Residential Status Under Income-tax Act 2025

Residential status under the Income-tax Act is determined annually based on physical presence in India for individuals or the place of effective management for companies, and it directly influences the scope of income taxable in India. Taxpayers are classified as Resident (further divided into Resident and Ordinarily Resident (ROR) and Resident but Not Ordinarily Resident (RNOR)) or Non-Resident (NR). A Resident and Ordinarily Resident is taxable on global income, while an RNOR is taxable on income received or accrued in India and foreign income only if derived from a business controlled or profession set up in India. Non-Residents are taxed only on income received or accrued in India. For individuals, residency is generally based on a stay of 182 days in a financial year or 60 days in that year along with 365 days in the preceding four years, subject to specified exceptions for Indian citizens and persons of Indian origin, including modified thresholds and deemed residency where income exceeds ₹15 lakh and no foreign tax liability exists. RNOR status applies based on past residency and duration of stay. For Hindu Undivided Families, firms, AOPs, and similar entities, residential status depends on the location of control and management. Indian companies are always treated as residents, while foreign companies are considered resident if their place of effective management is in India, particularly where key decisions are made. These rules collectively determine how and to what extent income is taxed in India.

Income Tax Department
Ministry of Finance, Government of India

Residential Status Under the Income-tax Act

Residential Status

Introduction

The residential status of a taxpayer is determined based on his physical presence in India or the location of effective management in the case of companies. It is assessed separately for each financial year and affects the scope of income taxable in India. If a person is resident in India for any source of income in a previous year, he is deemed resident for all sources of income.

Categories of Residential Status

a. Resident (R)

• • Further classification for Individuals and HUF:
    • Resident and Ordinarily Resident (ROR)
    • Resident but Not Ordinarily Resident (RNOR)

b. Non-Resident (NR)

Taxability Based on Residential Status

a. Resident and Ordinary Resident (ROR)

Taxable on:

• • Income received or is deemed to be received by him in India in the previous year
  • Income accrues or arises or is deemed to accrue or arise to him in India during such year
  • Income accrues or arises to him outside India during such year

b. Resident but Not Ordinarily Resident (RNOR)

Taxable on:

• • Income received or is deemed to be received by him in India in the previous year
  • Income accrues or arises or is deemed to accrue or arise to him in India during such year
  • Income accrues or arises to him outside India during such year if it is derived from a business controlled from India or from a profession set up in India

c. Non-Resident (NR)

Taxable on:

1. • Income received or is deemed to be received in India by such person in the previous year
   • Income accrues or arises or is deemed to accrue or arise to such person in India during such year

Determination of Residential Status

Individuals:

The residential status of an individual is determined based on stay in India during the relevant financial year. An Indian citizen is deemed a resident in India, even if he does not meet the stay requirement, if:

• His Indian income exceeds Rs. 15 lakh in a financial year, and
• He is not liable to tax in any other country due to domicile, residence, or similar criteria

Conditions for Residency

• General Rule: An individual is resident in India if:
  • Stay in India ≥ 182 days in the financial year, or
  • Stay in India ≥ 60 days in the financial year and ≥ 365 days in the last 4 years
• Exceptions (Indian Citizens & PIOs):
  • Visit India & Income ≤ Rs. 15 lakh: “60 days” replaced with “182 days”
  • Visit India & Income > Rs. 15 lakh: “60 days” replaced with “120 days”
  • Leaving India for employment / ship crew: “60 days” replaced with “182 days”

An individual is treated as a non-resident in India if he does not satisfy any of the conditions required to be fulfilled to become a resident, as stated above.

Resident but Not Ordinarily Resident (RNOR): An individual is RNOR if:

• Non-resident in 9 out of 10 preceding years, or
• Stayed in India for ≤ 729 days in the last 7 years
• Deemed Residents are always treated as RNOR
• Indian citizen / PIO visiting India earns over Rs. 15 lakhs, stays 120–181 days in that year, and 365+ days in the last 4 years

HUFs:

The residential status of an HUF is determined based on the location of its control and management. Additionally, the residential status of its Karta plays a key role in classifying an HUF as ROR, RNOR, or NR.

Classification of Residential Status

• Resident (R):
  • An HUF is resident if any part of its control and management is in India during the previous year
• Non-Resident (NR):
  • An HUF is non-resident if its entire control and management is outside India
• Resident and Ordinarily Resident (ROR):
  • Karta was resident in India for at least 2 years out of the last 10 years
  • Karta stayed in India for 730 days or more in the last 7 years
• Resident but Not Ordinarily Resident (RNOR):
  • Karta was non-resident for at least 9 years out of the last 10 years
  • Karta stayed in India for 729 days or less in the last 7 years

Companies:

An Indian company is always treated as a resident in India. A foreign company is considered resident in India if its Place of Effective Management (POEM) is in India during the relevant financial year. POEM rules apply only if the foreign company’s gross turnover exceeds Rs. 50 crore in the financial year.

