Basic concepts

The Indian Income-tax Act, 1961 (the ‘Act’) governs charge, levy, administration, collection, and recovery of income tax in India. Under the Act, income tax is charged at the rates prescribed by the relevant Finance Act each year. The tax applies to every person including assessable persons and is levied on the total income earned during a particular financial year, computed in accordance with and subject to the provisions of the Act.

Section 5 of the Act outlines the scope of income chargeable to tax in India, based on the residential status of the taxpayer. Further, the tests of residence for various categories of taxpayers are contained in section 6 of the Act.

As per section 6(4) of the Act, every person (other than an individual, HUF, firm, AOP and company) is considered to be resident in India in any year in every case, except where during the relevant year the control and management of its affairs is situated wholly outside India.

For ease of reference, the tests for determining residential status for various taxpayers are summarized below:

Further, as per section 2(30) of the Act, a non-resident means a person who is not a resident. Accordingly, Foreign Portfolio Investors (FPIs), whose control and management is wholly situated outside India, are treated as non-residents under the provisions of the Act.