Categories of Residential Status Under the Income-tax Act 2025

1. Resident (R)
   • Further classification for Individuals and HUF:
     • Resident and Ordinarily Resident (ROR)
     • Resident but Not Ordinarily Resident (RNOR)
2. Non-Resident (NR)

1. Resident and Ordinary Resident (ROR)Taxable on:
   • Income received or is deemed to be received by him in India in the previous year
   • Income accrues or arises or is deemed to accrue or arise to him in India during such year
   • Income accrues or arises to him outside India during such year
2. Resident but Not Ordinarily Resident (RNOR)Taxable on:
   • Income received or is deemed to be received by him in India in the previous year
   • Income accrues or arises or is deemed to accrue or arise to him in India during such year
   • Income accrues or arises to him outside India during such year if it is derived from a business controlled from India or from a profession set up in India
3. Non-Resident (NR)Taxable on:
   • Income received or is deemed to be received in India by such person in the previous year
   • Income accrues or arises or is deemed to accrue or arise to such person in India during such year

Individuals:

The residential status of an individual is determined based on stay in India during the relevant financial year. An Indian citizen is deemed a resident in India, even if he does not meet the stay requirement, if:

• His Indian income exceeds Rs. 15 lakh in a financial year, and
• He is not liable to tax in any other country due to domicile, residence, or similar criteria

Conditions for Residency

• General Rule: An individual is resident in India if:
  • Stay in India ≥ 182 days in the financial year, or
  • Stay in India ≥ 60 days in the financial year and ≥ 365 days in the last 4 years
• Exceptions (Indian Citizens & PIOs):
  • Visit India & Income ≤ Rs. 15 lakh: “60 days” replaced with “182 days”
  • Visit India & Income > Rs. 15 lakh: “60 days” replaced with “120 days”
  • Leaving India for employment / ship crew: “60 days” replaced with “182 days”

An individual is treated as a non-resident in India if he does not satisfy any of the conditions required to be fulfilled to become a resident, as stated above.

Resident but Not Ordinarily Resident (RNOR): An individual is RNOR if:

• Non-resident in 9 out of 10 preceding years, or
• Stayed in India for ≤ 729 days in the last 7 years
• Deemed Residents are always treated as RNOR
• Indian citizen / PIO visiting India earns over Rs. 15 lakhs, stays 120–181 days in that year, and 365+ days in the last 4 years

HUFs:

The residential status of an HUF is determined based on the location of its control and management. Additionally, the residential status of its Karta plays a key role in classifying an HUF as ROR, RNOR, or NR.

Classification of Residential Status

• Resident (R):
  • An HUF is resident if any part of its control and management is in India during the previous year
• Non-Resident (NR):
  • An HUF is non-resident if its entire control and management is outside India
• Resident and Ordinarily Resident (ROR):
  • Karta was resident in India for at least 2 years out of the last 10 years
  • Karta stayed in India for 730 days or more in the last 7 years
• Resident but Not Ordinarily Resident (RNOR):
  • Karta was non-resident for at least 9 years out of the last 10 years
  • Karta stayed in India for 729 days or less in the last 7 years

Companies:

An Indian company is always treated as a resident in India. A foreign company is considered resident in India if its Place of Effective Management (POEM) is in India during the relevant financial year. POEM rules apply only if the foreign company’s gross turnover exceeds Rs. 50 crore in the financial year.

Residential Status Determination

• Indian Companies:
  • Always resident in India, regardless of control from outside India
• Foreign Companies:
  • Resident if POEM is in India and gross turnover exceeds Rs. 50 crore
  • Non-resident if the POEM is outside India

Place of Effective Management (POEM)

• POEM is the place where key management and commercial decisions are made
• Determined on substance over form

Determining POEM

• Active Business Outside India (ABOI Test):
  POEM is presumed to be outside India if:
  • Its passive income is not more than 50% of its total income; and
  • Less than 50% of its total assets are situated in India; and
  • Less than 50% of its total number of employees are situated in India or are resident in India; and
  • Payroll expenses incurred on such employees are less than 50% of its total payroll expenditure.
• If board decisions are overridden from India, POEM is in India
• Not Engaged in Active Business Outside India (Business Management Test)::
  • POEM is where key decisions are actually made
  • Assessed based on the location of board meetings, senior management, head office, and control over decision-making.

Firms, AOPs, BOIs, Local Authorities & AJPs:

The residential status of a partnership firm, an Association of Persons (AOP), a Body of Individuals (BOI), a Local Authority, or an Artificial Juridical Person depends on the location of its control and management. These entities can be classified as either Resident or Non-Resident but cannot have the status of Not Ordinarily Resident (RNOR).

Rules for Determining Residential Status

• Resident:
  • If any part of control and management is in India
  • Even a single key decision in India is sufficient
• Non-Resident:
  • If entire control and management is wholly outside India