The Income Tax Act of India has several sections and Forms for easier access to the tax payment process. One of those sections is section 6 of the income tax act. This section deals with the provision related to residence in India. Your taxability depends on your residential status in India.
Know your residential status for the previous year while filing your income tax returns. Your taxability depends on your residence in that year.
Section 6 of income tax act deals with your residential status and related factors. Let us dive deep into section 6 of the income tax act of India.
What is Section 6 Of Income Tax Act?
Based on your residential status, section 6 of the income tax act classifies residents into three types.
They are:
- Resident but Not Ordinarily Resident (RNOR)
- Resident and Ordinarily Resident (ROR)
- Non-Resident (NR)
You are liable to the income tax depending on these categories. Hence, it is mandatory to know your residential status before filing income tax returns.
Resident and Ordinarily Resident (ROR)
You are a resident of India under Section 6(1) of the Income Tax Act if you meet the following conditions.
If you stay in India for 182 days or more in a fiscal year or,
If you stay in India for 60 days or more in a fiscal year, and
If you stay in India for 365 days or more in the four years immediately before the previous year and come under ordinary resident in income tax.
According to section 6(6) of the Income Tax Act of 1961, there are two standards under which you will be considered a “Resident and Ordinarily Resident” (ROR) in India.
- If you spend 730 days or more in India in the seven years preceding the current year.
- If you have resided in India for at least two of the ten prior fiscal years before the current year.
Resident but Not Ordinarily Resident(RNOR)
When you meet the following fundamental requirements, you are an RNOR.
If you stay in India for 182 days or more in a fiscal year or,
If you stay in India for 60 days in a fiscal year and 365 days or more in the four preceding fiscal years.
You are a Resident but Not Ordinarily Resident (RNOR) if you meet one of the following conditions:
- If you stay in India for 730 days or more in the previous fiscal year.
- If you are a resident of India for at least 2 out of 10 days in the previous fiscal year.
Non-Resident(NR)
You are a Non-Resident (NR) if you meet the following standards.
- If you spend less than 181 days in India within a year.
- If you stay in India for no more than 60 days in a fiscal year.
- If you stay in India for more than 60 days in a fiscal year but do not remain for 365 days or more in the preceding four fiscal years.
Based on these categories your residential status is confirmed and it works as an important factor for your tax liability.
What is Section 6 1A of income tax?
The Finance Act of 2020 has introduced new section 6(1A) to the Income-tax Act of 1961. The new provision provides that you are a resident in India only if your total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year. Income from foreign sources means income that arises outside India (except a business controlled in or a profession set up in India).
Declaration of NRI Status
If you come under the Resident Indian category, your total global income is taxable under Indian tax laws. But if your status is NRI, only the income made in India is taxable. The NRI income tax is levied on the salary received for services provided in India.
Taxation Rules for NRIs
- Any income earned in India is taxable in India.
- Any income earned outside India is not taxable in India.
- If you are an RNOR and return to India, you can keep your RNOR status for up to 3 years after return. So, any income you earn in India is taxable, and abroad will not be taxable, similar to NRIs, for 3 years post-return.
- If your status is an Indian Resident, your income inside and outside India becomes taxable.
If you fail to declare your NRI status, it is a violation of the Foreign Exchange Management Act (FEMA) and attracts penalties. You are liable to a penalty once you return to India. To notify the bank, you can visit any bank branch across India and submit a statement along with the required documentary proof.
What are Chapter 6 A deductions?
Chapter 6 A of the Income Tax Act contains various subsections of section 80 that allow you to claim deductions from the gross income on account of various tax-saving investments, authorized expenses, grants, etc. They allow you to vastly reduce your tax liability.
Chapter 6A has the following sections:
80C: Deduction in respect of life insurance premium, deferred annuity, contributions to the provident fund (PF), subscription to certain equity shares or debentures, etc.
80CCC: Deduction in respect of assistance to specific pension funds.
Also, various subsections like, Section 80CCD(1), 80CCD(1B), 80CCD(2), 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80G, 80GG, 80GGA, 80GGC, 80TTA, 80TTB, 80U etc.
Each section talks about various deductions like Higher education, Residential House Property, Medial Expenditure, Health Insurance Premium, Interest on Housing Loans, Electric vehicle Loans, Charitable Institutions, Rent paid by non-salaried individuals, Retirement Pension Schemes, Donation, Political Party donations, disability persons, etc.
Using these deductions, you can considerably reduce your taxable amount.
FAQs: Section 6 of the income tax act
1. Can I claim 6 exemptions?
Yes, you can claim the chapter 6 exemptions whichever applies to you. But the maximum limit of these exemptions is Rs.1.5 Lakh together with section 80CCC and section 80CCD(1). You cannot claim a deduction beyond the maximum limit.
2. How many days are required for NRI status?
If you are an Indian Citizen but stay in India for less than 182 days in the preceding financial year, you can attain an NRI Status. You may live outside India for employment, business, or any other purpose for an indefinite period.
3. Is it mandatory to declare NRI status?
Yes, it is mandatory to declare your status as NRI if you are a Non-Resident Indian.
4. What is the basic condition you should check for section 6?
You should check whether you have stayed in India during the previous year for more than 182 days or not. If you have stayed, then you are a resident of India.
5. What is proof of your NRI status?
You should have the following document as proof of your NRI Status – A copy of a valid visa/ work permit / Overseas Resident Card.
The address on the document must resemble the address mentioned in the application form.
Bottomline
Thus, you might understand from the above article that Section 6 of income tax act deals with the provision related to your residence in India. Your taxability depends on your residential status in India.
Know your residential status for the previous year while filing your income tax returns. Feel free to contact us in case of any queries related to Section 6 of the income tax act.