unless the question is about an individual or HUF.
Finish with the consequence in one line when marks are available: resident is taxed on global income, non-resident on India-linked income.

Practice questions from Classification and Tax Incidence on Companies

Residential Status of Companies in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Residential Status of Companies: frequently asked questions

How is the residential status of a company decided under the Income-tax Act, 2025?

Section 6(10) says a company is resident in India in a tax year if it is an Indian company or its place of effective management is in India in that year. If neither is true, it is a non-resident. The test is applied for each tax year.

What is the place of effective management of a company in India?

It is the place where key management and commercial decisions necessary for the conduct of the business of the company as a whole are, in substance, made. The focus is on where decisions are really taken, not on the registered office.

Can an Indian company be a non-resident?

No. An Indian company is always resident in India under section 6(10)(a)(i). Its place of management does not matter.

Can a foreign company be resident in India?

Yes, if its place of effective management is in India in that tax year. Then it is resident under section 6(10)(a)(ii), though it was not incorporated in India.

Does a company have the status of not ordinarily resident?

No. A company is either resident or non-resident. The not ordinarily resident status is for individuals and HUFs.