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How Change in Residential Status Affects Tax Obligations?
- April 2, 2026
- 6 mins
- 12.3K Views
Under Section 6(1) of the Income Tax Act, an individual's residential status is determined by their physical presence in India during a financial year. A change in residential status significantly affects an individual's tax obligations, as residents are taxed on their worldwide income, while non-residents are taxed only on income earned in India.
This distinction makes understanding residential status important for taxpayers to ensure accurate filing and adherence to the law. Additionally, deductions, exemptions, and various tax benefits are provided to individuals based on their residential status, which affects their overall tax liability. In this blog, we will learn more about residential status and how changes in it affect an individual's tax obligations.
Key Takeaways
- NRI status is primarily defined by your duration of stay in India, with significant thresholds set at 120 and 182 days, varying based on income levels.
- Certain conditions may classify you as a deemed resident, including being an Indian citizen with no tax liability in other countries and having an income exceeding Rs. 15 lakh.
- When returning to India, individuals can be classified as RNOR or ROR, depending on their time in the country and income levels, which affect their tax obligations.
- Transitioning to resident status can have immediate tax implications, particularly for foreign income, which may become taxable upon returning to India.
What is the NRI Status?
NRI status is primarily determined by the duration of your stay in India. According to Section 6 of the Income Tax Act, 1961 (ITA), you will be considered an NRI in any given financial year (FY) if you are present in India for any of the following durations:
- Less than 182 days during that particular financial year, or
- Less than 365 days cumulatively (total) during the preceding four years from the FY and less than 60 days during that FY.
From FY 2020-21, for Indian citizens/persons of Indian origin whose income accruing or arising in India exceeds Rs. 15 lakh in that financial year, the period of 182 days has been reduced to 120 days.
Therefore, if you fulfill this condition, staying in the country for more than 119 days in a financial year wouldn't be sufficient to retain your NRI status. Also, you will be liable for taxation in the country.
Furthermore, if your overall taxable income in India is less than Rs. 15 lakh during any financial year, you will be considered non-resident if your stay is less than 182 days.
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What is Deemed Residential Status?
If you fulfill any of the above conditions, check whether the rule of 'deemed resident' of India applies:
You shall be deemed to be an Indian resident if:
- You are an Indian citizen or a person of Indian origin
- You are not liable to pay tax in any other country
- The overall income exceeds Rs. 15 lakh (apart from foreign income sources)
- There is no tax liability in other countries or territories by domicile or residence reasons or any such criteria.
What is the RNOR or ROR Status?
When an NRI moves back to India permanently, they would lose the NRI status based on the total number of days they spend in the country during the year in which they return.
Now, in case you lose the NRI status or you are deemed to be an Indian resident, your status would be either a resident but not ordinarily resident (RNOR) or resident and ordinarily resident (ROR) Indians. Additionally, RNOR status is given to you before you become a ROR, which serves as a transitional residential status.
An NRI relocating to India qualifies as an RNOR for any financial year if you have been:
- Stayed in India for less than 729 days during the preceding seven years
- An NRI in 9 out of 10 preceding the FY under consideration
- If you are not a tax resident in any other country, and your income in India is more than Rs. 15 lakh in the previous year, with your stay in India ranging from 181 days to 120 days in that specific year.
An NRI will be considered an ordinary resident directly if you don't meet any one of the above-mentioned conditions. In short, your residential status is directly proportional to the duration of your stay. Consider the table below to learn more about the period of stay, overall income, and Residential Status:
| Period of Stay in India | Total Income (apart from overseas income) | Residential Status |
|---|---|---|
| If your stay in India is for 182 days or more | Below Rs. 15 lakh | Resident |
| If your stay in India is for 182 days or more | More than Rs. 15 lakh | Resident |
| If your stay is for 120 days or more but less than 182 days | More than Rs. 15 lakh | Resident not ordinarily resident (RNOR) |
| If your stay is for 120 days or more but less than 182 days | Under Rs. 15 lakh | Non-Resident Indian (NRI) |
| If you stay in India for less than 120 days | Exceeds Rs. 15 lakh | NRI |
| If you stay in India for less than 120 days | Below Rs. 15 lakh | NRI |
Tax Implications
If you move back to India, you may lose the NRI status in the same year of return. However, as an RNOR, you can continue to enjoy the tax exemption benefit for a few more years. As you transition the RNOR status to the ordinary resident category, all your income from overseas will be taxed in India according to the Income Tax Act.
Taxability of Income for Individual and HUF
| Income | Ordinary Resident | Resident but Not Ordinarily Resident | Non-Resident |
|---|---|---|---|
| Indian Income | Taxable | Taxable | Taxable |
|
Foreign Income - Income from Business or Profession controlled/set up from India |
Taxable | Taxable | Not taxable |
| Other foreign income | Taxable | Not Taxable | Not Taxable |
Taxability of Income for Other Assessee-
| Income | Resident | Non-Resident |
|---|---|---|
| Indian income | Taxable | Taxable |
| Foreign Income | Taxable | Not taxable |
To Conclude
It's important to understand your residential status in India to manage your tax liabilities and ensure compliance with local regulations. Whether you are an NRI, a returning resident, or understanding the complexities of deemed residency, staying aware of your residential status can save you from unexpected tax consequences.
Furthermore, always consider seeking guidance from a tax professional at Savetaxs to ensure complete adherence to regulations. We have a team of experts who can help you fulfill all your tax obligations and ensure 100% compliance with all the regulations. Connect with us right away, as we are working 24/7 across the globe.
Disclaimer
Note: This guide is for information purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.
Ritesh Jain(Tax Expert)
Mr. Ritesh has 20 years of experience in taxation, accounting, business planning, organizational structuring, international trade financing, acquisitions, legal and secretarial services, MIS development, and a host of other areas. Mr Jain is a powerhouse of all things taxation.
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Frequently Asked Questions
Residential status in India is determined based on the number of days an individual stays in the country during a financial year (1 April to 31 March).
Determining residential status is important because tax liability in India differs for residents and non-residents. Residents are generally taxed on their global income, while non-residents are taxed only on income earned or received in India.
Under Section 6 of the Income Tax Act, 1961, an individual’s residential status is determined based on their physical presence in India:
-
An individual is considered a resident if they stay in India for 182 days or more during the financial year; or
-
They stay in India for 60 days or more during the financial year and 365 days or more during the preceding four financial years (this 60-day threshold is extended to 120 days for certain Indian citizens or PIOs having Indian income exceeding ₹15 lakh).
A resident is classified as Resident but Not Ordinarily Resident (RNOR) if they were non-resident in 9 out of 10 preceding financial years or stayed in India for 729 days or less during the preceding 7 financial years.
An individual who does not satisfy the basic conditions is treated as a Non-Resident (NRI).
The deemed residency rule under Section 6(1A) of the Income Tax Act provides that an Indian citizen will be treated as a resident in India if their total income (excluding foreign-sourced income) exceeds ₹15 lakh during the financial year and they are not liable to tax in any other country due to domicile, residence, or similar criteria. This provision applies from FY 2020–21 (AY 2021–22). Maintaining foreign tax residency documentation is important to establish tax liability outside India.
To calculate 182 days, both the date of arrival in India and the date of departure are generally included while counting the total number of days of physical presence in India during the financial year.