Residential status classifies a taxpayer under the Income Tax Act, 1961, as either a resident or a non-resident in India for a financial year. This status is based on criteria in Section 6 and does not depend on citizenship or nationality. Residents fall into two groups: Resident and Ordinarily Resident (ROR) and Resident but Not Ordinarily Resident (RNOR). Non-residents are classified as Non-Resident (NR). This classification is important because it affects what income is taxable in India. For example, an ROR is taxed on worldwide income, including foreign earnings. In contrast, an NR is taxed only on income sourced in India. Knowing your residential status helps with tax compliance, avoids penalties and aids financial planning. It is crucial during tax filing, as errors can lead to either overpayment or underpayment, which may attract scrutiny from the Income Tax Department.
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What is the Residential Status of an Assessee?
Residential status of an assessee under Section 6 of the Income Tax Act, 1961 lays down tests and eligibility for residency and describes a taxpayer or an assessee as either a resident or a non-resident in India for a specific financial year. This classification is separate from citizenship and is re-evaluated annually based on criteria like physical presence in the country.
It plays an important role in taxation because it defines the scope of income subject to Indian taxes that residents may be taxed on worldwide earnings, while non-residents are typically taxed only on income sourced from India.
For individuals, residency is determined by staying 182 days or more in India during the year, or 60 days plus a total of 365 days over the prior four years, with exceptions for certain non-resident Indians (NRIs) or persons of Indian origin where the threshold extends to 182 days. Residents are further divided into ordinarily resident and not ordinarily resident.
Similar rules apply to entities like companies, Hindu undivided families, and firms, focusing on control and management location. Understanding this status helps avoid compliance issues and ensures accurate tax filing, especially with minor updates in the upcoming Income Tax Bill, 2025, which may refine exceptions for overseas employment from April 1, 2026.
Learn about more Income Tax Rules.
How to Determine Residential Status for Individuals
In order to determine residential status, assess an individual's physical presence in India and other conditions. The process begins with basic tests to classify someone as a resident or non-resident, followed by further checks for sub-categories.
Basic Conditions for Resident Status
An individual is considered a resident in India if they meet one of the following conditions in the previous financial year:
They have stayed in India for 182 days or more during the year, or
They have stayed in India for 60 days or more during the year and for a total of 365 days or more in the four years preceding that year.
If these conditions are not met then the individual is classified as a non-resident. These rules ensure that individuals with strong ties to India are taxed accordingly.
Exceptions
There are exceptions to the 60-day rule for specific circumstances. For Indian citizens leaving India for employment abroad or as crew members on an Indian ship then the 60-day threshold is increased to 182 days.
Similarly, for Indian citizens or Persons of Indian Origin (PIO) visiting India, the 60-day rule becomes 182 days if their income from non-foreign sources does not exceed Rs. 15 lakhs.
If such income exceeds Rs. 15 lakhs, the threshold changes to 120 days instead of 60 days for the second basic condition. Additionally, a "deemed resident" rule applies: An Indian citizen whose total income (excluding foreign sources) exceeds Rs. 15 lakhs and is not taxed in any other country is deemed a resident in India. Such deemed residents are treated as RNOR.
Read Section 147 of Income Tax Act, 1961.
Resident and Ordinarily Resident (ROR) vs. Resident but Not Ordinarily Resident (RNOR)
Once classified as a resident, further tests determine if the individual is ROR or RNOR. An individual is ROR if:
They have been a resident in India for at least 2 out of the 10 previous years, and
They have stayed in India for 730 days or more during the 7 years preceding the relevant year.
If these additional conditions are not met, the individual is RNOR. Deemed residents and certain high-income Indian citizens or PIOs staying between 120 and 182 days (with income over Rs. 15 lakhs) also fall under RNOR. The main difference is that ROR status carries a broader tax liability, while RNOR offers relief on foreign income.
Non-Resident (NR) Status
An individual who does not meet the basic conditions for residency is classified as NR. This includes those staying less than 182 days without meeting the 60-day plus 365-day criterion with exceptions. NR status limits tax obligations to income sourced in India.
