Understanding your residential status is crucial for determining your tax obligations in India. Under the Income Tax Act, 1961, an individual’s tax liability depends on their residential status, which is categorized into three main types:
1. Resident and Ordinarily Resident (ROR)
Who qualifies?
An individual is considered a Resident and Ordinarily Resident if:
- They have been a resident in India for at least 2 out of the 10 previous years, and
- They have stayed in India for at least 730 days during the 7 years preceding the current financial year.
Tax Implications:
- Global income is taxable in India.
- Must disclose all foreign assets and income.
2. Resident but Not Ordinarily Resident (RNOR)
Who qualifies?
An individual is considered a Resident but Not Ordinarily Resident if they:
- Have been a non-resident in India in 9 out of the 10 previous years, or
- Have stayed in India for 729 days or less during the 7 years preceding the current financial year.
Tax Implications:
- Income earned or received in India is taxable.
- Income from foreign sources is not taxable unless it is derived from a business controlled in or a profession set up in India.
3. Non-Resident (NR)
Who qualifies?
An individual is considered a Non-Resident if they:
- Have not stayed in India for 182 days or more during the current financial year, and
- Have not stayed in India for 60 days or more during the current financial year and 365 days or more during the 4 years preceding the current financial year.
Tax Implications:
- Only income earned or received in India is taxable.
- Income earned outside India is not taxable in India.
Special Cases
Deemed Resident:
An individual is deemed to be a resident in India if they are a citizen of India, have total income (excluding foreign sources) exceeding ₹15 lakh during the previous year, and are not liable to tax in any other country.
Importance of Determining Residential Status
Determining your residential status is essential for:
- Accurate tax filing.
- Understanding tax liabilities on global income.
- Compliance with disclosure requirements for foreign assets.
Understanding these classifications helps in effective tax planning and ensures compliance with Indian tax laws.
