It is critical for the Income Tax Department to establish a taxable individual’s or a company’s residence status. It is especially important during the tax filing season. In reality, this is one of the variables used to determine a person’s taxability.

Residential Status for Income Tax

An individual’s taxability in India is determined by their residential status under the Income Tax Act in India for any given fiscal year. The phrase “residential status” was coined by India’s income tax rules and should not be confused with an individual’s citizenship in India.

An individual may be an Indian citizen but become a non-resident for a certain year. Similarly, a foreign citizen may become a resident of India for income tax purposes in a given year.

It is also worth noting that residential status for income tax purposes differs for various types of entities, such as individuals, corporations, and companies, and is determined differently.

Resident Status Classifications

The Income Tax Law divides an individual's residence status in India into three categories based on the length of time he or she has lived in India. An individual’s residential status includes his or her current fiscal year and previous years of stay.

The following categories are used to classify an individual’s residence status.

Resident (ROR)
Resident but Not Ordinarily Resident (RNOR)
Non-Resident (NR)

Resident and Ordinarily Resident (ROR)

Individuals are deemed to be residents of India under Section 6(1) of the Income Tax Act if they meet the following conditions: If he/she stays in India for 182 days or more in a fiscal year, or if he/she stays in India for 60 days or more in a fiscal year, and if he/she stays in India for 365 days or more in the four years immediately before the previous year and comes under ordinary resident in income tax.

According to section 6(6) of the Income Tax Act of 1961, there are two criteria under which an individual will be considered a “Resident and Ordinarily Resident” (ROR) in India.

If he or she spends 730 days or more in India in the seven years preceding the current year.
If he/she has resided in India for at least two of the ten prior fiscal years before the current year.

Resident but Not Ordinarily Resident (RNOR)

A person is called Resident and Ordinarily Resident only when they have a long and regular connection with India. For this, both conditions below must be met:

The person was a resident of India for at least 2 of the last 10 years, and
The person stayed in India for 730 days or more in total during the last 7 years.

Meeting both conditions shows that the person has been living in India consistently over time, not just recently.

A resident will be treated as a Resident but Not Ordinarily Resident when this long-term connection is missing or limited.

This happens in three situations:

The person fails to meet either one or both of the conditions required to become an ROR.
The person is an Indian citizen or a person of Indian origin whose Indian income (excluding foreign income) exceeds ₹15 lakh, and who stayed in India for 120 days or more but less than 182 days during the year.
The person is considered a deemed resident under the law. In such cases, the law automatically classifies them as RNOR.

Non Resident (NR)

An individual will be eligible for Non-Resident (NR) status if he or she meets the following criteria:

If an individual spends less than 181 days in India within a fiscal year.
If an individual stays in India for no more than 60 days in a fiscal year.
If an individual stays in India for more than 60 days in a fiscal year but does not remain for 365 days or more in the preceding four fiscal years.

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Tax for Residents, NR, NROR

For a Resident	A resident will be taxed in India on their total income, including income generated in India and income obtained outside India.
For NR and RNOR	Their tax burden in India is limited to income earned in the country. They are not required to pay any tax in India on their international earnings. Also, in the event of double taxation of income, when the same income is taxed in India and another country, one may rely on the Double Taxation Avoidance Agreement (DTAA) that India has signed with that country to avoid paying taxes twice.

How to Calculate the Residential Status of an Individual?

First, it is noted whether the individual falls under the exceptions for primary conditions.
After which, it is noted if they satisfy the basic condition of 182 days or more. If they fall under the classification, they would be treated as residents or non-residents.