Library / Income-tax Act, 2025: The Professional's Master Guide

4. Residential Status (Section 6)

Residential status decides how much of a person's income is taxable in India. The tests are the same as the old section 6.

4.1 Individuals: basic tests

An individual is resident in a tax year if either:

he stays in India for 182 days or more in the tax year, or
he stays 60 days or more in the tax year and 365 days or more in the four preceding tax years.

The 60-day test becomes 182 days for an Indian citizen leaving India for employment, or as crew of an Indian ship. For an Indian citizen or person of Indian origin visiting India, it becomes 120 days if Indian income (other than foreign sources) exceeds Rs. 15 lakh, otherwise 182 days.

Deemed resident: an Indian citizen with Indian income above Rs. 15 lakh who is not liable to tax in any other country because of domicile or residence is treated as resident (but not ordinarily resident).

4.2 Resident but Not Ordinarily Resident (RNOR)

A resident individual is RNOR if he was non-resident in 9 out of the 10 preceding years, or stayed 729 days or less in India in the 7 preceding years. Visiting persons covered by the 120-day rule and deemed residents are also RNOR.

4.3 What is taxable

Income	Resident (ROR)	RNOR	Non-resident
Received or deemed received in India	Taxable	Taxable	Taxable
Accrues or arises (or deemed to) in India	Taxable	Taxable	Taxable
Accrues outside India from business controlled in or profession set up in India	Taxable	Taxable	Not taxable
Other foreign income	Taxable	Not taxable	Not taxable

Illustration 4: Employee sent abroad

Rahul, an Indian citizen, leaves for a job in Dubai on 15 September 2026. His stay in India during Tax Year 2026-27 is 167 days.

He left India for employment, so the 60-day test is replaced by 182 days. 167 days is less than 182 days, so Rahul is non-resident. His Dubai salary is not taxable in India. His Indian FD interest and rent from his Pune flat remain taxable.

Illustration 5: Returning NRI

Sunita worked in the US for 12 years and returned to India on 1 June 2026 for good. She stays 304 days in India in Tax Year 2026-27.

She is resident (182 days), but she was non-resident in 9 of the 10 preceding years, so she is RNOR. Her US rental income is not taxable in India this year.

4.4 HUF, firms and companies

HUF, firm, AOP: resident unless control and management is wholly outside India.
Indian company: always resident.
Foreign company: resident if its place of effective management (POEM) in the tax year is in India. POEM means the place where key management and commercial decisions for the business as a whole are in substance made. It is examined in detail in the International Taxation part.

4.5 Counting days of stay

Stay in India is counted in days, and the courts and tribunals have generally held that both the day of arrival and the day of departure are counted as days in India, because the person is physically present on both days. Keep passport stamps and boarding passes for every trip, since residential status is a question of fact and the burden is on the taxpayer.

Illustration 6: Counting days

Anand flies into Mumbai on 10 April 2026 and leaves on 20 April 2026. Days in India = 11 (10 April to 20 April, both included). If he makes 17 such trips in the year, his total stay is 187 days and he is resident on the 182-day test.

4.6 The 120-day rule and the deemed resident rule

These rules were introduced to stop high-income individuals from staying outside the tax net everywhere. They apply only to Indian citizens and persons of Indian origin.

Person	Indian income (excluding foreign sources)	Test
Citizen or PIO visiting India	Up to Rs. 15 lakh	Resident only if 182 days in the year
Citizen or PIO visiting India	Above Rs. 15 lakh	Resident if 120 days in the year and 365 days in 4 preceding years; if resident only because of this, he is RNOR
Citizen not liable to tax in any country	Above Rs. 15 lakh	Deemed resident, RNOR, regardless of days

Illustration 7: Visiting NRI with large Indian income

Rajesh, an Indian citizen working in Singapore, visits India for 130 days in Tax Year 2026-27. His rental and interest income in India is Rs. 22 lakh. He stayed 400 days in India in the four preceding years. Since his Indian income exceeds Rs. 15 lakh, the 120-day test applies and he is resident but not ordinarily resident. His Singapore salary remains outside Indian tax, but his Indian income is taxed as for a resident, and his return must be filed accordingly.

