CLASSIFICATION OF RESIDENTIAL STATUS OF A TAXPAYER IN THE INCOME TAX ACT

Income Tax act prescribes 3 kinds of residential status for a tax payer that is as below:

• First one is called Resident Indian. Resident Indian is also known as Ordinary Resident and Not Ordinary Resident.
• Secound one is called Non Resident Indian (NRI) And, 
• Third one is called Deemed Resident.  This cincept was first introduced by the Finance Act 2020. 

Resident Indian or Ordinary Resident and Not Ordinary Resident

A taxpayer is called Resident Indian if he is fulfilling any of the below criteria:

• If stayed in India for 182 or more days during the previous financial year.

OR

• If he stayed in India for 365 days in 4 relevant previous years AND 60 days or more during the relevant previous year.

If he is fulfilling any of the above criteria then he will be treated as Ordinary Resident in India for the purpose of Income Tax Act, 1961.

If he earns any income in any part of the world then that income will be offered to tax in India. 

Resident but Not Ordinary Indian

A taxpayer is known Resident but Not Ordinary Resident Indian if he is fulfilling any of the below criteria :

• If as per the provisions of the Income Tax Act, you have become a Non-Resident Indian in 9 out of 10 previous financial years.

OR

• He has resided in India for a period of 729 days or less in 7 previous financial years. 

If your residential status is Resident but Not Ordinary Resident (RNOR), in that case, income earned or accrued in India will be considered at the time of filing income tax returns in India. In other words, whichever income earned or accrued from India will be liable to be taxed in India and the submitting of income tax return is mandatory. 

For clarity, any income that is earned or accrued outside the territory of India will not be liable to be taxed in the hands of Resident but Not Ordinary Indian.

Deemed Resident

The taxpayer to be known Deemed Resident in India if he fulfils ALL of the 3 conditions as below: 

• If a person is a citizen of India or a Person of Indian Origin (PIO),
• If his total income from Indian sources is more than Rs. 15 lakh,
• If his income is not liable to be taxed in any country other than India,

If a person qualifies the status of Deemed Resident in India then his tax liability will be computed as he is Resident but Not Ordinary Indian. 

Non Resident

A taxpayer will be known as Non Resident (NR) if he is falling in any of the above residential status. In this case, only income earned or accrued in India will be offered to tax. 

The below table will easy to understand the idea of taxability of income for Non Resident Indians (NRIs)