Residential Status and Its Impact on Tax Liability in India – Complete Guide
Residential Status is the foundation for determining tax liability under the Income Tax Act, 1961. It defines whether your global income or only Indian income is taxable in India.
Important: Residential Status depends on your physical stay in India, not your citizenship.
Meaning of Assessee
As per Section 2(7), an Assessee means a person liable to pay tax under the Income Tax Act. It includes:
- Individual
- Company
- Firm
- HUF
- AOP / BOI
Types of Residential Status
| Status | Meaning |
|---|---|
| Resident and Ordinarily Resident (ROR) | Fully resident in India |
| Resident but Not Ordinarily Resident (RNOR) | Partial resident |
| Non Resident (NR) | Non resident |
Basic Conditions to Become Resident
An individual is Resident if ANY ONE condition satisfied:
✔ Stay in India ≥ 182 days in Financial Year
OR
✔ Stay ≥ 60 days in FY AND 365 days in previous 4 years
OR
✔ Stay ≥ 60 days in FY AND 365 days in previous 4 years
Additional Conditions for ROR
To become ROR, BOTH must be satisfied:
- Resident in at least 2 out of last 10 years
- Stay in India ≥ 730 days in last 7 years
Taxability Based on Residential Status
| Income Type | ROR | RNOR | NR |
|---|---|---|---|
| Indian Income | Taxable | Taxable | Taxable |
| Foreign Income | Taxable | Not Taxable* | Not Taxable |
*Except income from business controlled in India
Special Benefit for Returning NRIs
RNOR Status provides major tax benefit:
- Foreign Income not taxable
- No foreign asset disclosure
- Huge tax saving opportunity
Residential Status of Other Assessees
- Company: Resident if POEM in India
- Firm: Resident if control in India
- HUF: Resident if management in India
Importance in Tax Planning
Conclusion
Residential Status is the most critical factor in determining tax liability. Proper determination helps:
- Save tax legally
- Avoid penalties
- Ensure compliance
Need Help with NRI or Residential Status Taxation?
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