How Change in Residential Status Affects Tax Obligations?

Residential status in India is determined based on the number of days an individual stays in the country during a financial year (1 April to 31 March).

Determining residential status is important because tax liability in India differs for residents and non-residents. Residents are generally taxed on their global income, while non-residents are taxed only on income earned or received in India.

Under Section 6 of the Income Tax Act, 1961, an individual’s residential status is determined based on their physical presence in India:

• An individual is considered a resident if they stay in India for 182 days or more during the financial year; or

• They stay in India for 60 days or more during the financial year and 365 days or more during the preceding four financial years (this 60-day threshold is extended to 120 days for certain Indian citizens or PIOs having Indian income exceeding ₹15 lakh).

A resident is classified as Resident but Not Ordinarily Resident (RNOR) if they were non-resident in 9 out of 10 preceding financial years or stayed in India for 729 days or less during the preceding 7 financial years.

An individual who does not satisfy the basic conditions is treated as a Non-Resident (NRI).

The deemed residency rule under Section 6(1A) of the Income Tax Act provides that an Indian citizen will be treated as a resident in India if their total income (excluding foreign-sourced income) exceeds ₹15 lakh during the financial year and they are not liable to tax in any other country due to domicile, residence, or similar criteria. This provision applies from FY 2020–21 (AY 2021–22). Maintaining foreign tax residency documentation is important to establish tax liability outside India.

To calculate 182 days, both the date of arrival in India and the date of departure are generally included while counting the total number of days of physical presence in India during the financial year.