Rules for Determining Residential Status of an Individual [Section 6(1) & 6(1A)]

The residential status of an individual is crucial for determining tax liability in India. It classifies taxpayers into three categories:

1. Resident and Ordinarily Resident (ROR)
2. Resident but Not Ordinarily Resident (RNOR)
3. Non-Resident (NR)

The rules are governed by Section 6(1) (basic conditions) and Section 6(1A) (deemed residency for high-income Indian citizens).

1. Basic Conditions for Resident Status [Section 6(1)]

An individual is a Resident if they satisfy either of the following:

Condition 1: 182-Day Rule

• Stay in India for ≥182 daysin the financial year (April–March).

Condition 2: 60-Day + 365-Day Rule

• Stay in India for ≥60 daysin the current financial year AND
• Stay in India for ≥365 daysin the preceding 4 financial years.

Exceptions to 60-Day Rule (Extended to 120/182 Days):

• Indian citizens leaving for employment abroad: 60 days → 182 days.
• Indian citizens/Persons of Indian Origin (PIOs) visiting India:
  • If Indian income (excluding foreign income) ≤ ₹15L: 60 days → 182 days.
  • If Indian income > ₹15L: 60 days → 120 days.

Example:

• X (Indian citizen) stays in India for 150 daysin FY 2024-25 and 400 days in the last 4 years.
  • Since 150 < 182, he fails Condition 1.
  • But 150 > 120(if income > ₹15L) + 400 > 365 → Resident under Condition 2.

2. Classification as ROR or RNOR [Section 6(6)]

If an individual qualifies as a Resident, further check if they are ROR or RNOR:

ROR (Resident and Ordinarily Resident)

Must satisfy both:

1. Resident in ≥2 out of 10 preceding years.
2. Stay in India ≥730 days in the last 7 years.

RNOR (Resident but Not Ordinarily Resident)

Applies if:

• Fails eitherROR condition, OR
• Deemed RNORunder special cases (e.g., high-income Indian citizens).

Example:

• Y (returning NRI) stays in India for 200 daysin FY 2024-25 but was NR for 8 of the last 10 years.
  • She qualifies as Residentbut fails ROR conditions → RNOR.

3. Deemed Resident Rule [Section 6(1A)]

Introduced to tax high-income Indian citizens avoiding residency in any country:

• Applies if:
  • Indian citizen with Indian income (excl. foreign) > ₹15L,
  • Not liable to tax in any other country(due to domicile/residence),
  • Fails basic residency conditions(stay <182 days).
• Such individuals are deemed RNOR.

Example:

• Z (Indian citizen) earns ₹20L from Indiabut stays only 100 days in India and 0 days abroad.
  • Since he is not taxed elsewhere, he is a deemed RNOR.

4. Special Cases

• Crew members of Indian ships: Days abroad excluded from stay calculation .
• Newcomers to India: Often RNORfor the first 2–3 years .

5. Tax Implications by Residential Status

Example:

• An RORpays tax on US rental income, while an NR does not.