Residential Status of Firm, Association of Persons (AOP), Body of Individuals (BOI) and of Other Persons (except Companies) [Section 6(2) and 6(4)]

1. General Rule for All Non-Company Entities [Section 6(2)]

The residential status of Firms, AOPs, BOIs, and other non-corporate entities is determined by:

“Whether control and management of affairs is wholly or partly situated in India during the financial year.”

Key Tests:

• Wholly in India→ Resident
• Partly in India→ Resident
• Wholly outside India→ Non-Resident (NR)

Note: Unlike individuals, there is no concept of “Ordinarily Resident” for these entities.

2. Specific Rules by Entity Type

A.  Firms (Partnerships & LLPs) [Section 6(2)]

• Resident if:
  • Place of effective management (PEM) is in India
  • Partners meet in India for key decisions
  • Main bank accounts/books maintained in India
• Non-Resident if:
  • All control exercised from abroad (e.g., foreign LLP with no Indian operations)

Example:

• An LLP registered in India but managed from Singapore → Residentif any strategic decisions are made in India.

B.  Association of Persons (AOP) / Body of Individuals (BOI) [Section 6(4)]

• Resident if:
  • Majority of members are Indian residents, OR
  • Principal decisions taken in India
• Non-Resident if:
  • All members are NRIs AND
  • No part of control is in India

Example:

• A group of NRIs jointly investing in Indian real estate but managing it remotely → NR AOP.

C.  Other Persons (Trusts, Societies, etc.)

• Follows same control & management test
• Resident Trust:If trustees operate from India
• NR Trust:If all trustees are abroad and no Indian control

3. Tax Implications

Key Differences from Companies:

• Companies use Place of Effective Management (POEM)test [Section 6(3)]
• Firms/AOPs use simpler control & managementtest

4. Practical Examples

1. Resident Firm:
   • Indian partnership firm with 2 partners (1 resident, 1 NRI) → Resident(partial control in India).
2. NR AOP:
   • Group of 5 NRIs pooling funds for a startup managed from Dubai → NR AOP.
3. Resident Trust:
   • Charitable trust registered in India with NR trustees but Indian-based manager → Resident.

5. Compliance Checklist

• Resident Entities:
  • File ITR (even if income is below taxable limit for firms/AOPs)
  • Maintain books of accounts in India
• NR Entities:
  • Higher TDS on payments received (e.g., 30% on professional fees)
  • No need to report foreign income