Residential Status - Meaning, Importance and Taxation Rules

The resident status in section 6 of the Income Tax Act provides a connection between the resident status of a person and the tax liability.

It helps determine the residency status of an individual, like whether a person is living in India for more than 182 days in a financial year, or 365 days in the last 4 years, then they will be considered a resident of India and will be subject to Indian taxation. 

An Indian person with residential status provides the means to know their Indian tax liabilities, which means their taxation is determined by their residential status. Once they get the Indian resident status, their global income and income they earn in India will be taxed according to the Indian tax rates. 

In this blog, we will going to see the residential status under Section 6 of the Income Tax Act of India, which includes how their resident is determined of a Resident, Resident but an Ordinarily Resident (RNOR), Non-Resident Indian (NRI), and the taxation. 

Meaning and Importance of the Residential Status

The taxation of an Indian individual is determined by their residency status in India during the current financial year, which can be A resident ordinarily resident (ROR), a Resident but not ordinarily resident (RNOR), or a non-resident (NRI). 

The residential status term is being introduced under the income tax laws of India, which should not be confused with the Indian. 

An Indian citizen can be a non-resident at the end of a financial year, who is a citizen of India at the start of a financial year. 

Same as a foreign citizen in India can also be an Indian resident at the end of the financial year for income tax purposes. 

There are different types of residents: a person, a firm, or a company. They are taxed differently under the Indian Income Tax laws. 

How to Determine the Residential Status 

For taxation purposes in India, there are 3 types of resident status in India through which a residential status of an person is determined. 

1. A resident and ordinarily resident (ROR). 
2. A resident but not ordinarily resident (RNOR). 
3. A Non-resident Indian (NRI). 

Resident 

Here are the conditions given below. If you meet the following conditions, you will be considered a resident of India. 

• If you stay in India for more than 182 days in a financial year. 
• If you have stayed in India for the last 4 previous years and 365 days or more, and 60 days or more in the current financial year. 

Expectations for Resident Status 

Here are some of the exceptions to being an Indian resident. 

• An Indian resident can leave India for employment or work purposes as a crew member on an Indian ship during the financial year. If he stays for more than 182 days, then he will be qualified as an Indian resident again. 
• An Indian origin person or an Indian citizen who stays outside India and visits India during a financial year, the Indian income of that person, apart from the mother's foreign income, is more than 15 lakhs INR, then he will be treated as an Indian resident, if: 

1. If he or she stays in India for more than 82 days in a financial year. 
2. If they stayed in India for more the 365 days or more in the last 4 years, and should stay in India for a minimum of 120 days in the fiscal year. 

Resident Not Ordinarily Resident 

When an individual, qualified as a resident of India, they will be further determined they be qualified for a resident and ordinarily resident (ROR) or an resident but not ordinarily resident (RNOR).

Here are some of the conditions that will help you determine your resident status as an ROR or an RNOR. If you meet the following condition, you will be considered an ROR. 

• If a Resident of India is staying in India for a minimum of 2 years out of 10 years. 
• A resident of India should have stayed for a minimum of 730 days in the last 7 years. 

However, there are 3 conditions in which an individual can be considered an RNOR. 

• If any individual failed to meet the conditions given above. 
• If any Indian citizen or an Indian origin individual has an Indian income of more than 15 lakhs INR apart from foreign income sources and stayed in India for more than 120 days or less than 182 days. 
• If an individual is deemed to be a resident of India, then he will be considered a resident and not an ordinarily resident. 

Non-Resident`

If an individual fails to meet the following conditions given below, then they will be considered a non-resident of India. 

• If he or she stayed in India for more than 182 days in a financial year. 
• Spend 60 days or more in a financial year or stay for 365 days in the last 4 preceding years. 

Taxability of Residential Status

Here is the taxability of the residential status according to the Income Tax laws, which includes Resident Ordinarily Resident, Resident but Not Ordinarily Resident, and Non-Resident. 

Resident and Ordinarily Resident: an ROR is taxed on income he earns in India as well as income he receives from outside India. Also, on the global income also an ROR will be taxable in India.

Resident but Not Ordinarily Resident: An individual with ROR status does not need to pay taxes on income earned in India, as well as on global income or income earned outside India. 

