When it comes to income tax in India, your residential status is the foundation for determining tax liability. It decides whether you will be taxed on your global income or only on income sourced from India.
From Assessment Year (AY) 2021-22, the Finance Act, 2020 introduced new exceptions to residential status rules to ensure that high-income Indians contribute fairly to the Indian tax system.
In this guide, we’ll cover:
- What is residential status?
- Basic conditions for determining residential status
- Categories: Resident, RNOR, and Non-Resident
- The two new exceptions effective AY 2021-22
- Practical examples and implications
- Key takeaways for taxpayers
1. What is Residential Status?
Residential status under the Income Tax Act is determined every financial year based on the number of days an individual stays in India.
It classifies individuals as:
- Resident and Ordinarily Resident (ROR)
- Resident but Not Ordinarily Resident (RNOR)
- Non-Resident (NRI)
2. Basic Conditions for Resident Status
An individual is considered Resident if any one of the following is satisfied:
1. Stays in India for 182 days or more during the previous year,
OR
2. Stays in India for 60 days or more during the previous year, and for 365 days or more during the 4 preceding previous years.
Special Relaxation:
- For Indian Citizens or Persons of Indian Origin (PIOs), if they visit India, the 60-day condition is replaced by 182 days.
- For Indian citizens leaving India for employment abroad, the 60-day condition is replaced by 182 days.
3. Non-Resident (NRI)
If none of the above conditions are satisfied, the person is treated as a Non-Resident (NRI).
NRIs are taxed in India only on income sourced in India.
4. Resident but Not Ordinarily Resident (RNOR)
Even if a person qualifies as a Resident, he may be categorized as RNOR if he satisfy none of below conditions:
- He has been Resident in India for at least 2 out of 10 previous years immediately preceding the relevant previous years, AND
- He has been in India for 730 days or more during 7 years immediately preceding relevant previous years.
If a person satisfies above additional conditions, then he will be consider as Resident and Ordinarily Resident.
RNORs pay tax in India only on Indian income, not global income.
5. New Exceptions from AY 2021-22 (Finance Act, 2020)
The government introduced two important exceptions to prevent high-income Indians from avoiding taxation:
Exception 1: Reduced Threshold for Residency
For Indian Citizens or Person of Indian Origins visiting India, if their:
- Total income (excluding foreign income) exceeds ₹15 lakh, and
- Their stay in India is 120 days or more but less than 182 days,
They will be treated as Resident but Not Ordinarily Resident (RNOR).
Exception 2: Deemed Resident (Section 6(1A))
From AY 2021-22, an Indian citizen with:
- Total income (excluding foreign income) exceeding ₹15 lakh, and
- Not liable to pay tax in any other country and territory
Will be deemed to be a Resident but Not Ordinarily Resident (RNOR) in India, even if they do not satisfy the normal stay conditions.
6. Practical Examples
Case 1:
Mr. A (PIO) visits India for 150 days in FY 2024-25. His Indian income is ₹20 lakh.
Since he stayed more than 120 days and earned more than ₹15 lakh, he is RNOR.
Case 2:
Mr. B, an Indian citizen, lives in Dubai and spends only 60 days in India. His Indian income is ₹18 lakh. He pays no tax in Dubai.
Even though he does not satisfy normal conditions, under Section 6(1A), he is a Deemed RNOR.
7. Tax Implications of Each Status
| Residential Status | Taxable in India |
| Resident (ROR) | Global Income |
| Resident but Not Ordinarily Resident (RNOR) | Indian income + Income from business/profession controlled in India |
| Non-Resident (NRI) | Only Indian income |
8. Key Takeaways
- Always calculate residential status each financial year.
- RNOR is a transitional category that benefits returning NRIs.
- From AY 2021-22:
- Stay of 120 days or more with income > ₹15 lakh = RNOR.
- Indian citizen with > ₹15 lakh income & no tax liability abroad = Deemed RNOR.
- RORs pay tax on global income, while NRIs and RNORs are taxed only on Indian income.
Conclusion
The exceptions introduced in AY 2021-22 have made residential status rules more robust, ensuring that high-income Indian citizens maintain fair tax obligations in India.
For individuals working abroad, NRIs, and returning residents, determining residential status correctly is critical to avoid double taxation or penalties.
If you’re unsure about your status, consult a tax professional to evaluate your case and ensure accurate filing.
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