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Residential Status – Meaning & Rules for Individuals

Are you an NRI? ROR? RNOR? Your residential status determines how much of your global income India can tax! Let's decode this crucial concept.

Why Residential Status Matters?

Your tax liability depends on WHERE you are a resident, not your citizenship!

Example:

  • Anuj (Indian citizen) works in Dubai → Stays there 250 days/year
  • Mark (US citizen) works in India → Stays here 300 days/year

Question: Who pays more tax in India?

Answer: Mark pays more! (Resident in India, so global income taxed)

Anuj likely NRI → Only India income taxed

Three Categories

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Step-by-Step Determination

Step 1: Resident or Non-Resident?

Two Tests (Section 6(1)) - Need to satisfy ANY ONE:

Test 1: Physical Presence Test

Stay in India for 182 days or more in the Previous Year

Example: Ravi stayed in India:

  • April 1, 2023 to March 31, 2024: 200 days
  • Result: ✅ Resident (182+ days met)

Test 2: 60 + 365 Days Test

Stayed in India for:

  • 60+ days in current PY AND
  • 365+ days in 4 years preceding PY

Example: Priya's stay:

  • PY 2023-24: 70 days
  • Last 4 years (2019-23): 400 days total
  • Result: ✅ Resident (both conditions met)

Exceptions to 60-day rule (becomes 182 days):

  1. Indian citizen leaving India for employment
  2. Indian citizen/PIO visiting India (not resident in any PY in last 7 years)

Step 2: If Resident → ROR or RNOR?

Two Additional Tests (Section 6(6)) - Need to satisfy BOTH to be ROR:

Test 1: Resident in 2 out of 10 years preceding PY

Test 2: Stayed in India for 730+ days in 7 years preceding PY

If BOTH satisfied → ROR If ANY ONE fails → RNOR

Detailed Examples

Example 1: ROR

Sunita (Indian citizen in India):

  • PY 2023-24: Stayed 250 days ✅ (182+ met → Resident)
  • Last 10 years: Resident in all 10 years ✅ (2/10 met)
  • Last 7 years: Stayed 2,000+ days ✅ (730+ met)

Status: ROR (all tests satisfied)

Tax: Global income (India + foreign) taxable in India

Example 2: RNOR

Amit returned to India after 9 years in USA:

  • PY 2023-24: Stayed 200 days ✅ (Resident)
  • Last 10 years: Resident only in current year ❌ (not 2/10)
  • Last 7 years: Stayed only current year ~200 days ❌ (not 730+)

Status: RNOR (Resident but fails ROR tests)

Tax: India income + partial foreign income (detailed later)

Example 3: Non-Resident

Raj (works in Singapore):

  • PY 2023-24: Visited India 50 days ❌ (not 182+)
  • Last 4 years: Total 150 days ❌ (not 365+)

Status: NR (Non-Resident)

Tax: Only India-sourced income taxable

Comparison Table

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Summary Table

StatusConditionIndia IncomeForeign Income
RORResident + 2/10 years + 730 days✅ Fully Taxed✅ Fully Taxed
RNORResident BUT fails ROR tests✅ Fully Taxed⚠️ Partially (if received/accrued in India or from Indian business)
NRFails resident tests✅ Fully Taxed❌ Not Taxed

Calculation Steps Flowchart

Q1: Stay 182+ days in PY?
    ↓ NO
Q2: Stay 60+ days in PY AND 365+ in last 4 years?
    ↓ NO
    → NON-RESIDENT (NR)
    
    ↓ YES (to Q1 or Q2)
    RESIDENT
    ↓
Q3: Resident in 2/10 years AND 730+ days in last 7?
    ↓ NO
    → RNOR
    
    ↓ YES
    → ROR

Special Cases

1. Indian Citizen Going Abroad

Rahul (Indian) took job in Dubai on Nov 1, 2023:

  • In India: April-Oct 2023 = 214 days
  • Status: ✅ Resident (182+ days)

Next year (PY 2024-25): If stays less than 182 days → NR

First year exceptions often make person resident!

2. NRI Returning to India

Simran (NRI for 8 years) returns permanently to India:

  • PY 2023-24: Stayed 200 days ✅ Resident
  • But: Last 10 years resident only current year
  • Status: RNOR for this year

After 2-3 years of being resident → Will become ROR

3. Frequent Flyer

Consultant travels globally:

  • India: 100 days
  • USA: 100 days
  • UK: 100 days
  • Other: 65 days

Total in India: 100 days ❌ Status: NR in India (but may be resident nowhere - "stateless" for tax!)

Deemed Residential Status (New from AY 2021-22)

Section 6(1A): Indian citizen deemed resident if:

  • Not liable to tax in any country (due to domicile/residence)
  • AND India income exceeds ₹15 lakh

Purpose: Target high-income Indians in tax havens (Dubai, Singapore)

Example:

  • Arjun (Indian) in Dubai, no tax there
  • Income in India: ₹20 lakh
  • Visits India: 50 days

Old law: NR (only India income taxed) New law (6(1A)): Deemed ROR (global income taxed!)

Exception: Stays less than 120 days → Treated as RNOR (not full ROR)

Practical Importance

For Salary Planning

ROR: Can't escape tax on foreign salary NR: Foreign salary NOT taxed in India

For Investments

ROR: Foreign bank interest, dividends → Taxable in India NR: Not taxable

For Capital Gains

Sell US stocks:

  • ROR: Taxable in India
  • NR: Not taxable (even if sold while visiting India!)

Common Myths

❌ Myth 1: "I'm Indian citizen, so automatically resident" ✅ Fact: Depends on physical presence, not citizenship

❌ Myth 2: "I have PAN, so I'm resident" ✅ Fact: Even NRIs can have PAN

❌ Myth 3: "I'm NRI, so no tax in India" ✅ Fact: India income still taxed! (rent, salary in India, capital gains on Indian assets)

Documentation

To prove NR status:

  • Passport with stamps
  • Employment letter (showing work abroad)
  • Visa/work permit
  • Rental agreement abroad

Tax authorities may ask during assessment

Summary

  • Three categories: ROR (global income taxed), RNOR (partial), NR (India income only)
  • Resident if: 182+ days OR (60 days + 365 in last 4 years)
  • ROR if: Resident + 2/10 years + 730 days in last 7 years
  • Exceptions: 60-day becomes 182 for citizens leaving for employment
  • Deemed resident: Indian citizen, no tax anywhere, India income > ₹15L → Deemed ROR/RNOR
  • Importance: Determines scope of taxable income (India only vs global)

Quiz Time! 🎯

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Next Chapter: Scope of Total Income Based on Residential Status! 🌍

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