The residential status of an individual is a crucial factor in determining their tax liability under Indian Income Tax Law. It determines the scope of income that is taxable in India. An individual can be classified into three categories for taxation purposes: Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), and Non-Resident (NR). The classification is based on the individual’s physical presence in India during the relevant previous year and the past four to ten years. A resident is taxed on their global income, whereas a non-resident is taxed only on income received, accrued, or deemed to be received or accrued in India.
According to the Income Tax Act, 1961, particularly Section 6, the residential status of an individual is determined based on their physical presence in India. An individual is considered a resident if (a) they are in India for 182 days or more during the previous year, or (b) they are in India for 60 days or more in the previous year and 365 days or more in the preceding four years. However, for Indian citizens and Persons of Indian Origin (PIO) coming on a visit to India, the second condition changes the 60-day requirement to 120 days (if their total income exceeds ₹15 lakh) or 182 days (if income is below ₹15 lakh). Further classification into ROR or RNOR depends on the individual’s residential history in the last 10 years and 7 years’ stay conditions.
For individuals and companies alike, understanding residential status is essential as it influences the extent of taxation. For instance, RNORs and NRs are not required to pay tax on their foreign income unless it is derived from a business or profession controlled from India. Corporates and firms also have their status determined under Section 6(2) and 6(3), which focus on the place of effective management.
Mnemonic to Remember: “182–60–4–10 Rule”**
- 182 days in the current year = Resident
- 60 days in current year + 365 days in past 4 years = Resident
- 10 years for checking ROR vs RNOR status
Use the mnemonic “India Stayed 182, Or 60 plus 365 in 4, Check 10!” to lock in the core rules.
