With the world becoming more connected, many Indians are living and working abroad. However, one important thing they must keep in mind is their residential status in India, especially when it comes to taxes. Understanding whether you are a resident or a non-resident for a particular financial year can impact how much tax you owe in India.
What Does Residential Status Mean?
Residential status under the Indian Income Tax Act is not about your citizenship but about how long you have stayed in India during a financial year. Even if you are an Indian citizen,.
you may still be considered a non-resident for tax purposes. Likewise, a foreign national can be classified as a resident if they meet the required criteria
What Does Residential Status Mean?
How is Residential Status for NRI Determined?
Your residential status is determined based on the number of days you spend in India during a financial year (April to March). You are considered a resident if:
- You have stayed in India for 182 days or more during the financial year, OR
- You have stayed in India for 365 days or more in the last 4 financial years and at least 60 days in the relevant financial year.
If you do not meet either of the above conditions, you are classified as a non-resident (NRI) for that year.
Special Cases & Exceptions
Some individuals need to stay in India for 182 days or more to be classified as residents. This applies to:
- Indian citizens working abroad (including crew members on Indian ships).
- Persons of Indian origin (PIOs) visiting India, provided their taxable income in India exceeds Rs. 15 lakhs.
For those earning more than Rs. 15 lakhs (excluding foreign income), the threshold for residency is reduced to 120 days instead of 182 days.
Understanding RNOR & ROR Status
A resident can be further classified as:
- Resident and Ordinarily Resident (ROR) – Someone who has been a resident in India for at least 2 out of the last 10 years or has stayed in India for 730 days or more in the last 7 years.
- Resident but Not Ordinarily Resident (RNOR) – Someone who does not meet the above criteria but qualifies as a resident.
RNORs enjoy certain tax benefits as they are taxed only on their Indian income, whereas RORs have to pay tax on their global income.
Why is Residential Status Important?
Your residential status determines how your income will be taxed in India:
| Type of Income | Resident (ROR) | RNOR | NRI |
| Income earned in India | Taxable | Taxable | Taxable |
| Income earned outside India | Taxable | Taxable (if from Indian business/profession) | Not Taxable |
So, if you become a resident, your global income will be taxed in India. But if you are an NRI or RNOR, only your Indian income is taxable.
Tax Planning for NRIs
To minimize tax liability, NRIs should plan their visits to India carefully. If you stay beyond 182 days, you may lose your NRI status and be taxed on global income. If you are unsure about your status, consulting a tax expert can help you determine the best way to manage your finances.
Conclusion
Your residential status plays a crucial role in determining your tax obligations in India. Whether you are an NRI, RNOR, or ROR, understanding the rules can help you plan your finances better and avoid unexpected tax liabilities. If you need professional advice on your residential status and tax planning, consider reaching out to an expert.