Summary: An individual’s residential status must be tested separately under the Income-tax Act, 2025 and the Foreign Exchange Management Act, 1999. For tax year 2026-27, section 6 of the 2025 Act uses annual physical-presence tests, modified rules for Indian citizens and persons of Indian origin, deemed residence and not-ordinarily-resident criteria. FEMA section 2(v), by contrast, begins with presence in the preceding financial year but can turn immediately on the purpose and expected duration of departure from or arrival in India. The two conclusions can differ, and each controls different consequences. A defensible file therefore needs two written determinations, supported by travel records, citizenship, income, foreign-tax status, employment or business facts, account redesignation and contemporaneous evidence.
- Two Residence Tests, Two Legal Purposes
- Section 6 for Tax Year 2026-27
- Basic 182-day and 60-plus-365-day tests
- Indian citizens leaving India
- Visiting citizens and persons of Indian origin
- Deemed resident and RNOR classification
- Ordinarily Resident or RNOR: The Second Tax Layer
- FEMA Residence: Presence Plus Purpose
- The preceding-year starting point
- Why intention is evidenced through objective facts
- Bank Accounts and Asset Handling After a Status Change
- Building a Defensible Dual-Status File
- Income-tax evidence
- FEMA evidence
- Frequently Asked Questions
- 1. Does income-tax non-resident status automatically make a person non-resident under FEMA?
- 2. Which Act determines residence for tax year 2026-27?
- 3. Is the FEMA test simply more than 182 days in the preceding year?
- 4. Can an Indian visitor become resident at 120 days?
- 5. Does no foreign tax payment always trigger deemed residence?
- 6. What happens to an ordinary savings account after permanent overseas employment begins?
- 7. Must an FCNR(B) deposit be broken on returning to India?
- Key Takeaways
Two Residence Tests, Two Legal Purposes
Income-tax residence determines the reach of Indian income taxation and the reporting position for a tax year. FEMA residence regulates foreign-exchange transactions, eligible bank accounts, remittances, holding of assets and permitted dealings between residents and persons resident outside India. The statutes use different language because they answer different questions. A person should never copy the conclusion from one law into the other without performing the second test.
The distinction is especially important from 1 April 2026. Section 6 of the Income-tax Act, 2025 governs residential status for tax years beginning on or after that date. Earlier years remain governed by section 6 of the Income-tax Act, 1961 under the saving provisions, even if a notice or proceeding occurs later. FEMA continues under its own definition and RBI directions. The relevant date is therefore not simply the day on which the analysis is prepared.
| Question | Income-tax Act, 2025 | FEMA, 1999 |
|---|---|---|
| Primary purpose | Scope and classification of taxable income for a tax year | Foreign-exchange permissions and account/asset treatment |
| Core time reference | Presence during the relevant tax year plus prescribed look-back periods | Presence in the preceding financial year, modified by purpose of stay or departure |
| Can purpose override the day count? | Citizenship and travel categories modify day-count rules, but the test remains statutory | Yes; employment, business and uncertain-duration purpose is central |
| Possible outputs | Resident and ordinarily resident, resident but not ordinarily resident, or non-resident | Person resident in India or person resident outside India |
Section 6 for Tax Year 2026-27
Basic 182-day and 60-plus-365-day tests
Under section 6(2) of the Income-tax Act, 2025, an individual is resident in India for a tax year if present in India for at least 182 days in that year, or if present for at least 60 days in that year and at least 365 days across the four preceding tax years. Each day-count must be supported by travel evidence and computed consistently. Entry and exit dates, time zones, duplicate passport stamps and domestic legs require careful review; the statute should be applied to the proven presence record rather than an estimate from memory.
Indian citizens leaving India
The ordinary 60-day limb is modified for an Indian citizen who leaves India in the tax year as a crew member of an Indian ship or for employment outside India. The statutory exception effectively makes the 182-day threshold the relevant current-year test for that category, subject to the detailed text and prescribed computation for qualifying ship voyages. A person leaving for a short assignment that is not employment should not assume the exception applies merely because work will be performed abroad.
