Residential Status Under Income Tax Act - Classifications

Introduction

The residential status of an individual or entity under the Income-tax Act is a foundational concept for determining the tax scope: what income is taxable in India, and whether foreign income is included. Under Section 6 (and related rules) of the Income-tax Act, a person can be classified as a Resident and Ordinarily Resident (ROR), a Resident but Not Ordinarily Resident (RNOR), or a Non-Resident (NR). The classification depends primarily on duration of stay in India, past years’ stays, and other special criteria (such as Indian citizens living abroad). Given increased global mobility, return of NRI residents, changing tax laws, and the treatment of foreign income, it is especially important now (FY 2024-25 / AY 2025-26) to understand the updated rules.

How Residential Status Is Determined

Basic Criteria for Individuals

To determine whether an individual is a resident or non-resident in India in a given previous year, the Act uses these principal thresholds:

• If the individual stays 182 days or more in India during the relevant previous year, they typically qualify as a resident.
• If the individual stays 60 days or more in the relevant previous year and 365 days or more cumulatively in the four preceding years, they may also qualify as a resident (subject to special rules for Indian citizens/NRI).
  If neither condition is met, the person is typically a non-resident for that year.

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Additional / Special Rules

• For Indian citizens or persons of Indian origin (PIO) who visit India, or Indian citizens who leave India for employment abroad or as crew of an Indian ship, the “60-day” rule is often extended to 120 days (for certain income thresholds), or the 182-day rule remains applicable.
• Under the “deemed resident” rule: an Indian citizen (or PIO) whose income from Indian sources other than foreign income exceeds ₹ 15 lakh in a year and who is not liable to tax in any other country may be treated as a resident (and typically RNOR) even if normal stay criteria are not satisfied.

Classification Once Resident

Once you qualify as a resident in India for that year, you must further determine:

• Resident and Ordinarily Resident (ROR): If you satisfy two additional conditions: (a) you were a resident in at least 2 out of the last 10 years, and (b) you stayed in India for at least 730 days in the last 7 years.
• Resident but Not Ordinarily Resident (RNOR): If you are resident, but fail one or both of the above additional conditions.

Status for Other Entities

• For a Hindu Undivided Family (HUF):, it is resident in India if the control & management (Karta) is in India; classification as ROR/RNOR is similar based on the Karta’s residence.
• For a company: It is resident in India if it is an Indian company or if its Place of Effective Management (POEM) is in India during the year.
• For firms, LLPs, AOPs, BOIs, and local authorities: The place of management/control in India determines resident status.

Tax Implications Based on Status

Status

Tax-scope in India

Resident & Ordinarily Resident (ROR)

Taxed on global income: income earned or received in India and income earned abroad.

Resident but Not Ordinarily Resident (RNOR)

Taxed on Indian income (income earned in India, received in India) and certain overseas income under conditions; many foreign incomes may be exempt.

Non-Resident (NR)

Taxed only on income received in India, accrual/derivation in India, or deemed to accrue/ arise in India; foreign income not taxed in India.

Updated Highlights & Changes

• From recent guidance: The threshold of ₹ 15 lakh (income from Indian sources, excluding foreign income) is relevant for Indian citizens/PIOs residing abroad: staying 120 days or more but less than 182 days, and past stay in India 365 days or more in preceding four years — such persons may be treated as resident (specifically RNOR) notwithstanding normal stay tests.
• For the stay criteria, the 182-day rule remains the main one. The 60 days + 365 days in the preceding four years rule continues, but has special relaxations for Indian citizens/PIOs.
• The amendments emphasise that an individual’s nationality or citizenship does not determine tax status; rather, it is the individual's stay and tax liability in another country that matters.
• Given global mobility, the RNOR status is increasingly relevant for returnees or NRIs who relocate back to India, offering a transitional phase of favourable tax treatment for certain foreign incomes.