Residential Status under Income Tax Act

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Residential Status under Income Tax Act

All individuals and businesses must pay applicable taxes on their earned income every financial year to avoid fines. However, under the Income Tax Act 1961, the calculation of tax on earned income depends on your residential status.

The term residential status is an integral part of the Income Tax Act as it determines whether the individual being taxed is a resident or a non-resident. Based on this assessment, the tax applicability is calculated.

To understand this better, let us examine what residential status is in India, the different classifications of residential status, and how the tax applicability is determined for each classification in this blog.

What is Residential Status in India?

To define residential status in India, let us first understand the key factors that impact your residential status in the country. The different categories of residential status are based on an individual's connection with India and the time duration they have stayed in the country.

Residential status is not the same as citizenship status. It is purely implemented to assess the category of an individual and their income when it comes to fulfilling their tax obligations as per the Income Tax Act.

Moreover, it is important to note that the residential status for individuals will differ from the residential status of businesses, companies, etc.

Classifications of Residential Status of an Individual under the Income Tax Act

Under the Income Tax Act, an individual's residential status is divided into 3 sub-categories: Resident and Ordinarily Resident, Resident but not Ordinarily Resident and Non-Resident. Here are the eligibility criteria for being a resident of India.

The individual has been in India for at least 182 days out of the 365 days within a financial year.

The individual has been in India for at least 60 days in the financial year and for at least 365 days in the last 4 years before the current financial year.

Let's look at the 3 subcategories below.

Resident and Ordinarily Resident (ROR)

  • This is one of the most common categories of resident status in India. Any Indian citizen meeting the following criteria, in addition to the above-mentioned resident criteria, is called a resident and ordinarily resident.

  • The individual has spent at least 730 days or more in India in the last 7 years before the current financial year.

  • The individual has lived in India for at least 2 years out of the last 10 years before the current financial year.

Resident but Not Ordinarily Resident (RNOR)

  • Another category of residential status for individuals is called resident but not ordinarily resident. There are 3 situations under which an individual can be termed an RNOR:

  • Any individual who does not meet the ROR category.

  • If a person is an Indian citizen or person of Indian (PIO) origin with a total income (not including foreign income) of more than Rs.15 lakhs and has lived in the country for less than 180 days but more or equal to 120 days during that previous year multiple benefits like cashless treat

  • If an individual, by default, is deemed to be a resident of India.

Non-Resident (NRI)

  • An individual who does not meet the criteria mentioned above for resident status but meets the following criteria is called a non-resident.

  • The individual spends less than 181 days in India in one financial year.

  • The individual stays in India for more than 60 days in one financial year but less than 365 days in the last four years before the current financial year.

Tax Implications for Different Residential Status

Residential Status Tax Implications 
ROR All income generated within India and outside India is taxable for individuals who fall under the ROR category.
RNOR & NRI Limited income is taxable based on the percentage generated within India. No international earnings are taxable for this category. 

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Now that you understand the different categories of residential status in India under the Income Tax Act, you must also know other aspects of the Income Tax Act that can help with exemptions and deductions.

One such aspect is health insurance premiums. When you invest in medical insurance plans, you can avail of a deduction of up to ₹25,000 for self, spouse, and children, and ₹50,000 for elderly parents on premiums paid under section 80D.

Moreover, when you invest in a medical insurance plan from Tata AIG, you can avail of multiple benefits like cashless treatments at any hospital in India, wide coverage, ample financial security, and much more.

If you are looking for adequate coverage at affordable rates, you can explore our 5 lakh health insurance plan and enjoy high peace of mind and financial security in times of medical emergencies.

Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

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How to determine my residential status in India?

How to determine my residential status in India?

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To determine your residential status in India, you need to calculate the number of days you have spent in India. For further categorisation, you need to look into the individual eligibility of each of the three ROR, NROR, and NRI requirements.

What to do if I filed my ITR with the wrong residential status?

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Incorrect residential status while filing ITR can result in delays with assessments and processing and can also attract penalties. Therefore, it is crucial to assess and determine your correct residential status before filing an ITR.

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