Visiting citizens and persons of Indian origin
For an Indian citizen or person of Indian origin who is outside India and visits India, the standard 60-day threshold is generally replaced by 182 days. A 120-day rule applies where total income, other than income from foreign sources as defined for this purpose, exceeds ₹15 lakh during the tax year and the person has at least 365 days of Indian presence in the preceding four tax years. A visitor falling within the 120-to-181-day band may become resident but not ordinarily resident rather than ordinarily resident.
Deemed resident and RNOR classification
Section 6(7) treats an Indian citizen as deemed resident where the person is not liable to tax in another country or territory by reason of domicile, residence or a similar criterion and has total income exceeding ₹15 lakh during the tax year, excluding income from foreign sources. This rule does not apply if the person is already resident under the ordinary tests. A deemed resident falls within resident-but-not-ordinarily-resident treatment under section 6(13). The phrase ‘not liable to tax’ is a legal condition, not a synonym for paying no tax because of exemptions or low income.
Ordinarily Resident or RNOR: The Second Tax Layer
Finding that an individual is resident is not the end of the income-tax analysis. Section 6(13) retains the historical look-back tests: an individual is not ordinarily resident if non-resident in nine out of the ten preceding tax years or present in India for 729 days or less during the seven preceding tax years. The section also covers the specified 120-to-181-day visitor category and deemed residents. The look-back can include years governed by the repealed 1961 Act; commencement of the 2025 Act does not reset the travel history.
The distinction matters because the scope of income for an RNOR is narrower than for a resident and ordinarily resident, although it is not identical to the position of a non-resident. A working paper should state the section 6 conclusion first, then separately record the ordinarily-resident or RNOR conclusion and its supporting ten-year, seven-year and citizenship data.
FEMA Residence: Presence Plus Purpose
The preceding-year starting point
Section 2(v) of FEMA starts with a person residing in India for more than 182 days during the preceding financial year. That numerical starting point is immediately qualified. A person who leaves India or stays outside India for employment, for carrying on a business or vocation, or for another purpose indicating an intention to stay outside India for an uncertain period is excluded from ‘person resident in India’. Likewise, a person who comes to or stays in India otherwise than for employment, business or an uncertain-duration purpose may remain outside the resident definition.
Why intention is evidenced through objective facts
FEMA uses the purpose and expected duration of the move, but that does not make the answer a private, changeable intention. Employment contracts, immigration permission, housing, family movement, business establishment, assignment letters, return tickets and conduct after arrival or departure provide objective evidence. RBI guidance treats students leaving India for studies as non-residents because their circumstances ordinarily indicate a stay outside India for an uncertain period and access to resident services abroad.
A professional leaving on 10 May 2026 to take permanent employment abroad may become a person resident outside India for FEMA purposes from the relevant departure, even if the preceding-year day count alone points toward India. The same individual must still perform the income-tax test for tax year 2026-27 using actual presence and the statutory citizen-departure modification. That is a common route to different outcomes.
Bank Accounts and Asset Handling After a Status Change
RBI’s Master Direction on Deposits and Accounts, updated through 2 September 2026, governs account treatment under FEMA. When a resident leaves India for employment, business or another purpose indicating an uncertain stay abroad, ordinary resident accounts generally require redesignation under the non-resident framework, commonly as NRO accounts, subject to the applicable account conditions. The bank should be informed promptly with supporting status documents; an income-tax non-resident conclusion by itself is not the redesignation instruction.
On return to India for employment, business or another purpose indicating an uncertain stay in India, NRO accounts may be redesignated as resident rupee accounts. A temporary visit does not by itself require the same change. RBI guidance also permits an FCNR(B) deposit to continue to maturity at the contracted rate after the holder becomes resident, with conversion on maturity to a resident rupee deposit or, if eligible, an RFC account. Product-specific terms and the current Master Direction must be checked before acting.
| Event | Tax file question | FEMA/bank action question |
|---|---|---|
| Departure for overseas employment | Days in India and section 6 departure exception | Does purpose create outside-India status and require account redesignation? |
| Short India visit by overseas worker | Visitor thresholds, income and look-back days | Is the visit temporary, with overseas purpose continuing? |
| Return to take employment in India | Section 6 day count for the tax year | Should NRO become resident and can FCNR(B) continue to maturity? |
| No foreign tax liability | Does deemed residence under section 6(7) apply? | FEMA status still requires its independent purpose test |
Building a Defensible Dual-Status File
Income-tax evidence
Retain a travel calendar reconciled to passports, immigration history, tickets and employment records; a citizenship and PIO note; Indian income excluding foreign-source income for the ₹15 lakh tests; foreign tax-residence certificates or legal analysis of liability to tax; and ten-year and seven-year look-back schedules. The conclusion should identify the exact tax year and whether the 1961 or 2025 Act governs it.
