Residential status is the single most important factor determining your tax liability in India. A Resident (ordinarily resident) pays tax on global income. A Non-Resident pays tax only on India-source income. The determination is based on physical presence in India during the financial year — and the rules are more nuanced than most people realise.
The Three Categories of Residential Status
- Resident and Ordinarily Resident (ROR): Taxable on global income — all income from India and abroad.
- Resident but Not Ordinarily Resident (RNOR): Taxable on India-source income + income from business/profession controlled from India. Foreign income generally not taxable. A transitional status for returning NRIs.
- Non-Resident (NR): Taxable only on income received in India or deemed to accrue or arise in India.
The Basic Condition: Section 6(1)
You are a Resident in India for a financial year if you satisfy either of these conditions:
- Condition 1: You are in India for 182 days or more during the financial year (1 April to 31 March), OR
- Condition 2: You are in India for 60 days or more during the financial year AND 365 days or more in the preceding 4 financial years.
If neither condition is met, you are a Non-Resident for that year.
Important exception: For Indian citizens / PIOs who leave India for employment / as crew of an Indian ship, the 60-day condition in Condition 2 is replaced by 182 days. Similarly, Indian citizens / PIOs visiting India — the 60-day threshold is replaced by 120 days (if total income from Indian sources exceeds ₹15 lakhs).
RNOR Status: When Does It Apply?
A Resident is classified as RNOR if either of the following additional conditions is satisfied:
- You have been a Non-Resident for 9 out of the 10 preceding financial years, OR
- You have been in India for a total of 729 days or less in the 7 preceding financial years.
Returning NRIs typically enjoy RNOR status for 2–3 years after returning to India — during which their foreign income (from investments kept abroad, for example) is not taxable in India.
Practical Implications by Status
| Income Type | NR | RNOR | ROR |
|---|---|---|---|
| Salary earned in India | Taxable | Taxable | Taxable |
| Rental income from Indian property | Taxable | Taxable | Taxable |
| Salary earned abroad | Not taxable | Not taxable | Taxable |
| Interest on NRE account | Exempt | Exempt | Taxable |
| Foreign capital gains | Not taxable | Not taxable | Taxable |