Residential Status & Taxation of NRIs — Complete Guide

Your tax liability in India depends enormously on one classification: your residential status for the year. It’s determined independently for each tax year and doesn’t depend on your citizenship or visa status.

The Three Categories

1.          Resident and Ordinarily Resident (ROR) — taxed on global income

2.          Resident but Not Ordinarily Resident (RNOR) — taxed on Indian income, plus foreign income only if derived from a business controlled in India

3.          Non-Resident (NRI) — taxed only on income earned or received in India

How Residential Status Is Determined

You’re a resident in India for a tax year if you meet either of these conditions:

1.          You’re in India for 182 days or more during the tax year, or

2.          You’re in India for 60 days or more during the tax year, and 365 days or more across the preceding 4 years

Special relaxation: For Indian citizens or persons of Indian origin visiting India, or for Indian citizens leaving India for employment abroad, the 60-day condition is relaxed to 182 days — making it harder to become a resident just by visiting.

High-income deeming rule: An Indian citizen with total Indian income exceeding ₹15 lakh (excluding foreign income) who isn’t liable to tax in any other country due to domicile/residence is deemed a resident (specifically RNOR), even if they don’t meet the day-count tests — a provision aimed at “stateless” high-net-worth individuals.

RNOR — The Middle Ground

You’re RNOR if you’re a resident under the above tests, but were a non-resident in 9 out of the preceding 10 years, or were in India for 729 days or less during the preceding 7 years. RNOR status typically applies to returning NRIs for a transitional period (often 2-3 years) after they come back to India, giving them time before their global income becomes taxable.

What’s Taxable for an NRI

•             Income earned or accrued in India (salary for services rendered in India, rental income from Indian property, capital gains on Indian assets, interest from Indian bank accounts)

•             Income received in India, regardless of where it was earned

•             NOT taxable: foreign salary, foreign business income, or foreign investment income, as long as it isn’t received or deemed received in India

TDS on NRI Income

TDS rates on payments to NRIs are typically higher than for residents (often 20% or more, or the DTAA rate if beneficial) — governed under Section 393(2) of the new Act. NRIs can apply for a lower/nil deduction certificate to avoid excess withholding, especially on property sales.

Worked Example

An Indian professional moves abroad for a job on 1st July, spending only 91 days in India that tax year. Since this is below both the 182-day and 60-day+365-day tests, they qualify as a non-resident for that year — only their Indian-sourced income (e.g., rental income from a flat in India) is taxable in India; their foreign salary is entirely outside the Indian tax net.

Frequently Asked Questions

Q1. If I’m a US citizen but spend 200 days in India this year, am I taxed on my global income? Yes — residential status for Indian tax purposes is based on physical presence and specific day-count tests, not citizenship. Meeting the 182-day threshold makes you a resident, potentially triggering global income taxation (subject to DTAA relief for any double taxation).

Q2. Does RNOR status mean I pay no tax at all on foreign income? Not entirely — RNOR status exempts most foreign income, but foreign income derived from a business controlled from India or a profession set up in India remains taxable even for RNORs.

Q3. Can my residential status change from year to year? Yes — residential status is determined fresh for every tax year based on your actual days of presence in India during that year and the preceding years; it’s not a permanent classification.

Reflects the residential status framework applicable for Tax Year 2026-27, carried forward under the Income Tax Act, 2025.

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.