The Role Of Residential Status In Tax Planning
For NRIs, taxation in India is not just about filing returns; it begins with correctly identifying their residential status first. A single misclassification can alter the taxability of income, reporting requirements, and compliance obligations. With evolving regulations, income thresholds, and global mobility, NRIs need structured guidance to stay compliant while optimizing tax exposure. This is where professional NRIfocused tax advisory becomes essential. ExpertNRI, through its specialized NRI tax services in India, supports individuals in accurately determining residential status, managing cross-border income, and ensuring end-to-end compliance under Indian tax laws. The framework of residential status under the Income Tax Act is the core on which all NRI taxation rests, and understanding it thoroughly helps individuals plan their stay, manage income streams, and avoid unnecessary tax burdens.
How residential status shapes NRI tax liability in India Residential status determines the incidence of tax, i.e. whether any income would be taxable or not. The taxability of a particular receipt would depend not only on the nature or place of the receipt but also on the residential status. All persons, except for individuals and Hindu Undivided Family (HUF)s, like firm, company, trust, etc. can either be a resident or a non-resident. Only individuals and HUFs can be a Not Ordinary Resident (NOR) in India. In short there are three residential statuses for an Individual or HUF – Ordinary Resident (OR), Not Ordinary Resident (NOR) or Non-Resident (NR). NOR can also be known as RBNOR (Resident But Not Ordinary Resident. For NRIs, this classification decides:
Whether global income is taxable in India Whether only Indian income is taxable The scope of disclosure and compliance Eligibility for DTAA benefits The best way to determine the residential status for an individual would be to first determine whether a person is a Resident or Non-Resident. If resident, determine whether he is an Ordinary Resident or Not Ordinary Resident.
Determining whether an individual is resident or non-resident As per the Income Tax Act, an individual is a Resident, if: He stays in India for 182 days or more in the previous year OR He stays in India for 60 days or more in the previous year AND 365 days or more during the 4 years immediately preceding the previous year. These two tests form the base for most residential status evaluations.
Special provisions for Indian citizens and Persons of Indian Origin For Indian citizens, who leave India as a member of the crew of an Indian ship or for purposes of employment outside India, the 2nd condition would change to: “He stays in India for 182 days or more in the previous year AND 365 days or more during the 4 years immediately preceding the previous year.” For for Indian citizen/PIO living outside India comes to India for visit; the 2nd condition would change to: If income from Indian source is up to 15 lakhs, “He stays in India for 182 days or more in the previous year AND 365 days or more during the 4 years immediately preceding the previous year.” If income from Indian sources is more than 15 lakhs, “He stays in India for 120 days or more in the previous year AND 365 days or more during the 4 years immediately preceding the previous year.” Also, if an Indian citizen, having income from Indian sources of more than 15L is not liable to tax in any other country is deemed to be a resident of India. This understanding helps determine whether a person is a Resident or Non-Resident.
Resident but Ordinary Resident (OR) vs Not Ordinary Resident (NOR) Only after determining that you are a Resident, you need to go to the next step, which is to determine whether you are an Ordinary Resident (OR) or Not Ordinary Resident (NOR) for Income Tax. A Not Ordinary Resident is a person who: has been a non-resident in India in any 9 out of the 10 previous years preceding the relevant previous year, OR has been in India for a period of 729 days or less during the 7 previous years preceding the relevant previous year. Indian citizen or a PIO who has spent more than 120 days in India and having income from Indian sources of more than 15L Indian citizen who is not liable to tax in any country having more than 15L income from Indian sources
How residential status impacts NRI taxability Your residential classification directly affects the scope of income taxed in India. A Non-Resident is taxed only on income earned or received in India, whereas a Not Ordinarily Resident is taxed on Indian income along with specific foreign income linked to India. In contrast, for an Ordinary Resident, global income becomes taxable. This classification also determines the level of reporting and compliance required, including disclosure of foreign assets, applicability of DTAA benefits, the ability to claim tax credits, and advance tax obligations. Even a few extra days of stay in India can change tax treatment completely. Accurate stay calculation, correct income classification, and long-term planning require specialized expertise, individuals can ensure proper residential status determination, efficient tax planning for Indian and global income, DTAA optimization, correct capital gains and property taxation, and full FEMA and
return filing compliance; with timely planning, NRIs can manage their period of stay to retain the desired tax status, use the NOR phase for a tax-efficient transition to India, structure investments efficiently, avoid dual taxation, and achieve compliant wealth repatriation, making residential status not merely a regulatory condition but a critical tax planning tool.
