Ask any NRI what worries them most at tax time and it’s usually the same question: “Am I even a resident this year?” That single determination decides how much tax is owed, which bank accounts are permitted and whether income tax law or FEMA governs a given transaction. ICAI’s handbook on Residential Status, Tax and FEMA exists because this is one of the most commonly misjudged areas in NRI compliance and the Income-tax Act, 2025 has added a new layer to get right.
The Residency Tests Under the New Act
But then, the residency will be determined again each financial year based on the physical presence in India. Likewise, in the Income-tax Act, 2025, section 6 also follows the same structure. In the case that one has been physically present in India for at least 182 days or 60 days or more in that particular year and has also been physically present in the last four years for 365 days or more, then one becomes a resident. Miss both and the person is non-resident.
Residents then split into “Resident and Ordinarily Resident” (ROR) or “Resident but Not Ordinarily Resident” (RNOR) a distinction that changes tax outcomes significantly. An ROR pays tax on worldwide income foreign salary, overseas rent, interest in a foreign account, all of it. An RNOR is taxed only on Indian income, plus foreign income tied to a business run from or profession based in India a genuine foreign salary usually escapes the net. A non-resident is taxed only on income earned or received in India. RNOR status applies if the person was non-resident in nine of the preceding ten years or their total stay in India over the preceding seven years was under 730 days a soft landing for NRIs who’ve just moved back. Tax years starting before 1 April 2026 are still assessed under the old Section 6; the new Act applies going forward, not backward.
Common Pitfalls the Handbook Flags
Assuming under-182-days means non-resident. The second test 60 days this year plus 365 days across the previous four can still pull a frequent visitor into resident territory. Two exceptions soften this: an Indian citizen leaving for a job abroad or as ship’s crew gets the 60-day limit relaxed to 182 days in the year of departure and Indian citizens/PIOs visiting India aren’t automatically caught by the 60-day rule either unless their income crosses a threshold, covered next.
Missing the ₹15 lakh / 120-day trap. This catches high earners who time India visits to stay non-resident while drawing serious Indian income. If a visiting Indian citizen or PIO earns more than ₹15 lakh from India, excluding foreign income, the 60-day threshold drops to 120 days. Cross 120 days with the 365-day condition also met and residency follows. A further wrinkle: if such a person stays 120+ days, earns above ₹15 lakh and isn’t liable to tax anywhere else due to domicile, they can be treated as a “deemed resident” and placed in RNOR rather than full ROR designed to stop stateless, highly mobile individuals paying tax nowhere.
Worked example An NRI earning ₹22 lakh in Indian rental and director’s fees visits India for 135 days this year with 400 cumulative days over the prior four years. Because income exceeds ₹15 lakh, the 60-day threshold drops to 120 at 135 days, with the 365-day condition also met, this person becomes resident likely RNOR if not taxed elsewhere, rather than the non-resident status they assumed.
Assuming intent alone proves “leaving for employment.” ICAI guidance requires genuine documented evidence a signed employment or secondment contract, valid work visa, a departure date matching the job’s start and salary linked to the foreign employer. A conference trip or medical treatment abroad doesn’t qualify, however long it runs.
Treating FEMA and Income Tax residency as the same test. They aren’t and this trips up even experienced professionals. Income tax residency is a day-counting exercise assessed after the year closes and fixed for the full year. FEMA, under Section 2(v), turns mainly on intention and purpose of stay, with day-counting only a reference point someone leaving India for employment, business or a vocation becomes a “person resident outside India” immediately, no waiting period and the reverse applies on arrival. FEMA also allows split residency within a year, which income tax law doesn’t permit. It’s entirely possible to be FEMA-resident while still non-resident or RNOR under the Income Tax Act in the same year the two tests must be run separately.
A Step-by-Step Decision Flow
1. Count India days for the current year and the preceding four years.
2. Apply the basic test: 182 days this year or 60 days plus 365 days across the prior four years resident if either is met.
3. Check for exceptions: genuine overseas employment or ship’s crew (60-day threshold relaxed to 182) or the ₹15 lakh / 120-day rule for visiting citizens and PIOs with significant Indian income.
4. If resident, test for ROR vs RNOR: non-resident in nine of the last ten years or under 730 days present over the last seven either qualifies for RNOR.
5. Determine tax filing obligations accordingly: worldwide income for ROR, Indian-plus-controlled-foreign-income for RNOR, India-sourced income only for non-residents.
6. Separately assess FEMA status: based on intention and purpose of stay at the relevant date, not the income tax day count, since FEMA governs bank accounts and permitted investment routes independently of tax residency.
7. Match FEMA status to the correct reporting obligations: which accounts (NRE/NRO/RFC) can be held, and which returns or declarations follow from that classification.
Before filing, a few checks are worth doing every year track every entry and exit carefully, since both count check Indian income against ₹15 lakh before assuming a short visit is safe keep employment contracts and visas on hand rather than relying on memory and if recently returned, check RNOR eligibility, since it can meaningfully soften the first year or two of tax exposure.
Where SKMC Global Fits
Residential status determinations sit at the intersection of two legal tests that can produce different answers for the same person in the same year and the cost of getting either wrong an unexpected worldwide-income assessment, a restricted bank account, a missed FEMA declaration is rarely trivial. SKMC Global tax and FEMA advisory practice for NRIs works through both tests together running the day-count and deemed-residency analysis under the Income-tax Act, 2025, assessing FEMA status independently based on intention and purpose and aligning tax filing positions with the correct account structure and FEMA reporting before a mismatch becomes a compliance issue. For inbound professionals settling back in India, or outbound NRIs managing income and assets across both regimes, that combined view is usually where the real value sits not in either test alone.
FREQUENTLY ASKED QUESTIONS
A person is resident if they stayed in India 182 days or more in the tax year, or 60 days or more that year plus 365 days or more across the preceding four years. Fall short of both and the person is non-resident; residents are then split into ROR or RNOR based on residency history over the past 7–10 years.
No. The alternate 60-day-plus-365-day test can still create resident status, unless a specific exception applies, such as leaving India for employment or the special rules for visiting NRIs.
Visiting Indian citizens or PIOs earning above ?15 lakh from India face a tighter 120-day threshold instead of the usual 60 days. Cross it, along with the 365-day condition and residency sometimes as a deemed RNOR can follow.
Genuine, documented overseas employment: a signed contract, valid work visa and a departure date matching the job’s start. Travel, study or job-hunting abroad don’t qualify and ICAI expects members to verify paperwork before certifying relaxed residency.
Income tax residency counts days in the current year and applies for the full year. FEMA residency is based on intention and purpose, referencing the preceding year, and can change on a specific date. The two are assessed independently and can differ for the same person in the same year.
RNOR taxpayers are taxed only on Indian income, plus foreign income tied to an India-controlled business or profession. Foreign salary and overseas bank interest generally stay untaxed during this window, making RNOR a useful cushion for NRIs who’ve recently returned home.