The Residence Rule of Taxation in India is a fundamental principle used to determine an individual’s or a company’s tax liability based on their residential status. Under this rule, the Indian government taxes income earned by residents on a global basis, meaning all income earned in India and abroad is taxable. Conversely, non-residents are taxed only on income that is sourced or earned within India.
This rule helps clarify who qualifies as a “resident” for tax purposes, which depends on specific criteria such as the duration of stay in India during a financial year. For instance, an individual generally becomes a resident if they stay in India for 182 days or more in a year. Companies are considered residents if they are incorporated in India or if their control and management are located in India.
Understanding the Residence Rule is crucial for compliance, as it affects income tax filings and planning. It determines the scope of taxable income, eligibility for certain deductions, and applicability of tax treaties. For small business owners and first-time entrepreneurs, knowing this rule ensures accurate tax reporting and helps avoid penalties related to incorrect residential status declarations.
For more detailed guidance and professional solutions on income tax compliance, you can visit FinTax24 Income Tax Solutions, where expert advice and services are tailored to simplify your tax responsibilities.