Illustration 8: Deemed resident

Kunal is an Indian citizen living in the UAE, where there is no personal income tax. He is not liable to tax in any country because of domicile or residence. His Indian income (dividends and capital gains) is Rs. 40 lakh. He is a deemed resident and RNOR for Tax Year 2026-27. Note that income earned in the UAE from his UAE business is still not taxed in India, because RNORs are taxed only on Indian income and income from businesses controlled from India.

4.7 RNOR test worked out

An individual who is resident is further tested for "not ordinarily resident" status. The two alternative conditions are:

He was non-resident in India in 9 out of the 10 tax years preceding the relevant year; or
His total stay in India in the 7 preceding tax years is 729 days or less.

Illustration 9: Returning professional

Meena returns to India permanently in May 2026 after 8 years in the UK. During the 10 preceding years she was resident in two years (2016-17 and 2017-18) and non-resident in eight. In the 7 preceding years she stayed a total of 350 days in India.

She fails the first condition (non-resident in only 8 of 10 years), but meets the second (350 days is less than 730). She is therefore RNOR for Tax Year 2026-27. Her UK pension and UK rental income are not taxable in India in that year. She will usually remain RNOR for one or two years, which gives time to reorganise foreign assets.

Practice note

For returning Indians, plan the timing of sale of foreign assets and redemption of foreign investments to fall within the RNOR years. Foreign bank interest and gains earned in RNOR years are not taxed in India, provided they are not received in India.

4.8 HUF and firms

An HUF is resident if any part of the control and management of its affairs is in India. A resident HUF is "not ordinarily resident" if its karta (manager) is not ordinarily resident. A firm, AOP or BOI is resident unless the control and management is wholly outside India. Control and management means the controlling and directing power, the "head and brain", not day-to-day operations.

4.9 Place of effective management of foreign companies

POEM is a test of where the real decisions are taken. The CBDT guidelines issued under the 1961 Act continue to be followed as a reference. The broad approach is:

Active business outside India (ABOI) test: if a company has passive income of not more than 50% of total income, and less than 50% of its assets, employees and payroll are in India, it is treated as having ABOI and its POEM is presumed to be outside India if the majority of board meetings are held outside India.
Other companies: a two-stage approach. First identify who actually makes the key management and commercial decisions. Then identify where those decisions are made. The place of board meetings is important only if the board really takes the decisions.
Companies with turnover up to Rs. 50 crore are outside the POEM rules.

Illustration 10: POEM risk

An Indian group sets up a subsidiary in Dubai for trading. All contracts are negotiated and approved by the Indian promoter from Mumbai, the Dubai company has one employee who handles paperwork, and board meetings are held by video call with the directors sitting in India. The Dubai company's POEM is likely to be in India. It would then be resident in India and its global profits taxed at 35% plus surcharge and cess.

4.10 Residence under tax treaties (tie breaker)

A person may be resident in both India and another country under their domestic laws. Tax treaties resolve this through tie breaker rules. For individuals the tests are applied in order: permanent home, centre of vital interests (personal and economic relations), habitual abode, nationality, and finally mutual agreement. For companies, most older treaties use the place of effective management; newer treaties and the MLI leave it to mutual agreement.

Illustration 11: Tie breaker

Dev is resident in India under the 182-day test and resident in the US as a green card holder. He owns a house only in the US, where his wife and children live. Under the India-US treaty, his permanent home is in the US, so he is treated as resident of the US for treaty purposes. India can still tax his Indian source income, but not his US salary.

Chapter summary

• Individuals: 182 days, or 60 days plus 365 days in four preceding years (with 120-day and 182-day variations).

• Deemed residence applies to citizens with Indian income above Rs. 15 lakh not taxed elsewhere.

• RNOR status gives relief on foreign income; it usually applies to returning residents for one or two years.

• Companies: Indian companies are always resident; foreign companies are resident if POEM is in India.

• Treaty tie breaker rules decide residence where a person is resident in two countries.