Residential Status under the Income Tax Act

Residential Status under the Income Tax Act

How much of a person’s global income is taxable in India is determined mainly by the person’s residential status. Not every Indian or foreign individual living in India for some months is regarded as a tax resident. The Income Tax Act, 1961, clarifies who is a Resident and Ordinarily Resident (ROR), a Resident but Not Ordinarily Resident (RNOR), or a Non-Resident (NR) for the specified financial year. Your taxes, the exemptions you claim, and everything concerning compliance may depend greatly on your residential status. In the following post, you’ll learn what the different residential statuses are, how to decide between them, and what their tax effects are.

Why Residential Status Matters

Indian taxable income depends on your residential status.

Residential Status	Income Earned in India	Foreign Income	Foreign Income from a Business/Profession Controlled from India
ROR	Taxable	Taxable	Taxable
RNOR	Taxable	Not Taxable	Taxable
NR	Taxable	Not Taxable	Not Taxable

It is important to know your residence every year (April 1–March 31) for the correct filing of taxes.

Residential Status Classification Under the Income Tax Act

The Income Tax Act breaks down individuals into two categories:

1. Resident in India

a. Resident and Ordinarily Resident (ROR)
b. Resident but Not Ordinarily Resident (RNOR)

2. Non-Resident (NR)

The classification is determined yearly.

Step 1: Who is a Resident?

A person is regarded as a Resident in India if he/she passes at least one of the conditions given in Section 6(1).

Basic Conditions:

• The person has lived in India for more than 182 days in the financial year concerned
  OR
• The person is in India for over 60 days during the financial year and has spent over 365 days in India during each of the previous 4 years

Exception for Indian Citizens and PIOs:

If Indian citizens or Persons of Indian Origin (PIOs) are visiting India, the second requirement is relaxed.

• Two stays, each for 120 days or longer (rather than 60) in the previous 4 years

In 2020, the Finance Act tightened rules further for:

Deemed Residency Status Rule:

A person from India shall be regarded as a Resident (RNOR) if they meet the following:

• If someone’s total income (minus foreign income) is above ₹15 lakh, it is classified as income taxable in India.
• He does not have to pay taxes in any other nation.

Step 2: Resident but Not Ordinarily Resident (RNOR)

If a person is considered a Resident, after that, we confirm if they are an Ordinarily Resident or Not Ordinarily Resident.

If either of these conditions is true, a resident individual gets the RNOR status:

• For the last 10 years, the individual was not a resident of Canada in 9 of those years.
  OR
• The person has been in India for no more than 729 days during the last 7 years.

If you don’t fit any of these categories, you should consider yourself a Resident and Ordinarily Resident (ROR).

Step 3: Non-Resident (NR)

A failure to meet the two basic conditions makes a person a Non-Resident for taxation purposes.

Examples of Residential Status

Example 1: Indian Resident

• Ajay is in India from April 1st to December 31st, Mathers approximately 275 days.
• He has lived in Canada for over half the year as a Resident.
• Check if you have ROR or RNOR.
• For the last seven years, Ajay lived in India for 800 days.

Example 2: NRI Visiting India

• Rakesh uses his social visa for 130 days in India during FY 2024–25.
• He spent more than three-quarters of the last four years away.
• He earns ₹12 lakh in India, but he pays tax in the UAE.
• Anyone with income below ₹15 lakh who meets the 120 days rule is regarded as a Non-Resident Indian.

Example 3: Deemed Resident

• She makes about ₹20 lakh in India, but does not pay taxes in Dubai, where she lives.
• In FY 2024–25, she will visit India for a total of 100 days.
• As her income is over ₹15 lakh and she hasn’t been taxed anywhere else, she is recognised as a Deemed Resident.

Taxability Based on Residential Status

Income Type	ROR	RNOR	NR
Salary received in India	Taxable	Taxable	Taxable
Salary received abroad	Taxable	Not Taxable*	Not Taxable
Rental income from property in India	Taxable	Taxable	Taxable
Capital gains from Indian shares	Taxable	Taxable	Taxable
Interest from NRE Account	Exempt	Exempt	Exempt
Foreign income from business abroad	Taxable	Not Taxable	Not Taxable

*RNOR is taxed only on income from businesses controlled or set up in India

Get Started with TaxDunia

Making sure you know your residential status helps you plan income taxes and comply with the law properly. If you are a professional in India, living outside India or often live or work outside of India, your tax obligations are strongly affected by how many days you spend in India and how much income you bring in from other places. A new financial year means you’ll have to calculate your taxes again, so remember to maintain travel records and remember to speak to a tax advisor if you have income from abroad, live in more than one country, or invest in a complicated manner.