by The Residential Status of an individual is determined under the Income Tax Act, 1961 on the basis of the period of stay in India during the relevant Previous Year and preceding years. It is important because the taxability of an individual’s income depends upon their residential status. An individual may be classified as a Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR) or Non Resident (NR). Residential status is determined separately for every Previous Year.
1. Basic Conditions for Being a Resident
An individual is considered a resident in India if they satisfy any one of the two basic conditions prescribed under the Income Tax Act. The first condition is that the individual must stay in India for 182 days or more during the relevant Previous Year. The second condition requires a stay of 60 days or more during the relevant Previous Year and 365 days or more during the four preceding Previous Years. If either of these conditions is satisfied, the individual is treated as a resident. If neither condition is satisfied, the individual becomes a Non Resident (NR) for that Previous Year.
2. First Basic Condition: Stay of 182 Days
Under the first basic condition, an individual is treated as a resident if they have stayed in India for at least 182 days during the relevant Previous Year. The stay does not need to be continuous, and separate periods of stay are added together. This condition is applicable irrespective of the individual’s nationality or purpose of stay. If the total number of days spent in India during the relevant Previous Year equals or exceeds 182 days, the individual automatically satisfies the condition for being a resident. This is one of the primary tests used for determining the residential status.
3. Second Basic Condition: 60 Days and 365 Days
Under the second basic condition, an individual is considered a resident if they stay in India for at least 60 days during the relevant Previous Year and for 365 days or more during the four Previous Years immediately preceding that year. Both conditions must be satisfied together. This rule considers not only the stay during the current year but also the individual’s connection with India during the preceding four years. However, the 60 day requirement is modified to 182 days in certain special cases, such as specified Indian citizens leaving India or visiting India.
4. Exceptions to the 60 Day Rule
The requirement of staying in India for 60 days during the relevant Previous Year is relaxed in certain special situations. For an Indian citizen leaving India for employment abroad, as a crew member of an Indian ship or for other specified employment purposes, the period of 60 days is generally replaced by 182 days. Similarly, an Indian citizen or Person of Indian Origin visiting India may receive special treatment under prescribed conditions. These exceptions prevent individuals from becoming residents merely because of a relatively short stay in India during the relevant Previous Year.
5. Resident and Ordinarily Resident (ROR)
After satisfying the basic conditions, an individual may be classified as a Resident and Ordinarily Resident (ROR) if additional conditions are also satisfied. The individual must have been a resident in India in at least 2 out of 10 Previous Years immediately preceding the relevant Previous Year. Further, the individual must have stayed in India for at least 730 days during the 7 Previous Years immediately preceding the relevant Previous Year. A person satisfying both additional conditions is treated as ROR. Generally, the global income of an ROR may be taxable in India according to applicable provisions.
6. Resident but Not Ordinarily Resident (RNOR)
An individual who satisfies at least one of the basic conditions for residence but does not satisfy both additional conditions is treated as a Resident but Not Ordinarily Resident (RNOR). Thus, an RNOR is a resident in India but does not have a sufficiently long residential connection with India according to the prescribed conditions. This status is generally relevant for individuals who have recently returned to India after living abroad. The scope of taxable income for an RNOR is more limited than that of a Resident and Ordinarily Resident, particularly regarding certain foreign income.
7. Non Resident (NR)
An individual is treated as a Non Resident (NR) if they do not satisfy any of the basic conditions for becoming a resident in India during the relevant Previous Year. Their residential status is determined separately for each year based on the number of days spent in India. A Non Resident is generally liable to pay tax in India only on income that is received, deemed to be received, accrues or arises, or is deemed to accrue or arise in India. Income earned and received outside India is generally not taxable for an NR, subject to applicable provisions.
