When does an Indian resident person become an NRI? How is tax residency determined in India?

Strictly asserting with regards Income Tax, NRI or Non-resident Indian is not legal term defined in the Income Tax Act, 1961. The Income tax Act only speaks as to the tax status of a person, whether he is a “resident in India” or a “non-resident”.

Income Tax Act classifies persons in the following categories:

1) Non – resident (NR);

2) Resident:

  1. Resident and ordinarily resident (ROR);
  2. Resident but not ordinarily resident (RBNOR).

Rules of levy of tax differ for all the above three categories of persons depending on the nature of income earned.

Basic Conditions for Residency:

  1. Residing in India for a period of 182 days or more;
  2. (i) Residing in India for 60 days or more; or

     (ii) Residing for 364 days or more in 4 immediately preceding previous years.

If either condition (a) or condition (b) is fulfilled, then the person is a resident of India. If neither of the conditions are fulfilled, then the person is not a resident of India.

Additional Conditions for Ordinary Residency:

  1. Resident of India in 2 out of 10 immediately preceding previous years;
  2. Residing in India for a period of 730 days or more during 7 immediately preceding previous years.

If both the conditions are fulfilled, then the person is a Resident and ordinarily resident (ROR). If one of the condition of both the conditions are not fulfilled, then he is Resident but not ordinarily resident (RBNOR).

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