A Comparative Analysis of Residential Status Provisions: Income Tax Bill 2025 vs Income-tax Act 1961

Clause 6 Residence in India.

Income Tax Bill, 2025

1. Introduction

The determination of residential status is fundamental to Indian income tax law as it establishes the scope of taxable income for different categories of taxpayers. This analysis examines the proposed changes in Clause 6 of the Income Tax Bill, 2025, comparing them with Section 6 of the Income-tax Act, 1961, highlighting key modifications and their implications.

2. Objective and Purpose

The primary objective of both provisions is to establish clear criteria for determining the residential status of various categories of taxpayers in India. The 2025 Bill aims to streamline and modernize these provisions while addressing certain gaps and ambiguities in the existing law.

3. Detailed Analysis of Key Changes

3.1 Structural Changes

• The 2025 Bill presents a more organized structure with 14 sub-sections compared to the 1961 Act's 6 sub-sections
• Introduction of a dedicated sub-section (1) stating the purpose
• Clearer segregation of provisions for different categories of taxpayers

3.2 Basic Conditions for Individual Residency

Similarities:

• Retention of the 182-day rule as primary criterion
• Continuation of the 60-day rule combined with 365 days in preceding four years

Key Changes:

• More precise language in defining time periods
• Clearer exceptions for crew members and overseas employees
• Specific provisions for Indian citizens visiting India

3.3 High-Income Individuals

The 2025 Bill introduces more comprehensive provisions for high-income individuals:

• Specific threshold of Rs. 15 lakhs (excluding foreign source income)
• Modified period of 120 days for certain categories
• Clearer deemed residency provisions

3.4 Company Residency

Enhanced Definition:

• Retention of dual criteria: Indian company or Place of Effective Management (POEM)
• More detailed POEM definition
• Clearer guidance on management and commercial decisions

3.5 Not Ordinarily Resident (NOR) Status

The 2025 Bill provides expanded criteria for NOR status:

• Retention of existing conditions (9 out of 10 years rule)
• Additional categories for high-income individuals
• Specific provisions for deemed residents

4. Practical Implications

4.1 For Individual Taxpayers

• Clearer determination of residential status
• More specific provisions for high-income individuals
• Enhanced clarity for NRIs and returning Indians

4.2 For Companies

• Better guidance on POEM determination
• Improved clarity on management control criteria
• More predictable tax implications

4.3 For Tax Administrators

• Simplified framework for status determination
• Reduced scope for interpretation disputes
• Better tools for handling complex cases

5. Comparative Analysis with International Standards

The proposed changes align more closely with international best practices:

• Enhanced focus on substance over form
• Better addressing of high-net-worth individuals
• Improved provisions for global mobility

6. Conclusion

The Income Tax Bill 2025's provisions represent a significant evolution in determining residential status, offering:

• Greater clarity and precision
• Better alignment with modern business realities
• More comprehensive coverage of various scenarios
• Enhanced tools for tax administration

 

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Full Text:

Clause 6 Residence in India.

 

Dated: 25-2-2025