Tax Resources

RESIDENT

The provisions relating to the definition and taxation of a “resident” is provided under Article 4 of the OECD Model Tax Convention on Income and on Capital (2017). Similarly, Article 4 of the United Nations Model Double Taxation Convention between Developed and Developing Countries (2017) provides for the definition and taxation of a “resident”. Both the UN and the OECD Model Tax Conventions have a similar approach and stand regarding the definition of the concept, except a few alterations. The UN Model also includes ‘place of incorporation’ as one of the conditions to qualify as a resident of a Contracting State. The OECD Model includes ‘a recognized pension fund of that State’ as one of the criteria to fall under the category of the resident of a Contracting State. Apart from these differences the definitions provided under both the Models have a similar construct. Article 4 of the Model Tax Conventions only define the concept of “resident of a Contracting State” as its taxation is prescribed elsewhere. Article 4 plays a role in primarily paving a way for three major situations, these are:

  1. determining the personal scope of application of a convention;

  2. solving cases relating to double taxation due to double residence; and

  3. solving cases relating to double taxation due taxation in resident state as well as the source state.

India, under the Income Tax Act 1961, has defined “residence in India” under section 6. Under the said section categories such as resident and not ordinarily resident are defined that include, individuals, Hindu undivided families, companies, and other persons who qualify certain pre-requisites. Due to the COVID-19 Pandemic, the Central Board of Direct Taxes (Department of Revenue, Ministry of Finance, Government of India) had issued a Circular wherein the conditions to qualify as an Indian resident were relaxed to a certain extent.

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