Personal Taxation

Residential Status

It is crucial for an individual to determine their correct residential status since, in India, taxation for a particular year is dependent on the residential status for that year. The Indian tax law categorizes the residential status of an individual as ‘resident’ or ‘nonresident’ depending on the duration of stay in India.

An individual is considered to be a resident if they satisfy any of the following conditions:1

  • Been in India for a period of 182 days or more during that financial year
  • Been in India for a period of 60 days or more during that financial year, and at least 365 days during the preceding four years

Further, in condition (b) above, the period of 60 days would be extended to 182 days in the following cases:

  • An Indian citizen who leaves India in any year for the purpose of employment
  • An Indian citizen who leaves India as a member of the crew on an Indian ship
  • An Indian citizen or a person of Indian origin, who has settled abroad, visits India.

The Finance Act 2020, has now amended the residency rules and reduced the number of days from 182 days to 120 days for Indian citizen or a person of Indian origin who has settled abroad and where total income excluding foreign sources income, exceeds INR 1.5 million. Furthermore, a new concept of deemed residency has been introduced whereby an Indian citizen who is not liable to tax in any other country by reason of domicile, residence, etc. would be deemed to be a resident of India, and thus, their Indian income would taxable in India2 .

In the case of an Indian citizen being a member of the crew of a foreign-bound ship leaving India, the period or periods of stay in India shall, in respect of such voyage, be determined as per the rules prescribed.

An individual is classified as a non-resident if they do not satisfy either of the above conditions.

The law has further categorized the residential status of a ‘resident in India’ into ‘resident and ordinarily resident’ and ‘resident and not ordinarily resident.’ A person is said to be ‘resident and not ordinarily resident’ in India in any year if the person has:

  • Been a non-resident in India in 9 out of the preceding 10 years
  • Been in India for a period of, or periods amounting in all to, 729 days or less during the preceding 7 years.

Thus, if an individual fulfills any one of the above conditions, he would be regarded as ‘resident and not ordinarily resident’ in India for that particular financial year

The Finance Act 2020 has extended the definition of resident but not ordinarily resident to include the following two categories:-

  • Person of Indian origin or citizen of India having total income, other than income from foreign sources exceeding INR 1.5 million and who has been in India for a period exceeding one hundred and twenty days or more but less than one hundred and eighty-two days
  • A citizen of India who is not liable to tax in any other country by reason of domicile, residence, etc

The actual number of days an individual is present in India is generally determined on the basis of entries in the passport, taking into account the day of entry as well as exit.

An individual considered to be a resident of India as well as another country can determine his residential status as per the criteria specified under the tax treaty entered into by the Indian government with the government of that other country, if any.

Particulars of income Resident and ordinarily resident Resident and not ordinarily resident Non- resident
Income received or deemed to be received in India Taxable Taxable Taxable
Income accrues or arises in or is deemed to accrue or arise in India Taxable Taxable Taxable
Income earned outside India Taxable Taxable (only if earned from a business/ profession controlled from India) Not taxable
  • 1.Section 6 of the Income Tax Act, 1961-2020, Income Tax Department, https://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx, accessed on 17 September 2020
  • 2.FAQs on Provisions useful for non-residents, Income Tax Department, https://www.incometaxindia.gov.in/Pages/faqs.aspx, accessed 20 September 2020
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Maulik Doshi
Senior Executive Director
Transfer Pricing and Transaction Advisory Services

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