Tax Liability of an Individual on the
Basis of Residential Status
Index
1. Introduction to Income Tax and Tax Liability
2. Concept of Residential Status under Income Tax Act
3. Categories of Residential Status
4. Tests for Determining Residential Status
5. Additional Conditions for “Resident and Ordinarily Resident”
6. Incidence of Tax based on Residential Status
7. Exceptions and Special Provisions
8. Latest Amendments and Important Case Laws
9. Practical Examples with Computation
10. Impact of Residential Status on Global Income
11. Summary and Conclusion
12. References
2. Concept of Residential Status under Income Tax Act
Residential status is not the same as citizenship. An Indian citizen may be a non-resident
for tax purposes, and a foreign citizen may be a resident. The determination of residential
status is governed by Section 6 of the Income Tax Act, 1961.
Residential status divides individuals into:
- Resident and Ordinarily Resident (ROR)
- Resident but Not Ordinarily Resident (RNOR)
- Non-Resident (NR)
3. Categories of Residential Status
(A) Resident and Ordinarily Resident (ROR):
An individual is said to be an ROR if:
- He/she satisfies the basic conditions, and
- He/she also satisfies both additional conditions mentioned under the Act.
(B) Resident but Not Ordinarily Resident (RNOR):
An individual is an RNOR if:
- He/she satisfies the basic conditions but does not satisfy both additional conditions.
(C) Non-Resident (NR):
An individual is treated as a Non-Resident if he/she fails to satisfy any of the basic
conditions for residential status.
4. Tests for Determining Residential Status
Basic Conditions (Section 6(1)):
An individual is Resident in India if either of the following conditions is satisfied:
1. Stays in India for 182 days or more during the relevant previous year.
OR
2. Stays in India for at least 60 days during the relevant previous year and 365 days or
more in the 4 years preceding the previous year.
Exceptions:
- For Indian citizens or persons of Indian origin visiting India: the 60-day threshold is
extended to 182 days.
- For Indian citizens leaving India for employment or as crew of Indian ships, 60 days is
substituted with 182 days.
5. Additional Conditions for “Resident and Ordinarily Resident”
Once an individual is found to be a resident, the next step is to check whether they are:
- Ordinarily Resident or
- Not Ordinarily Resident.
Two additional conditions under Section 6(6):
1. Resident in India in at least 2 out of 10 preceding previous years.
2. Presence in India for 730 days or more during 7 years preceding the relevant previous
year.
Satisfying both ⇒ ROR
Satisfying one or none ⇒ RNOR
6. Incidence of Tax based on Residential Status
| Residential Status | Indian Income | Foreign Income (Received in India) | Foreign
Income (Received Outside India) |
|--------------------------|---------------|------------------------------------|----------------------------
--------------|
| Resident and Ordinarily Resident (ROR) | Taxable | Taxable | Taxable |
| Resident but Not Ordinarily Resident (RNOR) | Taxable | Taxable | Not Taxable (with
exceptions) |
| Non-Resident (NR) | Taxable | Taxable | Not Taxable |
7. Exceptions and Special Provisions
- Income earned abroad but received in India is always taxable.
- Income accrued abroad and received abroad is not taxable for RNOR and NR.
- For foreign nationals, certain exemptions under Section 10(6) apply for diplomatic or
short-term assignments.
The Finance Act 2020 introduced changes to prevent tax evasion via manipulation of stay
in India. For high-income individuals (INR 15 lakh+), the 182-day limit is reduced to 120
days in certain cases.
8. Latest Amendments and Important Case Laws
Recent Amendments:
- Deemed Residency introduced under Section 6(1A): Indian citizens with no tax liability
elsewhere and income above ₹15 lakh become deemed residents of India.
- RNOR status is granted in such cases for restricted tax exposure.
Landmark Case Laws:
- A.S. Gurmukh Singh vs CIT: Importance of physical presence and purpose of stay.
- Keshav Mills Ltd. vs CIT: Status determination is yearly.
- CIT vs R.N. Goenka: Clarified taxation of income received outside India.
9. Practical Examples with Computation
Example 1:
Mr. X, an Indian citizen, stays in India for 185 days during FY 2024–25 and 400 days in
the last 4 years.
He is Resident as he satisfies Condition 1 (182+ days).
Now check:
- Was resident in 2 of 10 previous years? Yes.
- Stayed 730+ days in last 7 years? Yes.
Status = Resident and Ordinarily Resident (ROR)
Tax on Global Income.
Example 2:
Mr. Y, a foreign national, stayed in India for 70 days in FY 2024–25 and 450 days in the
last 4 years.
Fails both basic conditions.
Status = Non-Resident
Only Indian income is taxable.
10. Impact of Residential Status on Global Income
For RORs, income earned anywhere in the world — whether accrued, received, or earned
outside India — is taxable.
For RNORs and NRs, income earned and received outside India is exempt from tax in
India.
This has critical implications for:
- Salaried individuals working abroad,
- Indian students receiving scholarships,
- Foreign nationals living temporarily in India.
Double Taxation Avoidance Agreements (DTAA) also become relevant in such
scenarios.
11. Summary and Conclusion
The residential status of an individual is the foundation for determining their taxability in
India. It is essential to evaluate it every financial year based on actual days of presence
and other conditions under Section 6.
Understanding one’s residential status ensures:
- Correct computation of tax liability
- Avoidance of penalties or legal disputes
- Proper tax planning for expatriates and global professionals
With increasing global movement and remote working arrangements, these provisions are
becoming even more significant.
12. References
1. Income Tax Act, 1961 – Bare Act with latest amendments
2. Income Tax Rules, 1962
3. Finance Act, 2024
4. CBDT Circulars and Notifications
5. Vinod K. Singhania & Monica Singhania – Direct Taxes Law and Practice
6. CA Intermediate Study Material (ICAI)
7. Case Laws from Taxmann & ICAI Digest
8. Income Tax India Official Website – https://incometaxindia.gov.in
