Determining an individual's residential status is crucial for understanding their tax obligations in India. The Income Tax Act defines individuals as either "resident" or "non-resident" (NRI) based on specific conditions related to their stay in the country during a financial year.
Criteria for Determining Residential Status
An individual's residential status is determined using two primary conditions:
- Stay for 182 days or more during the relevant financial year.
- Stay for 60 days or more in the relevant financial year and 365 days or more in the preceding four financial years.
Residential Status Categories
| Residential Status | Criteria for Determination |
| Resident and Ordinarily Resident (ROR) | Meets either of the two conditions mentioned above. |
| Resident but Not Ordinarily Resident (RNOR) | Must satisfy at least one of the following: • Stay of 730 days or more in India during the preceding seven years. • Resided in India for at least two out of the ten preceding financial years. |
| Non-Resident (NRI) | Fails to meet the conditions for ROR or RNOR. |
Example to Illustrate Residential Status
Example 1: Mr. John stayed in India from 1st April 2024 to 30th June 2024 (91 days) and again from 1st October 2024 to 31st December 2024 (92 days). Additionally, he was in India for 150 days in the previous four financial years combined. Is Mr. John a resident for the financial year 2024-25?
Solution: Total stay in 2024-25 = 91 + 92 = 183 days (More than 182 days) Since Mr. John stayed for over 182 days, he qualifies as a Resident for tax purposes.
Example 2: Ms. Emma stayed in India for 45 days in FY 2024-25 but had a total stay of 400 days across the preceding four financial years. Is she a resident?
Solution: Stay in FY 2024-25 = 45 days (Less than 60 days) Stay in the previous four financial years = 400 days Since Ms. Emma's stay in the current financial year is less than 60 days, she qualifies as a Non-Resident for FY 2024-25.
Exceptions to the 60-Day Rule
Certain individuals are exempt from the 60-day condition if they:
- Are Indian citizens leaving India for employment abroad or as crew members of an Indian ship.
- Are Indian citizens or Persons of Indian Origin (PIOs) visiting India.
In these cases, only the 182-day rule applies for determining residential status.
Impact of Residential Status on Taxation
| Income Type | Resident | RNOR | NRI |
| Income received in India | Yes | Yes | Yes |
| Income earned outside India | Yes | No | No |
| Income accrued in India | Yes | Yes | Yes |
Key Considerations
- Income received outside India but later remitted to India does not qualify as "income received in India."
- Individuals of Indian origin include those born in undivided India or whose parents/grandparents were born in undivided India.
Residential Status for Other Entities
- Hindu Undivided Family (HUF): Considered resident if the control and management are exercised predominantly from India.
- Company: An Indian company is always considered a resident, while a foreign company is deemed resident if its Place of Effective Management (POEM) is located in India.
- Other Entities (Partnerships, LLPs, etc.): Considered resident if control and management occur primarily within India.
What Happens If Your Residential Status Changes?
A change in residential status can significantly affect tax obligations:
- Residents are taxed on their global income.
- Non-residents are taxed only on income earned in India.
- Loss of resident-based benefits such as DTAA (Double Taxation Avoidance Agreements).
Understanding residential status is essential for accurate tax compliance and efficient tax planning. For tailored guidance, consulting a tax professional is recommended.
If you have any further questions or need assistance, feel free to reach out to us at admin@ushmaassociates.com or info@nricaservices.com, or contact us via call/WhatsApp at +91 9910075924.
Stay Updated, Stay Compliant!
Disclaimer: Aim of this article is to give basic knowledge about the topic to people who are not in touch with Indian tax norms. When anybody is dealing with these kinds of cases practically, he shall consider all relevant provisions of all applicable Laws like FEMA/Income Tax/RBI /Companies Act etc.
