Residential Status - Am I Resident Or Non-Resident (NRI) in India?

According to Indian tax laws, your residential status is classified as either "resident" or "non-resident" (NRI) based on the number of days you spend in the country during a financial year and other criteria. A "resident" is someone who meets the specified conditions for being considered a resident in India for tax purposes, while a "non-resident" (NRI) is someone who does not meet these conditions.

This guide will walk you through the key factors that determine your residential status under Income Tax, including the number of days spent in India and your previous residency history. By understanding these rules, you can assess your residential status accurately and fulfill your tax obligations accordingly.

Let's get started by exploring the criteria for determining your residential status in India and understanding the residential status meaning.

Contents

• What is Residential Status Meaning in India?
• Resident Status Classifications
• Example to Explain Residential Status in India
• Exception to the Second Condition in case of Resident Indian
• Importance of Residential Status
• How is Income Taxed According to Different Residential Status in India?
• Residential Status of Hindu Undivided Families (HUFs)
• Residential Status of a Company
• Residential Status of Firms, LLPs, AOPs, BOIs, Local Authorities, and Artificial Juridical Persons
• FAQs on Residential Status under Income Tax

What is Residential Status Meaning in India?

Any individual’s taxability in his/her country depends upon his/her residential status during a particular year. The term residential status has nothing to do with an individual’s citizenship in India and has been coined under the Income Tax Act of India. It is only applicable for tax purposes. Even if an individual is a citizen of India, he/she might be a non-resident. Similarly, a foreign citizen might end up as a resident in India during a particular FY.

Residential status in India is important for determining how you are taxed. The Income Tax Act defines three residential status:

Resident Status Classifications

Here is how the different residential statuses can be classified -

Resident and Ordinarily Resident (ROR):

This is the most common category. You are considered a resident of India for tax purposes if you meet either of the following conditions:

• You are physically present in India for at least 182 days in a financial year. (This is known as the 182-day rule.)
• You have been present for at least 60 days in the current financial year, and you were also present in India for a total of 365 days or more in the four preceding financial years. (This is known as the 60-day rule.)

Resident but Not Ordinarily Resident (RNOR):

An ordinarily resident individual is someone who has close connections with India. This can be based on factors like your nationality, place of birth, or permanent residence. However, under the Income Tax Act, an individual is considered ordinarily resident if they meet either of the following conditions:

• They have spent 730 days or more in India in the seven years preceding the current year.
• They have resided in India for at least two of the ten preceding financial years before the current year.

Non-Resident (NRI):

If you don't meet the criteria for resident or ordinarily resident, i.e., failing to satisfy these conditions of stay in India:-
182 days or more in the previous year or

• 60 days or more in the previous year and 365 days in the 4 years preceding previous years

will be considered as a Non-Resident for that financial year.

Example to Explain Residential Status in India:-

Here are a few residential status examples -

i) Mr. Bill Gates stayed in India from 1 April 2017 to 31 July 2017 and again from 1 September 2017 to 30 November 2017. Is he an Indian resident for the financial year 2017-2018?

Solution: Total no of days = 30 (april) + 31 (may) + 30 (june) + 31 (july) + 30 (sept) + 31 (Oct) + 30 (Nov) = More than 182 .Since Mr. Bill Gates stayed in India for more than 182 days, he would be a Resident Indian for the financial year 2017-18.

ii) Mr. Bill Gates stayed in India from 01 April 2017 to 31 July 2017 and from

• 01 September 2013 to 30 November 2013
• 01 September 2014 to 30 November 2014
• 01 September 2016 to 31 March 2017

Is he an Indian resident for the financial year 2017-2018?
Solution: Mr Bill Gates stayed in India :
In F.Y. 2017-18 Period of Stay= 122 days(30+31+30+31) and
Prior Financial Years =

Condition (i) = 122 Days (You have stayed for 60 days or more during the financial year)
and
Condition (ii) = 394 Days( A total of 365 days or more during 4 years immediately prior to that financial year)

Thus, he is said to be Resident Indian for the financial year 2017-18
But, in some cases, the 2nd condition mentioned above (60 days & 365 days) doesn't apply.

Exceptions to the Second Condition in the Case of Resident Indian

The 2nd condition mentioned above (60 days & 365 days) doesn't apply in case of

1. An Indian citizen who has left India for the purpose of employment in a foreign or a crew member of an Indian ship, OR
2. An Indian Citizen or person of Indian origin who comes to visit India

Thus, in these cases, only if you stay in India for a period of 182 days or more in the Financial year, you are said to be a Resident Indian.

