The Government of India has devised a unique taxation system where tax liability depends not only on citizenship, but also on a person’s residential status under the provisions of the Income Tax Act, 1961and amendments as per Finance Act 2025. This concept becomes extremely important for NRIs, returning Indians, Persons of Indian Origin (PIOs), foreign citizens, multinational businesses, and individuals earning income across different countries. A person may be an Indian citizen and still qualify as a Non-Resident for tax purposes. Similarly, a foreign citizen may become taxable in India if the residential conditions under Indian Tax law are satisfied.
Various provisions of the Income Tax Act, 1961 define the Residential Status for the purpose of taxation in India. These provisions determine if Indian Income or foreign income are taxable in India.
Residential Status
Residential status is determined separately for every financial year based primarily on the number of days an individual stays in India during the relevant previous year and preceding years. Under Indian Tax law, an individual may fall into one of the following categories:
- Resident and Ordinarily Resident (ROR).
- Resident but not Ordinarily Resident (RNOR).
- Non-Resident (NR).
Basic Conditions to become Resident in India
Under Section 6(1) of the Income Tax Act, an individual becomes resident in India if he satisfies any one of the following basic conditions:
Condition 1: Stay in India for 182 days or more during the relevant previous year. Or
Condition 2: Stay in India for 60 days or more during the relevant previous year; and 365 days or more during the four preceding previous years. However, special relaxations are available for:
- Indian citizens leaving India for employment abroad.
- Crew members of Indian ships.
- Indian citizens or Persons of Indian Origin (PIOs) visiting India.
Additional Conditions for Ordinary Resident
Once the basic condition is satisfied, two additional conditions are checked to determine whether the person becomes Resident and Ordinarily Resident (ROR) or Resident but not Ordinarily Resident (RNOR).
The additional conditions under Section 6(6) are:
- The individual must have been resident in India in at least 2 out of 10 preceding previous years and
- The individual must have stayed in India for 730 days or more during the 7 preceding previous years.
Classification of Residential Status
| Status | Conditions |
| Resident and ordinarily Resident(ROR) | Basic condition+both additional conditions satisfied. |
| Resident but Not Ordinarily Resident(RNOR) | Basic condition satisfied but one or both additional conditions not satisfied. |
| Non-Resident (NR) | None of the basic conditions satisfied. |
Resident and Ordinarily Resident (ROR)
RNOR status is defined under Section 6 of the Income Tax Act, 1961, which means a person who is treated as a full resident of India for income tax purposes. A person becomes an ROR when he satisfies the basic conditions of being a resident in India, and also satisfies the additional conditions under the Income Tax Act.
The basic conditions are:
A person is treated as a resident in India if:
Condition 1: He stays in India for 182 days or more during the relevant financial year.
Or Condition 2 He stays in India for 60 days or more in the relevant financial year and 365 days or more during the 4 preceding previous years.
Additional conditions (Both must be satisfied)
After becoming a resident, the person must also satisfy both additional conditions to become ROR.
Additional Condition 1 He has been resident in India for at least 2 out of 10 previous years immediately before the relevant year.
Additional condition 2
He has stayed in India for 730 days or more during the 7 previous years immediately before the relevant year.
A Resident and Ordinarily Resident is taxable in India on Indian income, foreign income, global income from all the sources. This is the widest scope of taxation under Indian law.
Scope of Taxability for ROR
| Income Type | Taxability |
| Salary earned in India | Taxable |
| Salary earned abroad | Taxable |
| Foreign rental income | Taxable |
| Overseas business income | Taxable |
| Indian capital gains | Taxable |
Example: Suppose a person earns salary in the USA, owns property in Dubai, and operates a business in India. If he qualifies as ROR in India, all such income may become taxable in India.
Resident but Not Ordinarily Resident (RNOR)
RNOR status is defined under Section 6(6) of the Income Tax Act, 1961.
Resident but Not Ordinarily Resident (RNOR) is a special resident status under the Indian Income Tax Act.
A person becomes RNOR when he satisfies the basic condition of being a resident in India, but he does not satisfy one or both additional conditions required for ROR. In simple terms, RNOR is a middle status between Resident and Ordinarily Resident (ROR) and Non-Resident (NR).
It is mainly given to returning NRIs and persons migrating back to India after staying abroad for many years.
Under RNOR status:
- Indian income remains taxable in India.
- Foreign income connected with a business or profession controlled from India will be taxable. Usually, Foreign income earned outside India is not taxable for RNOR.
For Example: An NRI returns to India after living in Canada for 10 years. Initially, for some years, he may become RNOR instead of ROR.
Scope of Taxability for RNOR
| Income type | Taxability |
| Indian income | Taxable |
| Foreign salary | Generally not taxable |
| Foreign rental income | Generally not taxable. |
| Business controlled from India | Taxable. |
Non-Resident (NR)
The rules relating to NR are mentioned under Section 6 of the Income Tax Act, 1961. Non-Resident (NR) means a person who does not satisfy the basic conditions of residency under the Income Tax Act, 1961. In simple words, a Non Resident is a person who mainly lives outside India and does not stay in India for the required number of days. A Non-Resident is taxable only on income received in India, income accrued, or arising in India. Foreign income earned and received outside India is generally not taxable in India for NR.
