How is NRI Residential Status Determined?
As per the Indian Income Tax Act, the definition of residency is determined by the number of days an individual spends in India during a financial year (April 1 to March 31).
As per the section 6 (1) of Income Act:
Resident or Not Resident
(1) An individual is considered a resident in India in a particular financial year if they meet either of the following conditions:
(a) They are in India for a total of 182 days or more during the year.
(b) They are in India for at least 60 days in the year, and in the previous four years, they were in India for 365 days or more.
Don’t apply on following:
- If the individual is a citizen of India and leaves India as a member of an Indian ship’s crew or for employment outside India, the 60-day condition in (1)(b) is replaced with 182 days.
- If a citizen of India or a person of Indian origin (as defined in section 115C) visits India during the year, the 60-day condition in (1)(b) is replaced with 182 days. However, if their total income, excluding foreign income, exceeds ₹15 lakh, the condition changes to 120 days instead of 60 days.
Example: Neha, an Indian citizen working in the U.K., comes to India for 130 days during the year. Her total income (excluding foreign income) for the year is ₹20 lakh. Normally, the rule says she would need to stay at least 60 days in India. But because her income exceeds ₹15 lakh, the threshold increases to 120 days.
Since Neha stays 130 days in India, she is considered a resident for tax purposes in India.
(1A) Regardless of the conditions in clause (1), an individual who is a citizen of India and has total income exceeding ₹15 lakh, excluding foreign income, will be considered a resident in India if they are not taxed in any other country or territory based on their domicile, residence, or similar criteria.
Example:
Sanjay is an Indian citizen who lives in Dubai and works remotely for an Indian company. His total income from this job is ₹18 lakh for the financial year, and he is not paying taxes in Dubai because of his residency status there.
Since his income exceeds ₹15 lakh and he is not taxed in Dubai, under section 1A, he will be treated as a resident in India for tax purposes, even though he spends very little time in India.
If you do not meet any of the above conditions, you are a Non-Resident Indian.
Resident but Not-Ordinary Resident (RNOR)
A person is considered “Not Ordinarily Resident” (NRO) in India if they meet of the following conditions:
- Individual Condition:
- The person has been a non-resident in India for nine out of the ten previous years before the current year, or
- The person has stayed in India for 729 days or less during the last seven years before the current year.
Note: The Finance Act 2020 amended the residency provisions to include Indian Citizens and Persons of Indian Origin (PIO) who visit India or deemed residency. These individuals are now classified as Resident but Not Ordinarily Resident (RNOR), subject to the following conditions:
- Their total income, excluding foreign income, is ₹15 lakh or more.
- They have stayed in India for more than 120 days but less than 182 days during the previous year.
- They have been in India for a total of 365 days or more during the four years preceding the previous year.
- Citizens of India earning more than Rs 15 lakh from Indian sources shall be deemed a resident of India if they are not liable for payment of taxes in any other country.
Before this amendment, such individuals were classified as non-residents. With the new amendment, their residential status may now be categorized as RNOR, which can result in the loss of DTAA benefits, an increased scope of total income for tax purposes, and the loss of various exemptions that were previously allowed.
NRI vs. RNOR vs. Resident: What’s the Difference?
| Criteria | Resident | RNOR (Resident but Not Ordinarily Resident) | NRI (Non-Resident Indian) |
| Definition | An individual who meets the residency criteria under Indian tax laws. | A resident who does not meet the “ordinarily resident” conditions. | An Indian citizen or PIO living outside India who does not meet residency criteria. |
| Stay in India | Stays in India for ≥182 days in the previous year, OR ≥60 days in the previous year + ≥365 days in the last 4 years. | Same as Resident, but hasn’t been resident in India for 9 out of 10 previous years OR hasn’t stayed ≥730 days in the last 7 years. | Stays in India for <182 days in the previous year (and doesn’t meet the 60+365 days rule). |
| Taxable Income | Global income (India + foreign) is taxable. | Income earned or received in India + income from business controlled in India is taxable. | Only income earned or received in India is taxable. |
| Foreign Income Tax | Taxed in India, subject to DTAA relief. | Not taxed unless linked to India. | Not taxed in India. |
| Tax Exemptions | Limited exemptions on foreign income. | More exemptions on foreign income compared to Resident. | Exempt from tax on foreign income. |
Impact of Residential Status on Tax Liability in India
NRI (Non-Resident Indian) is taxable in India, but the taxability depends on the type of income and the individual’s residential status.
If your status is ‘resident’, your global income is taxable in India. If your status is ‘NRI,’ your income earned or accrued in India is taxable in India.
Income earned in India, such as salary received for services rendered in India, income from a house property located in India, capital gains from the transfer of assets situated in India, and interest from fixed deposits or a savings bank account, is taxable for an NRI.
However, income earned outside India is not taxable in India.
Additionally, interest earned on NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) accounts is tax-free, while interest on NRO (Non-Resident Ordinary) accounts is taxable for an NRI.
Taxable Income for NRIs in India & NRI Taxation Services in India
Taxable Income for NRIs in India includes earnings received in the country, such as salary, rental income, capital gains from property or investments, and interest on certain accounts, while foreign income remains exempt unless the individual qualifies as a resident under Indian tax laws. Understanding these tax implications is crucial for proper financial planning. NRI Taxation Services in India help simplify the process by ensuring compliance, optimizing tax benefits, and addressing double taxation concerns. From filing tax returns to managing property and investment taxes, these services make tax management hassle-free for NRIs.
