In India, the residential status of an individual is a crucial determinant for taxation purposes. The Income Tax Act, 1961, outlines the criteria for determining the residential status of an individual. The three categories of residential status are:
- Resident: An individual is considered a resident in India for a particular financial year if any of the following conditions are met:
- They are present in India for 182 days or more during the financial year, or
- They are present in India for 60 days or more during the financial year and have been present in India for 365 days or more during the four years immediately preceding the relevant financial year.
- Non-resident: An individual is considered a non-resident if they do not satisfy any of the conditions mentioned above.
- Resident but Not Ordinarily Resident (RNOR): An individual is classified as RNOR if they are a resident in India for a particular financial year but meet either of the following conditions:
- They have been a non-resident in India for nine out of the ten financial years preceding the relevant financial year, or
- They have been present in India for a period of 729 days or less during the seven financial years preceding the relevant financial year.
The residential status of an individual determines their tax liability in India. Residents are taxed on their global income, which includes income earned both within and outside India. Non-residents, on the other hand, are taxed only on income earned in India or income received or deemed to be received in India. RNORs are taxed in a manner similar to non-residents, except for certain specified income, which is taxed as in the case of residents.