Scope of taxability for NRI
| Income Type | Taxability |
| Indian rental income | Taxable |
| Salary received abroad | Not Taxable |
| Foreign property income | Not taxable |
| Overseas investment | Not Taxable. |
Residential Status of HUF
A Hindu Undivided Family (HUF) becomes resident in India if control and management of its affairs is wholly or partly situated in India. A HUF becomes non-resident if control and management is wholly outside India. For a HUF to qualify as “Ordinarily Resident” its Karta must satisfy the additional conditions under Section 6(6).
“…. a Hindu Undivided Family whose manager has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less, qualifies as Ordinarily Resident.”
Introduction Special Rule of 120 days
The Finance Act, 2025 introduced a special provision for Indian citizens and persons of Indian Origin (PIOs). A person may become RNOR if:
- He is an Indian citizen or PIO
- Total Indian income exceeds₹15 Lakh.
- Stay in India is 120 days or more but less than 182 days.
- Staying in the preceding 4 years is 365 days or more.
This provision mainly targets high income NRIs who frequently visit India.
Deemed Resident Rule
From assessment Year 2021-22, India introduced the concept of “Deemed Resident” under Section 6(1A). An Indian citizen becomes deemed resident if the total income (excluding foreign income) exceeds ₹15 Lakh and he/she is not liable to tax in any other country such individuals are generally treated as RNOR.
DTAA (Double Taxation Avoidance Agreement)
DTAA is an agreement between two countries that helps taxpayers avoid paying tax on the same income in both countries. It provides clarity regarding which country has the right to tax a particular income and the rate at which tax will be charged along with the relief available through exemptions or tax credits.
Why is DTAA important for NRIs?
NRIs often earn income in India (via rent, capital gains, interest, dividends, etc) and in the foreign country (via salary or business income). In the absence of DTAA the same income may become taxable in both countries. DTAA helps NRIs to avoid double taxation. It reduces the overall tax liability, claims lower TDS rates and prevents legal disputes and tax litigation.
Residential status is one of the most critical concepts under Indian taxation law because it determines the entire scope of taxability of an individual or entity in India. For NRIs, returning Indians, foreign citizens, and multinational businesses, even a small mistake in calculating residential status may result in unexpected obligations, penalties, or compliance issues. The distinction between ROR, RNOR, and NR status plays a decisive role in determining whether only Indian income or global income becomes taxable in India. Therefore, every NRI or internationally mobile individual should carefully evaluate his tax liability to file proper tax. In such cases the timely professional advice can help NRIs legally optimize tax exposure and avoid future litigation under Indian tax laws.
For more information contact info@nrilegalworld.com / +919709692096
Frequently Asked Questions:
Q1. Is taxation in India based on citizenship?
Ans. No. Taxation in India is mainly based on residential status under Section 6 of the Income Tax Act 1961, and not citizenship.
Q2. What are the categories of residential status in India?
Ans. An individual may fall into any of the following categories:
- Resident and Ordinarily Resident (ROR).
- Resident but Not Ordinarily Resident (RNOR).
- Non-Resident (NR).
Q3. What is the 60 days+ 365 days rule?
Ans. A person may also become resident if he stays in India for 60 days or more during the relevant previous year and 365 days or more during the preceding 4 years.
Q4. Is foreign salary taxable for NRIs in India?
Ans. Generally, foreign salary earned and received outside India is not taxable for Non-Residents.
Q5. What is the 120 days rule for NRIs?
Ans. Under certain conditions, Indian citizens or PIOs with Indian income exceeding ₹15 lakhs may become resident if they stay in India for 120 days or more and satisfy additional conditions.
Q6. What is the Deemed Resident Rule?
Ans. Under section 6(1A), an Indian citizen having Indian income exceeding ₹15 lakh and not liable to tax in any other country may become a Deemed Resident in India.
Q7. Why is residential status important for NRIs?
Ans. Residential status determines taxability of foreign income, global income disclosure, availability of RNOR benefits, applicability of DTAA, and overall Indian tax liability.
Q7. Should NRIs file ITR in India?
Ans. Yes, an NRI must file an Income tax return in India if total income in India
exceeds the basic exemption limit or TDS has been deducted and refund is to be
claimed or If the NRI has rental income in India, capital gais from
property/shares mutual funds, NRO account interest, business income in India,
or any other taxable Indian income.
Even if tax is already deducted, filing ITR is often beneficial to claim refund,
carry forward losses, avoid notices, and claim DTAA benefits.
Q8. What are the latest taxation Rules 2026 for NRIs in India ?
Ans. Tax residency rules in India are changing from April 2026 and these shifts
could specifically affect NRI taxation in India.
The new Income Tax Bill 2025 will increased the stay threshold from 60 Days
to 120 days if an NRI earn 15 lakh or more from Indian sources this means you
are classified as RNOR if you stay 120 days or more In the current year and
have spent 365 days in the past four years. This amendment targets NRIs.
Q. How to know your resident status for filing tax in India?
Ans. To determine your residential status for income tax filing in India, you must
check the rules under section 6 of the Income Tax Act, 1961. Your tax liability
in India depends on your residential status, not on your citizenship, passport or
visa. Check whether you are Resident or Non Resident and Check special rule
for Indian citizens and Person of Indian Origin and also check whether ROR or
RNOR status.
Q. Can foreign passport holder file tax in India?
Ans. A person holding a foreign passport may still file ITR in India if they are
an NRI, An OCI card holder, A foreign citizen working in India, A
Person of Indian Origin, A foreign national earning income from India.
Your ability to file tax in India does not depend on holding an Indian
Passport. It depends on your residential status under Section 6 of the
Income Tax Act, 1961, whether you earned income in India.
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