According to the residency criteria outlined in the Income Tax Act, 1961, an individual can fall into one of the following categories:
• Ordinary Resident (OR)
• Resident but Not Ordinarily Resident (RNOR)
• Non-Resident (NR).
This determination is based on the individual’s duration of stay in India during both the current year and the preceding years.
An individual is categorized as a resident for a specific year, which refers to the financial year for which the residency status is being assessed, if:
• Their stay in India for that particular year exceeds 182 days; OR
• Their stay in India for that particular year exceeds 60 days AND their cumulative stay in the 4 years immediately preceding that year exceeds 365 days.
If neither of these conditions is met, the individual is classified as a ‘Non-Resident’.
If either of the conditions mentioned above is fulfilled, the individual is classified as a ‘Resident.’ Once this status is established, the next step is to determine whether they are an ‘Ordinary Resident’ or a ‘Resident but not Ordinarily Resident.’ This classification is based on the following criteria:
• The individual has maintained Non-Resident status for 9 out of the 10 years immediately preceding the current year – indicating that the two residency criteria mentioned earlier were not met for 9 out of the last 10 years; OR
• Their cumulative stay in India over the 7 years immediately preceding the current year does not exceed 729 days.
If either of these conditions is met, the individual is classified as a ‘resident but not ordinary resident.’ If neither condition is fulfilled, the individual is considered an ‘ordinary resident.’
An individual who is a citizen of India and has a total income, excluding income from foreign sources, surpassing INR 15 lakh rupees in the preceding year will be considered a resident in India for that year, provided they are not subject to taxation in any other country or jurisdiction due to their domicile, residency, or similar criteria. However, it’s important to note that these deemed resident provisions do not apply to individuals meeting the definition of ‘resident’ as outlined earlier.
Understanding one’s residency status is crucial because it dictates the tax obligations in India. A resident is subject to taxation on their worldwide income, encompassing income generated both within and outside India. On the other hand, non-residents, not-ordinary residents, and deemed residents are only liable for taxes on income derived from sources within India.
