While residential status of an individual is based on physical presence, the residential status of a company, firm and HUF depends mainly on control, management or POEM.
Company
- Indian company — Always Resident in India
- Foreign company — Resident if Place of Effective Management (POEM) is in India
POEM = place where key management & commercial decisions are made
Firm / AOP / BOI
- Resident if control and management is wholly or partly in India
- Non-resident only if entire control and management is outside India
Even partial control in India makes it Resident
HUF
- Resident if control and management is wholly or partly in India
- Non-resident only if entire control and management is outside India
Control normally rests with Karta
Remember:
Resident and ordinarily resident/ Resident but not ordinarily resident
If Karta (manager) of resident HUF satisfies the below conditions, then HUF will be treated as resident and ordinarily resident, otherwise, it will be resident but not ordinarily resident.
- should be resident in at least 2 previous years out of the last 10 years.
- Stay in the last 7 years should be 730 days or more.
** Only individuals and HUFs can be Resident and not ordinarily residents in India. All other classes of assesses can be either a resident or non-resident.
Comparison of Residential Status Rules
| Particulars | Individual | Company | Firm / AOP / BOI | HUF |
| Governing section | Section 6(1)–6(6) | Section 6(3) | Section 6(2) | Section 6(2) |
| Possible status | ROR / RNOR / NRI | Resident / Non-Resident | Resident / Non-Resident | Resident / Non-Resident |
| Basic test | Physical stay in India | Place of incorporation / POEM | Control & management | Control & management |
| Test of residence | 182 days or 60 + 365 rule and additional conditions 0f 730 days and 2/10 residency. | Indian company always resident; foreign company – POEM | Control & management wholly or partly in India | Control & management wholly or partly in India |
| Concept of RNOR | Applicable | Not applicable | Not applicable | Applicable |
| Importance of control | Not relevant | Relevant for foreign company | Important | Important |
Scope of Taxable Income (Quick View)
| Status | Taxable Income |
| Individual (ROR) | Global income |
| Individual (RNOR) | Indian income + specified foreign income |
| Individual (NRI) | Indian income only |
| Company / Firm / HUF (Resident) | Global income |
| Company / Firm / HUF (Non-Resident) | Indian income only |
CASE I: Company (POEM Concept)
Facts
XXX Ltd. is incorporated in the UK.
- Board meetings are held in Kolkata
- Major policy decisions are taken in India
Question
Determine residential status.
Solution
- Foreign company
- POEM is in India
Resident in India
POEM = place where key management and commercial decisions are made.
CASE II: Partnership Firm
Facts
SD & Co. is a partnership firm.
- Partners live abroad
- One managing partner operates from Delhi and takes strategic decisions
Question
Determine residential status.
Solution
- Control and management partly in India
Resident Firm
Even partial control in India makes the firm resident.
CASE III: HUF
Facts
Karta of an HUF resides in Singapore.
- Major decisions relating to property and investments are taken in India
Question
Determine residential status.
Solution
- Control and management partly in India
Resident HUF
Place of control matters.
CASE IV: HUF – Non-Resident Situation (tricky)
Facts
Karta and all adult members of an HUF reside in Dubai.
- All decisions are taken outside India
Question
Residential status?
Solution
- Control and management wholly outside India
Non-Resident HUF
Scope of Total Income – Individual
| Residential Status | Income Taxable in India |
| ROR | Indian income + Foreign income |
| RNOR | Indian income + Foreign income from business controlled or profession set up in India |
| NR | Indian income only |
Combined Comparison Table (High Exam Value)
| Assessee | Status | Scope of Income |
| Individual | ROR | Global income |
| Individual | RNOR | Indian income + specified foreign income |
| Individual | NR | Indian income only |
| Company | Resident | Global income |
| Company | Non-Resident | Indian income only |
| Firm | Resident | Global income |
| Firm | Non-Resident | Indian income only |
| HUF | Resident | Global income |
| HUF | Non-Resident | Indian income only |