Residency under the Income Tax Act, 1961

NRI Taxation > Residency under the Income Tax Act, 1961

As per the residency rules specified in the Income Tax Act, 1961, a person can either be

  • Ordinary Resident (OR); or
  • Resident but Not-ordinarily Resident (RNOR); or
  • Non-Resident (NR)

This is determined based on the period of stay of such person in India during the current as well as preceding years.
A person is considered a resident during a particular year (i.e. the financial year for which residency status is being determined) if:

  • Period of stay in that particular year exceeds 182 days; OR
  • Period of stay in that particular year exceeds 60 days AND period of stay in the 4 years immediately preceding that year (taken in aggregate) exceeds 365 days

If both conditions are not satisfied, a person is considered ‘Non- Resident’.

If either of the above conditions is satisfied, a person is considered a ‘Resident’. Once this is determined, one needs to check whether they are an ‘Ordinary resident’ or ‘Resident but not ordinary Resident’. This is determined on the following basis:

  • The person has been a Non-Resident for 9 out of 10 years immediately preceding the particular year – implying that the above 2 residency criteria were not satisfied for 9 out of 10 previous years); OR
  • Period of stay in India does not exceed 729 days (taken in aggregate) in 7 years immediately preceding the particular year.

If either of these conditions are satisfied, the individual is a ‘resident but not ordinary resident’. If neither condition is satisfied, the individual is an ordinary resident

New concept of deemed resident

An individual, being a citizen of India, having total income, other than the income from foreign sources, exceeding INR 15 lakh rupees during the previous year shall be deemed to be resident in India in that previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature. However, the provisions of deemed resident does not apply to a ‘resident’ as defined above.

Taxability based on residential status

It is important to know one’s residency status because this determines the incidence of tax in India. A resident is liable to tax on his global income which includes income arising outside India, whereas a non-resident, not-ordinary resident and deemed residents are liable to tax only on the income that is sourced in India.