Tax Status: Resident vs. Non-Resident

Tax Status: Resident vs. Non-Resident

Living in India or earning money there? The Indian government needs to know where you stand for tax purposes. Your residential status determines how much tax you pay on your income.

Resident vs. Non-Resident: What is the Difference?

It all comes down to how much time you spend in India. The Indian Income Tax Act classifies you as a resident, a non-resident, or somewhere in between (resident but not ordinarily resident).

·  Resident (Resident and Ordinarily Resident - ROR): This is the most common category. You are considered an ROR if you spend: 

o   182 days or more in India during a financial year (April 1st to March 31st).

o   At least 60 days in the current year, and 365 days or more in the four preceding years.

There are some other ways to qualify as an ROR, but they are not common. You might be considered ROR if you have spent:

* **730 days or more** in India seven years before the current year.

* In India for at least **two of the ten previous years**.

·       Resident but Not Ordinarily Resident (RNOR): This category applies if you meet the basic resident criteria (spending a certain amount of time in India) but don't quite qualify for full ROR status based on the longer-term stay requirements.

·       Non-Resident (NR): If you spend less time in India, you are likely considered a non-resident. This applies if you stay in India for:

o   Less than 182 days in a financial year.

o   Less than 60 days in the current year and less than  365 days in the preceding four years.

What Does Your Residential Status Mean for Taxes?

·       Residents: As a resident, you pay taxes on all your income, both what you earn in India and abroad.

·       Non-residents and RNORs: You only pay taxes on your income in India. There are tax treaties (Double Taxation Avoidance Agreements or DTAAs) India has signed with other countries to avoid paying taxes twice on the same income.

How to Figure Out Your Residential Status?

1.      Exceptions: Check if any special rules apply to you based on your visa type or profession (diplomats, foreign students, etc.).

2.      182-Day Rule: If you spend 182 days or more in India during a financial year, you are considered a resident for that year.

3.      Previous Year Stays: If you do not meet the 182-day rule, consider your stay in India during the previous four years to determine your ROR or RNOR status.

Some additional tips

·       Keep a record of your time spent in India and abroad.

·       Understand the tax implications of any foreign income you earn.

·       If you are uncertain about your residential status, it is always best to seek professional advice.