Importance of Residential Status

• Residential status plays an important role especially when person’s tax liability is calculated for a particular year. Residents are taxed on their total income, whilst non-residents are taxed only on income earned in India.
• For individuals filing tax returns in India, it is important to determine their residential status as resident individuals must file their tax returns in India, although non-residents are not needed to do so if their income is less than a certain amount.
• Understanding residential status is important to avail of the Double Taxation Avoidance Agreements (DTAA) for people who reside in multiple countries facing double taxation.

How is Income Taxed According to Different Residential Status in India?

Important Points

1. Income received outside India but subsequently sent to India subsequently, does not amount to receiving income in India. 1st receipt is important for consideration;
2. A person of Indian origin is defined as someone who was born in Undivided India, either himself, one of his parents, or one of his grandparents.

The residential status of an individual or entity plays a key role in determining how income tax returns are filed and what tax obligations they have. The tax liabilities and filing requirements are directly influenced by whether an individual or entity is considered a resident or non-resident in India.

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Residential Status of Hindu Undivided Families (HUFs)

• Resident HUF: An HUF is considered resident in India if its control and management are wholly or predominantly situated in India. This includes where the members of the HUF manage it from within India. Otherwise, it is a non-resident HUF.
• Resident and Ordinarily Resident: An HUF is classified as a resident and ordinarily resident if its Karta (manager) satisfies the following criteria:
  • The Karta has been resident in India for at least 2 out of the last 10 previous years, and
  • The Karta has stayed in India for 730 days or more in the last 7 previous years.

  Residential Status of a Company

  • Resident Company: A company is considered resident in India under the following conditions:
    • It is an Indian company, or
    • Its place of effective management (POEM) in the previous year is located in India.

    Residential Status of Firms, LLPs, AOPs, BOIs, Local Authorities, and Artificial Juridical Persons

    • Resident: These entities are considered resident if their control and management are exercised primarily from India.
    • Non-Resident: If the control and management are exercised primarily from outside India, the entity is considered non-resident.

    Saying in Income Tax:

    "An Indian Citizen may not be a resident Indian, but A Foreign Citizen may be a resident Indian."

    The non-understanding of correct residential status creates an air of confusion about tax liability in India.

    If you need any assistance determining your residential status, you can contact our tax experts.

    ITR filing for FY 2023-24 has started and filing your ITR now can help expedite your tax refund and ensure accurate filing, thus avoiding penalties and notices. Complete NRI ITR Filing accurately with Tax2win’s Tax Experts.

    FAQs on Residential Status under Income Tax

    Q - What is the concept of deemed resident?

    An Indian citizen with income exceeding ₹15 lakh (as of 2024) from Indian sources is considered a deemed resident if they are not liable to pay taxes in any other country due to residence, domicile, or similar reasons.

    Q - What is the condition to be considered a Non-Resident Indian?

    To be considered a Non-Resident Indian (NRI), an individual must not satisfy the conditions for being a resident of India. According to the Income Tax Act, an individual will be treated as a resident in India for a year if they:

    • Are in India for a period of 182 days or more in that year or
    • Are in India for a period of 60 days or more in the year and for a period of 365 days or more in the immediately preceding 4 years.

    Q - What are the conditions for an individual to be considered a Resident ordinarily resident (ROR)?

    An individual is considered a Resident and Ordinarily Resident (ROR) in India if they meet both of the following conditions:

    • Residency in India: They have been a resident of India in at least 2 out of the 10 years immediately preceding the relevant financial year.
    • Physical Presence: They have stayed in India for at least 730 days during the 7 years immediately preceding the relevant financial year.

    Q - What are the two basic conditions to be fulfilled to become a resident in India?

    To become a resident in India for tax purposes, an individual must fulfill one of the following two basic conditions:

    • Physical Presence: Stay in India for 182 days or more in the previous year.
    • Historical Physical Presence: Stay in India for 365 days or more during the 4 years immediately preceding the year in question and for 60 days or more in the relevant financial year.

    There are exceptions to these rules, particularly for Indian citizens leaving India for employment or as a crew member on an Indian ship, and for persons of Indian origin visiting India.

    Q - What is my Residential Status if I live in India?

    Under Section 6(1) of the Income Tax Act, a person is considered a resident of India if they meet either of the following conditions: they stay in India for 182 days or more in a fiscal year, or they stay in India for 60 days or more in a fiscal year and 365 days or more in the four years immediately preceding that year, thereby qualifying as an ordinary resident for income tax purposes.

    Q - What is the residential status of NRI?

    According to the RBI, an individual is considered an NRI if they have not lived in India for more than 182 days during the preceding financial year.

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