What is tax residency in India? It is the status that determines whether your global income is taxable in India or only your Indian-sourced income. With Indians living abroad and frequent cross-border movement, getting tax residency right is critical to avoid double taxation and penalties. Let’s see more about this.
What Does Tax Residency Mean?
Tax residency in India refers to your “residential status” under Section 6 of the Income-tax Act. Income Tax India+2TaxGuru+2 It classifies individuals into three categories: Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), and Non-Resident (NR). Your classification critically affects which income is taxed in India.
How India Determines Your Residency:
There are two main physical presence tests, plus some exceptions:
- 182-day rule: If you stay in India for at least 182 days during a financial year, you may be a resident.
- 60-day + 365-day rule: If you are in India for at least 60 days in the year and you’ve spent at least 365 days in India during the four preceding years, you may qualify.
However, there are important exceptions:
- For Indian citizens or people of Indian origin who have Indian-sourced income over ₹15 lakh, the 60-day requirement is raised to 120 days.
- Indian citizens who leave India for employment or as crew on an Indian ship must still stay for 182 days to be taxed as resident.
- Under Section 6(1A), some high-income Indian citizens (with more than ₹15 lakh total income, excluding foreign sources) who don’t pay tax in any other country can be deemed residents.
Types of Resident: ROR, RNOR and NRI
Once you qualify as “resident,” India further classifies you into:
Resident & Ordinarily Resident (ROR): You have been in India frequently over many years (for example, ≥ 2 out of the last 10 years, plus 730+ days in 7 years). ROR means your global income is taxable in India.
Resident but Not Ordinarily Resident (RNOR): This often applies when someone has recently returned or spends limited time in India — for example, they were non-resident in 9 of the last 10 years, or stayed ≤ 729 days in the last 7 years. RNORs are taxed on Indian-sourced income but may not pay tax on all foreign income.
Non-Resident (NR or NRI): If you don’t meet the residency tests, you are a non-resident. NRIs are generally taxed only on income received in India or accrued in India.
Tax Implications:
Your tax residency status changes the scope of taxable income:
- As an ROR, you’re taxable on all income, whether earned in India or abroad.
- As an RNOR, only your Indian income (or income tied to Indian business) is taxed, not all foreign passive income.
- As an NRI, your tax liability is limited to Indian-sourced or received income.
This distinction is crucial, especially for NRIs investing abroad or having overseas salary. Also, your residential status may affect which tax treaties apply (DTAA), and how you declare foreign assets.
Conclusion:
Understanding what tax residency in India means can save you lakhs in taxes, especially for returning NRIs, frequent travellers, and high-earning citizens abroad. The rules are complex but logical: stay longer → more tax responsibility. Always calculate your status every year — it changes annually. Get it right once, and enjoy years of tax-efficient wealth repatriation!
– Ketaki Dandekar (Team Arthology)
Read more about Tax Residency here – https://cleartax.in/residential-status