7 Mins

What is Residential Status?

The residential status of a taxpayer is important because the income tax department provides for a different tax treatment for its taxpayers. Hence, it is imperative for every taxpayer to determine their residential status before doing their tax planning, computing tax payable, and tax filing.

Importance of the Residential Status

The residential status of an individual taxpayer is different from the citizenship status in the country. The Income Tax Act, 1961 provides detailed prescribed rules for determining the status. A citizen of India may not be a resident of India and a foreign citizen may be a resident of India for the purpose of taxation. The resident determination terms are separate for each taxpayer such as individual, HUF, company, BOU, AOP, firm.

Depending on the residential status the following is determined

  1. Income tax payable
  2. Tax exemptions
  3. Tax deduction
  4. Income tax return

Types of Residential Status For Taxation in India

The Income Tax Act, 1961 provides the following types of residential statutes depending on the stay of the individual taxpayer in the country, incorporation, and annual income.

  1. Resident
  2. Resident Not Ordinarily Resident (RNOR)
  3. Non-Resident (NR)

Resident

An individual taxpayer will be considered as a resident if he/ she fulfills the following conditions:

  1. He/ she stays in India for 182 days or more during the financial year, or
  2. He/ she stays in India for 365 days or more during the 4 preceding financial years. In addition, stays for a period of 60 days or more in the relevant financial year
Type of IndividualIndividual who leaves India for employmentIndividual who lives abroad but visits India
SituationA citizen of India, who leaves India in any financial year as a member of the crew of an Indian ship or for the purposes of employment outside IndiaBeing a citizen of India, or a person of Indian origin being outside India, comes on a visit to India in any financial year
Condition To Be ResidentHe/ she stays in India for 182 days or more during the financial year
He/ she stays in India for 365 days or more during the 4 preceding financial years. In addition, stays for a period of 182 days or more in the relevant financial year
He/ she stays in India for 182 days or more during the financial year
He/ she stays in India for 365 days or more during the 4 preceding financial years. In addition, stays for a period of 182 days or more in the relevant financial year
Other ConditionIf the individual earns a total income exceeding Rs 15 lakhs during the relevant financial year. Such income excludes any income from foreign sources.
The following condition to be satisfied to be a resident:He/ she stays in India for 182 days or more during the financial year
He/ she stays in India for 365 days or more during the 4 preceding financial years. In addition, stays for a period of 182 days or more in the relevant financial year

Deemed Resident of India

An individual, being a citizen of India, shall be deemed to be a resident of India if he is not liable to tax in any other country or territory. The deemed residential status is applicable if the individual earns total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the relevant financial year. Such non taxability in any other country or territory would be by reason of his domicile or residence or any other criteria of similar nature.

Residential Status of Taxpayers Other Than Individuals

The following taxpayers must fulfill the following criteria to be eligible for a residence of India for the purpose of taxation.

Type of TaxpayerCondition To Be Fulfilled
Hindu undivided familyResident in India in any financial year in every case except where during that year the control and management of its affairs is situated wholly outside India.
Firm or other association of personsResident in India in any financial year in every case except where during that year the control and management of its affairs are situated wholly outside India.
CompanyIt is an Indian company; orIts place of effective management, in that year, is in IndiaThe place of effective management means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made.

Resident Not Ordinarily Resident (RNOR)

If an individual qualifies to be a resident of India, then he/ she must proceed and find out whether he/ she is a ROR or RNOR. 

A taxpayer is a “not ordinarily resident” in India in any previous year if such a taxpayer is:

TaxpayerCondition To Be Fulfilled
IndividualSuch individual has been a non-resident in India in 9 out of the 10 previous years preceding the relevant financial year
OR
Such individual has during the seven previous years preceding the relevant financial year been in India for 729 days or less
Hindu undivided familyKarta or managerSuch individual has been a non-resident in India in 9 out of the 10 previous years preceding the relevant financial year
OR
Such individual has during the seven previous years preceding the relevant financial year been in India for 729 days or less
Citizen of India, or a person of Indian originSuch individual has a total income, other than the income from foreign sources, exceeding Rs 15 lakh rupees during the relevant financial year
Such individual has been in India for 129 days or more but less than one hundred and eighty-two days
Citizen of IndiaSuch an individual who is deemed to be resident in India 

Important Definitions

  1. The income from foreign sources is the income that accrues or arises outside India. However, such income excludes income derived from a business controlled in or a profession set up in India and which is not deemed to accrue or arise in India
  2. The relevant financial year is the year for which the residential status is being determined.

Non Resident (NR)

Any taxpayer who is neither a resident nor a resident not ordinarily resident is considered as a non resident.

Conclusion

The residential status depends on the period of stay. The following table will help in understanding the relevance of the number of days of stay.

Period of stayTotal Income (Excluding Foreign Income)Residential Status
182 days or moreLess than Rs 15 lakhsResident
182 days or moreMore than Rs 15 lakhsResident
120 days or more but less than 182 daysMore than Rs 15 lakhsResident Not Ordinarily Resident RNOR
120 days or more but less than 182 daysLess than Rs 15 lakhsNon Resident
Less than 120 daysMore than Rs 15 lakhsNon Resident
Less than 120 daysLess than Rs 15 lakhsNon Resident

Frequently Asked Questions

What is my residential status if I live in India?

If you are living in India in the relevant financial year for 182 days or more then you are a resident of India. Moreover if you have stayed in India for 365 days or more during the 4 preceding financial years. In addition, stays for a period of 60 days or more in the relevant financial year then as well you are a resident.

Who is a non-resident Indian?

A non-resident Indian is an individual who is neither a resident nor a resident not ordinarily resident is considered as a non resident.

What are the types of residential status?

The types of residential statuses are resident, non-resident NR, resident not ordinarily resident RNOR, and resident ordinarily resident ROR.

Is residential status relevant for determining the tax liability of the taxpayer?

Yes, residential status is relevant for determining the tax liability of the taxpayer. The taxability of any income in the hands of a taxpayer depends on the residential status of the taxpayer as per the Income-tax Law; and the nature of income earned by him.

Will a person holding citizenship of India be automatically treated as a resident of India for the purpose of taxation?

No, simply by having citizenship of India a taxpayer cannot be considered as a resident. For the purpose of taxation, he/ she must determine the residential status as per Section 6 of the Income tax Act, 1961. Moreover, the taxability differs for each type of residential status. Hence, it is important to know the residential status before filing the income tax return.