Taxation of individuals in India is primarily based on their residential status in the relevant tax year. See the Taxes on personal income section for a description of the types of residential status envisaged for an individual.
An individual is said to be a resident in the tax year if he/she is:
- physically present in India for a period of 182 days or more in the tax year (182-day rule), or
- physically present in India for a period of 60* days or more during the relevant tax year and 365 days or more in aggregate in four preceding tax years (60-day rule).
If none of the above two conditions are met, the individual is said to be an NR in that tax year.
- If Mr. A comes to India on or before 30 September, he will be treated as resident for that tax year.
- If Mr. B comes to India on or before 31 January and has stayed in India for 365 days or more during the four tax years preceding the relevant tax year, he will be treated as resident for that tax year.
A resident individual is treated as RNOR if he/she satisfies any one of the following conditions:
- He/she has been an NR in nine out of ten tax years preceding the tax year for which residential status is being determined.
- His/her physical presence in India is less than or equal to 729 days during seven tax years preceding the tax year for which residential status is being determined.
A resident individual not satisfying both of the above conditions is treated as ROR.
If an expatriate stays in India for 300 days for each of three tax years, then he/she will not qualify as RNOR in the fourth year because of the following reasons:
- He/she is not an NR in nine out of ten tax years.
- His/her physical presence in India exceeds 729 days in the preceding seven tax years.
In determining the physical presence of individuals in India, it is not essential that their stay in the country needs to be continuous or at the same place.
Furthermore, their date of arrival in India and date of departure from it may be considered as their period of stay in the country. The purpose of their residence in India is irrelevant, and even if it is for a visit to their families or tourism, it is counted as a stay in India for residency purposes.
In effect, a newcomer to India normally remains an NR/RNOR for the first two to three tax years of stay in India.
*The rules are slightly more liberal for a person who is of Indian origin or an Indian citizen residing abroad and visiting India, or who is an Indian citizen and leaves India for employment abroad.
- An Indian citizen who leaves India as a member of the crew of an Indian ship or for taking employment abroad will qualify as a resident of India only if physically present in India for 182 days or more during that tax year.
- An Indian citizen or a person of Indian origin having taxable India-sourced income not exceeding INR 1.5 million and who, being outside India, comes on a visit to India will qualify as a resident of India only if physically present in India for 182 days or more during that tax year.
Effective 1 April 2020, an Indian citizen or person of India origin who, being outside India, comes on a visit to India and whose India-sourced taxable income exceeds INR 1.5 million during the relevant tax year will qualify as a resident of India only if physically present in India for 120 days or more during that tax year and 365 days or more during the previous four tax years immediately preceding the relevant tax year. Further, such an individual will qualify as RNOR if the total stay in India during the relevant tax year is 120 days or more but less than 182 days.
Effective 1 April 2020, a concept of deemed residency has been introduced. An Indian citizen having India-sourced taxable income exceeding INR 1.5 million during the relevant tax year will be deemed to be a resident of India if one is not liable to tax in any other country by reason of domicile or residence or any other criteria of similar nature. Further, such an individual will qualify as RNOR in India for the relevant tax year.
The above rule of determining a person as a 'deemed resident' of India will only be applicable where the normal rule of residency based on the individual's physical presence in India during the relevant previous year and/or past four tax years is not applicable.
For the purpose of residency in India, the expression 'India-sourced taxable income' will include income deemed to accrue or arise in India.
To provide more clarity on the applicability of this provision, the definition of the term 'liable to tax' is introduced, which means that there is a liability of tax on the person under any law for the time being in force in any country and also includes cases where, subsequent to imposition of tax liability, an exemption has been provided.