FEMA evidence
Keep the departure or arrival purpose memorandum, employment or business documents, visa or residence permit, expected-duration evidence, bank notifications, account-redesignation confirmations and records of retained foreign assets or accounts. If facts change—such as termination of employment and a permanent return—refresh the FEMA analysis at the change date rather than waiting for the tax return.
Frequently Asked Questions
1. Does income-tax non-resident status automatically make a person non-resident under FEMA?
No. Each statute has an independent definition and purpose. A separate written test is required under both.
2. Which Act determines residence for tax year 2026-27?
Section 6 of the Income-tax Act, 2025 applies to the tax year beginning 1 April 2026. Earlier tax years continue under the 1961 Act.
3. Is the FEMA test simply more than 182 days in the preceding year?
No. That is the starting point, but the exclusions and inclusions based on employment, business and an uncertain-duration purpose can determine status.
4. Can an Indian visitor become resident at 120 days?
Potentially, if the individual is an Indian citizen or person of Indian origin, has more than ₹15 lakh of the specified Indian-source measure, and satisfies the preceding-four-year presence condition. The full statutory test must be applied.
5. Does no foreign tax payment always trigger deemed residence?
No. The test concerns liability to tax by reason of domicile, residence or a similar criterion, Indian citizenship, and the income threshold. Exemption or a zero final bill is not automatically the same as not being liable to tax.
6. What happens to an ordinary savings account after permanent overseas employment begins?
The account holder should notify the authorised dealer and follow the FEMA account-redesignation rules, commonly redesignating the resident account as NRO where applicable.
7. Must an FCNR(B) deposit be broken on returning to India?
RBI guidance allows it to continue to maturity at the contracted rate if the holder chooses, followed by the prescribed conversion at maturity.
Key Takeaways
- Prepare two residence determinations: one under section 6 and one under FEMA section 2(v).
- Use the Income-tax Act, 2025 for tax years beginning on or after 1 April 2026; do not rewrite earlier years under the new Act.
- Income-tax residence turns on current-year and look-back presence plus specific citizenship and income rules.
- FEMA status can change with the purpose and expected duration of departure or arrival even where a bare day count suggests otherwise.
- Account redesignation, foreign-asset handling and reporting should follow the conclusion under the law that actually governs the action.
- Contemporaneous travel, employment, tax-liability and bank evidence is more reliable than a retrospective declaration of intention.
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Disclaimer: This article provides general educational information on residential-status concepts under section 6 of the Income-tax Act, 2025, the savings position for earlier tax years, section 2(v) of the Foreign Exchange Management Act, 1999 and selected RBI account guidance, as reviewed on 28 October 2026. It is not an opinion on any person’s residence, income scope, foreign-asset disclosure, bank-account eligibility, remittance, tax treaty position or exchange-control permission. Residence outcomes are intensely fact-specific and may depend on exact arrival and departure times, citizenship, person-of-Indian-origin status, the character and amount of income, liability to tax abroad, employment or business purpose, immigration rights, anticipated duration, family and commercial circumstances, and later changes in conduct. Day-count summaries in this article do not replace the complete statutory language, applicable definitions, rules, treaty provisions, RBI directions, authorised-dealer procedures or professional analysis. Readers should independently verify the law applicable to the exact tax year and transaction, obtain current travel records and documentary evidence, notify banks and authorities where required, and seek advice from qualified income-tax and FEMA professionals before filing a return, redesignating an account, remitting funds or dealing with overseas assets. Rules, forms, interpretations and RBI directions may change after the verification date. TaxGuru accepts no responsibility for any error, omission, changed law, incorrect day count, misclassified status, tax demand, interest, penalty, account restriction, remittance failure, disclosure default, exchange-control consequence, financial loss or decision based on this material. Each person remains solely responsible for applying both statutes to the complete facts and retaining adequate evidence.