Residential Status for Hindu Undivided Families (HUFs)
For HUFs, residential status depends on where control and management occur. An HUF is a resident of its control and management are partly or wholly in India. If entirely outside India, it is NR. A resident HUF is classified as ROR if he is Karta (manager) and meets the additional conditions for ROR. Otherwise, it is RNOR. This structure ensures that family businesses with Indian ties are taxed appropriately.
Residential Status for Companies
A company is a resident in India if:
It is an Indian company (incorporated under the Companies Act), or
Its Place of Effective Management (POEM) is in India during the year. POEM is where key management and commercial decisions are made.
Foreign companies are generally NR unless their POEM is in India, which requires evidence like board meeting records. This rule helps prevent tax avoidance by shifting management abroad.
Also, Learn about Deductions under Section 80C of Income Tax Act, 1961.
Residential Status for Other Entities (Firms, LLPs, AOPs, etc.)
For firms, Limited Liability Partnerships (LLPs), Associations of Persons (AOPs), Bodies of Individuals (BOIs), local authorities, and artificial juridical persons, the status is straightforward. They are resident if their control and management are partly or wholly in India. If entirely outside, they are NR. Unlike individuals and HUFs, these entities do not have an RNOR category; they are either resident or NR.
Tax Implications Based on Residential Status
Residential status of an assessee dictates the extent of taxable income, affecting overall tax liability. Taxability for each category are:
ROR: Taxed on global income including income earned worldwide, regardless of where it is received. This includes salaries, business profits, and foreign investments.
RNOR: Taxed on income accrued or received in India, plus income from a business controlled in India, even if earned abroad. Foreign income not linked to India and not received in India is exempt.
NR: Taxed only on income accrued or deemed to accrue in India, or received or deemed received in India. Examples include interest from Indian bank deposits or payments from Indian entities for services rendered abroad.
These rules ensure fair taxation based on economic ties to India.
Recent Changes in Residential Status of an Assessee
The Income Tax Bill, 2025, introduced in February 2025, will replace the 1961 Act from April 1, 2026. It aims to simplify the language without major policy shifts but includes tweaks to residential status provisions.
A key change is that the exception to the 60-day rule for individuals leaving India "for employment outside India" has been revised, narrowing it to those with formal employment contracts. Job-seekers, self-employed individuals or freelancers may now face the stricter 60-day threshold.
Experts have sought clarifications from the tax department, as this change could increase litigation and affect global mobility. The deemed residency for high-income Indian citizens (over Rs. 15 lakhs from Indian sources, not taxed elsewhere) remains, automatically classifying them as RNOR even without visiting India.
For NRIs and PIOs with Indian income exceeding Rs. 15 lakhs, the 120-day rule applies, potentially making them RNOR if stays exceed this limit. POEM rules for companies remain unchanged. These updates emphasize preventing tax evasion by stateless high earners.
Summary
The Income Tax Act, 1961, classifies an residential status of an assessee as Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), or Non-Resident (NR) based on their stay in India. This status decides taxable income i.e. ROR pays tax on global income, RNOR on Indian income and some foreign earnings, and NR only on Indian income. Individuals need to check days spent in India, while companies and HUFs follow control-based rules. Recent 2025 updates tweak employment exceptions. Accurate record-keeping avoids mistakes, ensuring compliance and effective tax planning for all assessees.
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Residential Status of an Assessee: FAQs
Q1. What is the residential status of an assessee?
It’s the classification of a taxpayer as resident or non-resident under the Income Tax Act, 1961, based on their stay in India or control of business, determining taxable income scope.
Q2. What is my residential status?
Your residential status depends on your days of stay in India (182 days or more makes you a resident).
Q3. What is residential status in the income tax portal?
It is a field in the income tax portal where you declare if you’re a resident, non-resident, or resident but not ordinarily resident, based on Section 6.
Q4. What is residential status and its effect on tax incidence?
Residential status decides if you’re taxed on global income (resident) or only Indian income (non-resident), impacting your tax liability under the Income Tax Act.
Q5. Who is a resident individual?
A resident individual under Section 6 of the Income Tax Act, 1961 is a person who stays in India for 182 days or more during a financial year, or 60 days in that year and 365 days or more in the preceding 4 years, subject to exceptions for NRIs/PIOs.
