Residential status under the Income-tax Act

Residential status determines whether India taxes only the income you earn or receive in India, or your worldwide income. A resident is generally taxed on global income, while a non-resident is taxed only on income that arises in or is received in India. There is also an in-between category with a narrower scope. Because the difference can be substantial, especially for people with overseas earnings or assets, settling your status correctly is the foundation of an accurate return.

Residency is decided primarily by counting the days you are physically present in India during the financial year, with a supporting test that looks at your presence over a run of earlier years as well. Broadly, sufficient presence in the current year makes you a resident; alternatively, a combination of moderate presence this year and substantial presence over recent years can also make you resident. The precise number of days for each test is set by law, so count your travel dates carefully and confirm the applicable thresholds rather than estimating.

Among residents there is a further split: ordinarily resident and not ordinarily resident (RNOR). The RNOR category is a transitional status, often relevant to people returning to India after years abroad. An ordinarily resident is taxed on worldwide income, whereas an RNOR enjoys a narrower scope closer to that of a non-resident on certain foreign income. Whether you fall into RNOR depends on your history of residence and presence over earlier years, so your past travel matters, not just the current year.

You are a non-resident for a year if you do not meet the conditions to be a resident. As a non-resident, India generally taxes only income that accrues or arises in India, or is received in India — for example, rent from Indian property, certain interest, or income from work performed in India. Foreign income earned and received abroad typically stays outside India's net. Many people who work overseas for most of the year fall into this category, but the day count must still be checked each year.

Residential status is determined afresh for every financial year — it is not a permanent label. A change in your travel pattern, a move abroad or a return to India can shift your status from one year to the next, with real consequences for what you must report and where double-tax relief may apply. Keep a record of your entry and exit dates, and reassess your status each year before filing rather than carrying forward last year's position.