Residential Status Determination

• Indian Companies:
  • Always resident in India, regardless of control from outside India
• Foreign Companies:
  • Resident if POEM is in India and gross turnover exceeds Rs. 50 crore
  • Non-resident if the POEM is outside India

Place of Effective Management (POEM)

• POEM is the place where key management and commercial decisions are made
• Determined on substance over form

Determining POEM

• Active Business Outside India (ABOI Test):
  POEM is presumed to be outside India if:
  • Its passive income is not more than 50% of its total income; and
  • Less than 50% of its total assets are situated in India; and
  • Less than 50% of its total number of employees are situated in India or are resident in India; and
  • Payroll expenses incurred on such employees are less than 50% of its total payroll expenditure.
• If board decisions are overridden from India, POEM is in India
• Not Engaged in Active Business Outside India (Business Management Test)::
  • POEM is where key decisions are actually made
  • Assessed based on the location of board meetings, senior management, head office, and control over decision-making.

Firms, AOPs, BOIs, Local Authorities & AJPs:

The residential status of a partnership firm, an Association of Persons (AOP), a Body of Individuals (BOI), a Local Authority, or an Artificial Juridical Person depends on the location of its control and management. These entities can be classified as either Resident or Non-Resident but cannot have the status of Not Ordinarily Resident (RNOR).

Rules for Determining Residential Status

• Resident:
  • If any part of control and management is in India
  • Even a single key decision in India is sufficient
• Non-Resident:
  • If entire control and management is wholly outside India

Income-tax Act, 1961

Section – 6

Residence in India.

6. For the purposes of this Act,—

(1) An individual is said to be resident in India in any previous year, if he—

(a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more ; or

(b) [***]

(c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.

Explanation 1.—In the case of an individual,—

(a) being a citizen of India, who leaves India in any previous year as a member of the crew of an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted ;

(b) being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted and in case of such person having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year, for the words “sixty days” occurring therein, the words “one hundred and twenty days” had been substituted.

Explanation 2.—For the purposes of this clause, in the case of an individual, being a citizen of India and a member of the crew of a foreign bound ship leaving India, the period or periods of stay in India shall, in respect of such voyage, be determined in the manner and subject to such conditions as may be prescribed.

(1A) Notwithstanding anything contained in clause (1), an individual, being a citizen of India, having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year shall be deemed to be resident in India in that previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.

Explanation.—For the removal of doubts, it is hereby declared that this clause shall not apply in case of an individual who is said to be resident in India in the previous year under clause (1).

(2) A Hindu undivided family, firm or other association of persons is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India.

(3) A company is said to be a resident in India in any previous year, if—

(i) it is an Indian company; or

(ii) its place of effective management, in that year, is in India.

Explanation.—For the purposes of this clause “place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of business of an entity as a whole are, in substance made.

(4) Every other person is said to be resident in India in any previous year in every case, except where during that year the control and management of his affairs is situated wholly outside India.

(5) If a person is resident in India in a previous year relevant to an assessment year in respect of any source of income, he shall be deemed to be resident in India in the previous year relevant to the assessment year in respect of each of his other sources of income.

(6) A person is said to be “not ordinarily resident” in India in any previous year if such person is—

(a) an individual who has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less; or

(b) a Hindu undivided family whose manager has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less; or

(c) a citizen of India, or a person of Indian origin, having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year, as referred to in clause (b) of Explanation1 to clause (1), who has been in India for a period or periods amounting in all to one hundred and twenty days or more but less than one hundred and eighty-two days; or

(d) a citizen of India who is deemed to be resident in India under clause (1A).

Explanation.—For the purposes of this section, the expression “income from foreign sources” means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India) and which is not deemed to accrue or arise in India.

Income-tax Rules, 1962

Rule – 126

⁵³[Computation of period of stay in India in certain cases.

126. (1) For the purposes of clause (1) of section 6, in case of an individual, being a citizen of India and a member of the crew of a ship, the period or periods of stay in India shall, in respect of an eligible voyage, not include the period computed in accordance with sub-rule (2).

(2) The period referred to in sub-rule (1) shall be the period beginning on the date entered into the Continuous Discharge Certificate in respect of joining the ship by the said individual for the eligible voyage and ending on the date entered into the Continuous Discharge Certificate in respect of signing off by that individual from the ship in respect of such voyage.

Explanation.—For the purposes of this rule,—

(a) “Continuous Discharge Certificate” shall have the meaning assigned to it in the Merchant Shipping (Continuous Discharge Certificate-cum-Seafarer’s Identity Document) Rules, 2001 made under the Merchant Shipping Act, 1958 (44 of 1958);

(b) “eligible voyage” shall mean a voyage undertaken by a ship engaged in the carriage of passengers or freight in international traffic where—

(i) for the voyage having originated from any port in India, has as its destination any port outside India; and

(ii) for the voyage having originated from any port outside India, has as its destination any port in India.]

Residential Status in India/Residence in India for the purpose of the Income-tax Act

Residence in India for the purpose of the Income-tax Act

The income-tax liability of an assessee is calculated on basis of his total Income. What is to be included in total income of assessee is greatly influenced by his residential status in India.

An assessee can be categorized as a resident in India or a non-resident in India during the previous year. Further, if the assessee is an individual or a HUF and he is resident in India, his residential status is further sub-classified as a resident and ordinarily resident or resident but not ordinarily resident.

The residential status of a person is categorised into the following categories:

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[As amended by Finance Act, 2025]