How Residential Status is determined as per the Income-tax Act, 1961

Under Income Tax, the residential status of a person is one of the most important criteria in determining the tax implications. The residential status of a person can be categorised into:

• Resident and Ordinarily Resident (ROR), 
• Resident but Not Ordinarily Resident (RNOR) and 
• Non- Resident (NR)

Let us understand how the residential status of the person can be identified-

Resident

A resident taxpayer is an individual who satisfies any one of the following conditions:

• Resides in India for a minimum of 182 days in a year, OR
• Resided in India for at least 365 days in the immediately preceding four years and for a minimum of 60 days in the current financial year.

For example, consider the case of Mr. D, who is the business head of the Asia Pacific region for a private firm. Mr. D was born and brought up in India. He has to travel to various locations of the continent for business purposes. He has spent 200 days travelling in the current financial year. Also, he has been travelling abroad for the past two years and has stayed out of India for about 400 days in this period.

Let us evaluate whether Mr. D was resident in India for the current financial year.

Condition I (Resides in India for a minimum of 182 days in a year) – Not satisfied

To figure out the resident status of Mr D, you will understand that he has only spent 165 days in India during the current Financial year. Hence, he does not satisfy the first condition. 

Condition II (Resides in India for a minimum of 365 days in the immediately preceding four years and for a minimum of 60 days in the current financial year) – Satisfied

However, it is given that Mr. D has been travelling only for the past two years. Also, it is said that he has travelled for 400 days in the past two years. That means, in the past four years, Mr. D has stayed in India for more than 365 days (1061 days). 
Hence, Mr. D has resided for at least 60 days in the current financial year and more than 365 days in the immediately preceding four financial years. Therefore, Mr. D satisfies the second condition.

Hence, if any one of the above two conditions is satisfied, he is a resident taxpayer.

Resident and Ordinarily Resident (ROR) and Resident but Not Ordinarily Resident (RNOR)

There is a further classification under the resident status – Resident and Ordinarily Resident (ROR) and Resident but Not Ordinarily Resident (RNOR). 

In addition to the basic conditions, if both the below conditions are met, he will be an ROR:

• He has resided in India for at least 2 out of 10 immediate previous years, and
• He has resided in India for at least 730 days in 7 immediately previous years.

In the above example, Mr. D will be considered a resident of India. Let us further classify whether Mr. D is ROR or RNOR.

If both the additional conditions are satisfied, then Mr. D is ROR.
Considering the example, Mr. D has been traveling out of India for the past  2 years only. Hence, the first condition is satisfied as he resided in India for at least 2 years out of the last 10 years. Also, he has fulfilled the criteria of residing for at least 730 days in the last seven years. Therefore, he can be considered as Resident Ordinarily Resident.
If any one of the additional conditions is satisfied, then Mr. D is RNOR.

Alternatively, consider that he had to work from the headquarters of his firm, located in Kota Kinabalu, Malaysia, for the past six years. He has only visited his parents for a week twice a year during this time. That means he has resided in India for 449 days in the past six years and the same applies for the current financial year too. In this case, the first condition is satisfied but not the second. Therefore, Mr. D is a Resident Not Ordinarily Resident.

Non-Resident

An individual who does not satisfy the basic conditions of residence can be considered as a non-resident. 

For example, Ms. G went to London to join a reputed university for a graduation course (three years). While studying there, her professor suggested that she join a post-graduate course at the same university (two years). She had to get an internship certificate to complete the course. Upon completion, the firm offered her a permanent position. She has been an employee there for the past four years. That is, Ms G has stayed out of India for nine years now. She receives rental income from the property that she inherited from her parents. Both the basic conditions are not satisfied. That makes Ms G a non-resident.
Note:
(A) The condition of a minimum 60-day stay in the current financial year will get extended to 182 days in all the cases if:

• A person is a citizen of India and he leaves India for employment during the current financial year.

• A person who stays outside India but is a citizen of India or a Person of Indian Origin (PIO), and comes on a visit to India during the year.
  • However, if the income sourced from India exceeds Rs 15 lakhs in a financial year, then 120 days is applicable instead of 182 days.

(B) Irrespective of the number of days of stay in India a Citizen of India having income exceeding Rs 15 lakhs in India and is not liable to tax in any other country due to his residence or domicile will be considered a Resident in India, i.e Even if an Indian citizen fails the basic condition, His residential status will be RNOR instead of Non-resident.

Summary Chart to determine Residential Status