Q.What is residential status? Why is it important in computing income tax liability?

Before any income can even be brought into an Indian tax computation, the very first question the law asks is how much of a connection the taxpayer has to India during that year. …

Residential status is the classification of a taxpayer, determined separately for each previous year under Section 6 of the Income Tax Act, based mainly on the number of days they were physically present in India during that year (and, for some categories, the preceding years too). The three categories are Resident (Ordinarily Resident), Resident but Not Ordinarily Resident (RNOR), and Non-Resident (NR).

Why it matters: residential status directly decides the scope of total income brought into the Indian tax net:

• A Resident is taxed on their entire global income, wherever earned or received.
• An RNOR is taxed on income earned/received in India, plus foreign income only if it comes from a business controlled from, or a profession set up in, India.
• A Non-Resident is taxed only on income that is earned, received, or deemed to accrue/arise in India — their purely foreign income falls entirely outside Indian tax. …

Assuming residential status, once determined, applies permanently to a person for all future years — it must be determined AFRESH for each previous year, sinc …