Taxation Rules Based on Residential Status in India

Understanding who is taxed on specific types of income in India is determined primarily by an individual's residential status for that financial year, not their citizenship or domicile. The Indian Income Tax Act classifies individuals into different categories based on their presence in India.

Residential Status Categories

For income tax purposes, an individual can be classified into one of three main residential statuses:

• An Ordinary Resident (OR)
• A Non-Ordinarily Resident (NOR)
• A Non-Resident (NR)

Each status has a different scope of income that is taxable in India.

Scope of Total Income for Different Residential Statuses

The taxability of income depends on where the income is received or accrues/arises. Here’s a general overview:

Taxability of Income Earned Outside India from a Business/Profession in India

The question specifically asks about income received and accrued or arisen outside India from a business controlled in India or a profession set up in India. Let's see how this particular type of income is treated for each status:

• Ordinary Resident: An Ordinary Resident is taxed on their worldwide income. Since this income, even though earned outside India, is part of their global income, it is taxable for an Ordinary Resident.
• Non-Ordinarily Resident: The tax rules for a Non-Ordinarily Resident specifically include income which accrues or arises outside India from a business controlled in or a profession set up in India. Therefore, this type of income is taxable for a Non-Ordinarily Resident.
• Non-Resident: A Non-Resident is primarily taxed on income received or accrued/arisen in India. Income earned outside India, even if related to a business controlled in India or profession set up in India, is generally not taxable for a Non-Resident unless it is subsequently received in India.

Connecting to the Options

The question asks which categories are taxed on the specified income. Based on our analysis:

• Ordinary Residents (c) are taxed on this income.
• Non-Ordinarily Residents (d) are taxed on this income.
• Non-Residents (e) are generally not taxed on this income.
• Citizenship (a) and Domicile (b) are not the primary factors determining taxability based on the source and location of income earning/receipt in this context; residential status is key.

Therefore, the income described is taxed in the hands of Ordinary Residents and Non-Ordinarily Residents.

Conclusion

Income received and accrued or arisen outside India from a business controlled in or a profession set up in India is taxable for both Ordinary Residents and Non-Ordinarily Residents. This aligns with option mentioning 'c' and 'd only'.

Revision Table: Summary of Taxability by Status

Additional Information: Determining Residential Status Criteria

An individual's residential status in India is determined annually based on their physical presence in India during the financial year and preceding years. The rules can be complex but are crucial for determining tax liability.

Basic Conditions for Residency:

To be a Resident in India for a financial year, an individual must satisfy at least one of the following:

• Stay in India for 182 days or more during the financial year.
• Stay in India for 60 days or more during the financial year AND 365 days or more during the four financial years immediately preceding the financial year. (Note: There are exceptions to the 60-day rule for certain individuals like Indian citizens leaving for employment outside India).

If neither basic condition is met, the individual is a Non-Resident (NR).

Additional Conditions for Ordinary Residency (for those who are Resident):

If an individual is a Resident based on the basic conditions, they are an Ordinary Resident (OR) if they satisfy BOTH of the following:

• Has been a Resident in India in at least 2 out of the 10 financial years immediately preceding the relevant financial year.
• Has been in India for a period of 730 days or more during the 7 financial years immediately preceding the relevant financial year.

If a Resident satisfies neither or only one of these additional conditions, they are a Non-Ordinarily Resident (NOR). Recent changes also introduced provisions for 'deemed residents' which can impact high-net-worth individuals who are not tax residents elsewhere.