Non-Resident of India: An NRI doesn't have to pay taxes on income earned outside India. They only have to pay tax on income received from outside India or on income earned in India, and then on the income they need to pay tax to the Indian Income Tax Department. 

Residential Status of HUF

Here is the residential status of a Hindu undivided family given below according to the Indian Income Tax Department. 

Resident: An HUF can be a resident if it has managed all the HUF and controls all the decisions of an HUF from staying in India only, then in that condition, it will be considered as an HUF resident.

Resident and Ordinarily Citizen or Resident But Not Ordinarily Resident: If the HUF karta who manages all the decisions of the HUF meets all the conditions given below, then the HUF will be considered as a resident and ordinarily resident, and if it fails to meet the condition given below, then it will be considered as a resident but not ordinarily resident. 

• They should be a resident in India for a minimum of 2 years out of the last 10 years. 
• They should have stayed in India for the last 7 years or more than 730 days. 

Note: Only individuals and HUFs can be resident and not ordinarily resident in India. All other assesses can be resident or a non-resident in India. 

Residential Status of a Company

Here is the company's residential status under Indian Income Tax laws. Below are some considerations regarding a company's residential status in India. If they meet all the criteria, then they will be considered a resident company in India. 

• If the company that they are starting is located in India, then it will be considered a resident company in India. 
• If the place of the company in India is effectively managed in the last financial year. 

Note: In the above line, the effective management means a place at which the company will conduct all its business and manage its operations in India. They need to manage this place affectionately in the previous financial year; then, in that condition, a company will be considered as resident in India. 

Understanding the New Tax Residency Rules in India for the NRIs

Now, we will see some of the new residency rules that were introduced by the Indian Income Tax Department on February 13, 2025, in the Indian parliament, which include changing the Indian tax filing system. For this, a bill was introduced that sets major tax rules for Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs), which will be effective from 1 April 2026. 

The 182-day rule of the Income Tax

This rule is to stay unchanged under the Income Tax Act, 1961. If an individual stays in India for more than 182 days in a financial year, then they will be considered an resident of India.

The New Taxation Rules for 60-days + 365 days include: 

Modification of the 60+365-day rule from the Income Tax Act, 1961. Previously, if an NRI stayed in India fr more than 60 days or spent 365 days in India over 4 preceding years, then they would be classified as a resident of India. 

Now, it has been changed, and the new taxation rules include that an Indian citizen working in foreign countries and outside India or on the crew members of Indian ships, then they are no longer subject ot the 60-day rule. 

If any NRI or PIO have an Income of 1.5 million, then they are exempt from this rule. 

New Taxation rule of 120 days for the high-income PIOs and NRIs

As of the Income tax new bill, now the 60-day rule is replaced with 120 days, and an NRI or PIO who has an income of more than 15 lakhs INR will be considered as an RNOR, if they:

• Stays in India for more than 120 days or more in a financial year. 
• Stayed in India for more than 365 days in the last 4 preceding years. 

New Taxation Rule for Deemed Residency

According to the New Income Tax Bill, a deemed residency is applied to an Indian citizen who earns more than 15 lakhs INR in India without paying tax in a foreign country. 

This rule is applied to the tax-free countries like Saudi Arabia, the UAE, and Monaco. 

Taxation Rules for OCIs

The taxation for the Overseas Citizenship of India is determined by the residential status under the Income Tax Act, 1961. 
Here are the conditions under which an OCI is considered to be a resident in India. 

• If they stay in India for more than 182 days in a financial year. 
• Staying in India for 365 days in the last 4 years or 60 days in the last financial year 

If an OCI is considered to be a resident of India, then they need to pay tax on their global income in India under the Indian Income Tax Act. 

Final Thoughts 

Taxation for Non-Resident Indians and OCI persons depends on the resident status in Indian, which helps you to determine whether you will be taxed in India or not. Through this blog, we have seen taxation or residency and new taxation rules which help us to determine whether an individual is a Non-Resident of India (NRI), Resident but ordinarily resident (ROR), or Resident but Not Ordinarily resident (RNOR). 

Through Visament, you can easily help you know your residency status with all the tax implications and manage your assets and finances to make sure that you will get a smooth transition while moving back to India. 

For more information, you can contact our support team through the online Visament website, which is there 24/7 to help you with your doubts and queries