When it comes to paying income tax in India, the first question is not about numbers, but about whether I am a resident or a non-resident.
This one question decides your whole tax journey, and the answer to this question decides whether you will be taxed only on income earned in India. The Income Tax Act, 1961, lays down detailed rules for determining the residential status of different types of taxpayers, individuals, Hindu Undivided Families (HUFs), firms (including Limited Liability Partnership), and companies. It is pertinent to note that these rules are not based on your nationality or citizenship, but on where you actually live, how long you have lived, and whether the management of your business is during a financial year.
In this blog, we will understand the residential status of individuals, Hindu Undivided Families (HUFs), firms (and similar entities), and companies incorporated in India.
Basic Test for Individuals
Under Section 6(1) of the Income Tax Act, 1961, an individual (and similarly, an HUF) is classified as resident if they meet either of two eligibility tests:
- 182 days or more in India during the year; or
- 60 days or more in that year and 365 days or more over the previous four years combined, though for Indian citizens or persons of Indian origin, this 60-day threshold can be raised to 182 days under certain conditions.
Categories of Resident
Once you are deemed a resident, you are further classified as:
1. Resident and Ordinarily Resident (ROR):
If you have been a resident for 2 out of the last 10 years and have stayed in India for 730 days or more during the previous 7 years, then you shall be resident, and you have to pay tax in India on your total income from anywhere in the world.
“Anywhere in the world” means the income earned in India or outside India
2. Resident but Not Ordinarily Resident (RNOR):
If you fail at least one of the ROR criteria, you are RNOR. In simple language, you are a resident but not ordinarily resident if either:
- If in the past 10 years, you mainly lived outside India, basically 9 out of 10 years, or
- You stayed in India for 729 days or fewer in the last 7 years.
3. Non-Resident in India (NRI):
You are an NRI if you don’t meet either of the basic tests at all.
4. Special “Deemed Resident” Rule:
If you are an Indian citizen or person of Indian origin whose income, excluding foreign income, surpasses ₹15 lakhs in a year, and you are not taxable in any other country, you shall be considered as a ‘Resident’ regardless of your stay in any country. Such individuals are treated as RNOR by default.
Hindu Undivided Families (HUFs)
Section 6(2) of the Income Tax Act, 1961, on the Hindu Undivided Family. It states that an HUF is treated as a resident in India unless its control and management are entirely outside India.
If HUF is resident, its status, whether ROR or RNO, depends on the Karta of the family.
- ROR: Karta must have been a resident in 2 of the last 10 years, and stayed 730 days or more in the last 7 years.
- RNOR: Karta was non-resident in 9 of 10 years, or stayed 729 days or less in 7 years.
Firms, AOPs (Associations of Persons), BOIs, Local Authorities and other entities
According to Section 6(4) of the Income Tax Act, 1961, firms, Association of Persons, the Body of Individuals, or other entities such as trusts, are residents if their control and management is either completely or partially in India. They are non-resident only if their control and management are entirely outside India.
In simpler words:
- If the decision-making and overall “brain” of the operation are inside India (even partly), it is a resident.
- If all decisions come from outside India, it is a non-resident.
Companies
Section 6(3) of the Income Tax Act, 1961, governs the residential status of the company:
- Indian company: Always considered a resident even if control comes from abroad.
- Foreign company: Its status depends on its Place of Effective Management (POEM). If critical business decisions are made in India, it qualifies as a resident. If not, it remains a non-resident. However, if its turnover/gross receipts are ₹50 crore or less, it is always considered non-resident, regardless of POEM.
Residential Status at a Glance
| Assessee type | When treated as a resident | Categories / Notes |
| Individual | If present in India:
– 182 days or more in a year, OR – 60 days in a year and 365 days in the last 4 years (raised to 182 days for Indian citizens/PIOs in some cases). |
– Resident & Ordinarily Resident (ROR) • Resident but Not Ordinarily Resident (RNOR)
– Non-Resident (NRI) – “Deemed Resident” rule if Indian income is more than ₹15 lakhs and not taxed elsewhere |
| HUF (Hindu Undivided Family) | If control & management is not wholly outside India | Further divided into:
– ROR – RNOR (based on Karta’s stay and history) |
| Firm / AOP / BOI / Other entities | If control & management is wholly or partly in India | Only two options: Resident or Non-Resident |
| Indian Company | Always Resident (irrespective of control location) | No sub-division |
| Foreign Company | If the Place of Effective Management (POEM) is in India and the turnover is more than ₹50 crores | If POEM outside India or turnover is less than ₹50 crore → Non-Resident |
Conclusion
Your residential status decides how much tax you pay in India. It doesn’t matter what passport you hold or where you were born. In fact, what really matters is how many days you spend in India or where your business is controlled from.
- If you are a Resident and Ordinarily Resident (ROR), then you have to pay tax on your worldwide income (India + abroad).
- If you are a Resident but Not Ordinarily Resident (RNOR), then you have to pay tax only on income from India and money received in India.
- If you are a Non-Resident in India (NRI), then you shall be taxed only on income that arises or is received in India.
Related Service
