Under the Income Tax Act, 1961, the residential status of an individual is determined based on their physical presence in India during the relevant financial year. It is crucial because it affects the scope of taxable income in India. An individual’s residential status can be categorized into three types:

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

Resident

An individual is considered a resident in India if they meet any one of the following basic conditions:

  1. Stay in India for 182 days or more during the relevant financial year, or
  2. Stay in India for 60 days or more during the relevant financial year and 365 days or more during the four preceding financial years.

However, the 60-day requirement is extended to 182 days in the case of:

  • An Indian citizen who leaves India during the financial year for employment abroad or as a crew member of an Indian ship.
  • An Indian citizen or a person of Indian origin (PIO) who resides outside India and visits India during the financial year. A person is deemed to be of Indian origin if they, or either of their parents or any of their grandparents, were born in undivided India.

The date of arrival in India and date of departure from it may be considered as their period of stay in the country. The purpose of their visit to India is irrelevant, and even if it is for a visit to their families or tourism, it is counted as a stay in India for residency purposes.

Ordinarily Resident (OR) and Not Ordinarily Resident (NOR)

Once an individual is classified as a resident, they must be further classified as either Resident and Ordinarily Resident (ROR) or Resident but Not Ordinarily Resident (RNOR) based on the following additional conditions:

A resident individual is considered “ordinarily resident” if they satisfy both of the following conditions:

  1. They have been a resident of India in at least 2 out of the 10 preceding financial years.
  2. They have been in India for 730 days or more during the 7 preceding financial years.

If an individual does not satisfy both of these conditions, they are considered a “not ordinarily resident.”

Non-Resident

An individual who does not meet any of the conditions specified for a resident is considered a non-resident.

Examples

Example 1: Resident and Ordinarily Resident (ROR)

Mr. Daniel has been in India for 200 days during the financial year 2023-24. He has also been in India for more than 730 days during the last 7 years and has been a resident in India for 5 out of the last 10 years.

  • Current Year Presence: 200 days (meets 182 days condition)
  • Past 7 Years Presence: More than 730 days
  • Resident in Past 10 Years: Yes (5 out of 10 years)

Mr. Daniel is a Resident and Ordinarily Resident (ROR).

Example 2: Resident but Not Ordinarily Resident (RNOR)

Ms. Johanna has been in India for 190 days during the financial year 2023-24. She has been in India for less than 730 days during the last 7 years and has been a resident in India for only 1 out of the last 10 years.

  • Current Year Presence: 190 days (meets 182 days condition)
  • Past 7 Years Presence: Less than 730 days
  • Resident in Past 10 Years: Yes (1 out of 10 years)

Ms. Johanna is a Resident but Not Ordinarily Resident (RNOR).

Example 3: Non-Resident (NR)

Mr. Dennis has been in India for only 50 days during the financial year 2023-24 and has not been in India for 365 days or more during the preceding 4 years.

  • Current Year Presence: 50 days (does not meet 182 days condition)
  • Past 4 Years Presence: Less than 365 days

Mr. Dennis is a Non-Resident (NR).

Determining the residential status correctly is important as it impacts the taxation of an individual’s global income.

Deemed Resident

As per the amendment introduced by the Finance Act, 2020, an individual is deemed to be a resident in India if:

  1. He/She is an Indian Citizen
  2. The individual’s India-sourced taxable income exceeds ₹15 lakhs during the financial year.
  3. The individual is not liable to tax in any other country or territory by reason of domicile, residence, or any other criteria of a similar nature.

Implications

  • Deemed residents are classified as “Resident but Not Ordinarily Resident” (RNOR) in India.
  •  The expression ‘India-sourced taxable income’ will include income deemed to accrue or arise in India..

Example

Example 1: Deemed Resident

Mr. Jerry is an Indian citizen who travels extensively for work. During the financial year 2023-24, he spends less than 182 days in India, making him a non-resident under normal circumstances. However, he does not pay tax in any other country because of his frequent travel. His total income in India (excluding foreign sources) amounts to ₹20 lakhs.

  • Indian Citizen: Yes
  • Global Income Threshold: ₹20 lakhs (exceeds ₹15 lakhs)
  • Stateless Person: Not liable to tax in any other country

Mr. Jerry will be classified as a deemed resident and considered as RNOR for tax purposes in India.

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Residential status