Understanding Residential Status Under The Income Tax Act – A Key Element In NRI

1. Understanding Residential Status Under The Income Tax Act – A Key Element In NRI Transitions For NRIs returning to India or planning to change their tax or residency status, understanding residential status under the Income Tax Act is not just advisable— it is critical. The residential status of an individual determines the incidence of tax, i.e., whether any income would be taxable in India or not. For those navigating a transition, especially NRIs, HUFs, and citizens with global income streams, this classification directly impacts how their income is treated under Indian tax laws. Why residential status matters in NRI transitions The taxability of a particular receipt would depend not only on the nature or place of the receipt but also on the residential status. This becomes essential for individuals transitioning from NRI to resident or vice versa. If you are not a resident as per the definition outlined below – STOP! You ARE a non-resident for income tax purposes. Only after determining that you are a Resident, you need to go to the next step, which is to determine whether you are an Ordinary Resident (OR) or Not Ordinary Resident (NOR) for Income Tax purposes. Classification of residential status All persons, except for individuals and Hindu Undivided Family (HUF)s, like firm, company, trust, etc., can either be a resident or a non-resident. Only individuals

2. and HUFs can be a Not Ordinary Resident (NOR) in India. In short, there are three residential statuses for an Individual or HUF: Ordinary Resident (OR) Not Ordinary Resident (NOR) Non-Resident (NR) Steps to determine residential status The best way to determine the residential status for an individual would be to: First determine whether a person is a Resident or Non-Resident. If resident, determine whether he is an Ordinary Resident or Not Ordinary Resident. Definition of “resident” under the Income Tax Act As per the Income Tax Act, an individual is a Resident, if: He stays in India for 182 days or more in the previous year OR He stays in India for 60 days or more in the previous year AND 365 days or more during the 4 years immediately preceding the previous year. There are special provisions for certain categories of individuals: For Indian citizens, who leave India as a member of the crew of an Indian ship or for purposes of employment outside India, the second condition changes to – He stays in India for 182 days or more in the previous year AND 365 days or more during the 4 years immediately preceding the previous year. For Indian citizens/PIOs living outside India and visiting India, 1.If income from Indian source is up to ₹15 lakhs, he stays in India for 182 days or more in the previous year AND 365 days or more during the 4 years immediately preceding the previous year. 2.If income from Indian sources is more than ₹15 lakhs, he stays in India for 120 days or more in the previous year AND 365 days or more during the 4 years immediately preceding the previous year. Also, if an Indian citizen, having income from Indian sources of more than ₹15L is not liable to tax in any other country, he is deemed to be a resident of India. Examples

3. Mr. Chandra Mohan stayed out of India for 190 days in FY 2025–26, but since he met the 60-day + 365-day test, he qualifies as a Resident. Mr. Jivan Patel, a US citizen and PIO, visits India for 150 days every year, but since his income in India is under ₹15L, he remains a Non-Resident. If Mr. Jivan’s Indian income exceeds ₹15L and he stays for over 120 days, he becomes a Resident under the Act. Mr. Nathji, an Indian citizen in UAE with ₹20L Indian income and no tax liability abroad, is deemed a Resident under Indian tax law, even without visiting India. Determining Ordinary Resident vs. Not Ordinary Resident A Not Ordinary Resident (NOR) is a person who: Has been a non-resident in India in any 9 out of the 10 previous years preceding the relevant previous year, OR has been in India for a period of 729 days or less during the 7 previous years preceding the relevant previous year. Indian citizen or a PIO who has spent more than 120 days in India and having income from Indian sources of more than ₹15L. Indian citizen who is not liable to tax in any country, having more than ₹15L income from Indian sources. Examples Mr. Jashwant Shah stayed in India for 200 days in FY 2025–26, making him a Resident; since he spent only 700 days in India over the past 7 years, he qualifies as NOR. If Mr. Shah had stayed 110 days per year instead of 100, his 770-day count over 7 years would make him an Ordinary Resident. Continuing with Mr. Nathji, since he is not liable to tax elsewhere and has over ₹15L Indian income, he would be classified as a Not Ordinary Resident. Residential status is a core pillar in NRI transitions Understanding residential status is not merely a compliance requirement—it is the foundation of smart tax planning and financial structuring for returning NRIs. Your residency under the Income Tax Act affects everything: your global income taxation, investment eligibility, account status, and repatriation of funds. At the heart of any NRI Transition Service, lies the ability to interpret and apply these

4. rules correctly. Whether you’re planning a return or restructuring your assets in India, getting your residential status right is the first and most crucial step. For professional guidance tailored to your unique situation, ExpertNRI offers trusted NRI transitions services in India, with a team of experts helping to simplify residency classification, taxation, and financial restructuring for a seamless move back home. So, make informed decisions, seek expert advice, and ensure that your return to India is not just emotional, but financially secure and legally sound. Resource: Understanding Residential Status Under The Income Tax Act – A Key Element In NRI Transitions