Residential Status Calculator: Determining Your Tax Residency in India

Determining your residential status is one of the most crucial steps in calculating your tax liability in India. Your residential status determines whether you are liable to pay taxes on your global income or only on income sourced from India. Whether you are an individual living in India or abroad, your residential status will affect your tax filing requirements and the taxes you owe.

In this blog, we will discuss how to determine your residential status using the Residential Status Calculator and why it’s essential to get it right when filing your income tax returns.

What is Residential Status?

Residential status refers to whether an individual is considered a resident or non-resident (NR) for tax purposes in India. The status is determined based on the number of days an individual has spent in India during a given financial year and in the previous years.

There are three categories of residential status under Indian tax laws:

1. Resident

2. Non-Resident

3. Resident but Not Ordinarily Resident (RNOR)

How is Residential Status Determined?

Under the Income Tax Act, 1961, an individual's residential status is determined based on two key tests:

1. Basic Conditions

An individual is considered a Resident in India if:

• Stay in India: The person stays in India for a minimum of 182 days during the relevant financial year, or

• Stay in India for 60 days in the financial year and 365 days or more in the previous 4 years.

If the individual does not satisfy either of these conditions, they are considered a Non-Resident (NR).

2. Additional Conditions for Resident but Not Ordinarily Resident (RNOR)

Even if an individual qualifies as a Resident under the basic conditions, they may be considered a Resident but Not Ordinarily Resident (RNOR) if they satisfy one of the following conditions:

• Stay in India: The individual has been a resident in India in 2 out of the preceding 10 years.

• Stay in India for 730 days or more during the last 7 years immediately preceding the relevant financial year.

Residential Status Calculator

To simplify this process, many individuals use the Residential Status Calculator to determine their tax residency status based on the criteria mentioned above.

Here’s a quick guide on how to calculate your residential status step by step:

Step 1: Check the Number of Days You Stayed in India

You must calculate the total number of days you spent in India during the current financial year (April to March) and the preceding 4 years.

• Days in the current financial year: Count the total days you spent in India during the financial year. If the total exceeds 182 days, you are considered a resident for tax purposes, provided the other conditions are met.

• Days in the preceding 4 years: Calculate your total stay in India in the past 4 years. If this exceeds 365 days, you meet the second condition for being considered a resident.

Step 2: Apply the Additional Conditions for RNOR Status

If you meet the conditions for being a Resident, check if you qualify as a Resident but Not Ordinarily Resident (RNOR) by considering the following:

1. Have you been a Resident in 2 out of the last 10 years?

2. Did you spend 730 days or more in India in the last 7 years?

If you answer “yes” to either of these questions, you will qualify as RNOR.

Step 3: Residential Status Determination

• Resident: If you meet the basic stay requirements, you are considered a resident for tax purposes.

• Non-Resident (NR): If you don’t meet the stay requirements for the financial year or previous years, you will be classified as a Non-Resident.

• Resident but Not Ordinarily Resident (RNOR): If you meet the additional criteria, you will be considered RNOR.

Example to Illustrate Residential Status

Let’s say you are an Indian citizen and you live abroad for work. For the financial year 2023-24:

• You stayed in India for 120 days.

• You stayed outside India for 240 days.

Now, let's determine your residential status using the Residential Status Calculator.

1. Stay in India: You stayed in India for 120 days, which is less than 182 days. Therefore, based on the basic condition, you don't qualify as a Resident.

2. Stay in India in 4 previous years: Let's assume you stayed in India for more than 365 days in the past 4 years. This fulfills the second condition for residency.

3. Residency Status: Since you don't meet the conditions of staying in India for 182 days or more in the current year, you would be classified as a Non-Resident (NR) for the financial year 2023-24.

Why is Residential Status Important?

Your residential status impacts the following aspects of your tax filing:

1. Taxable Income:

   • Residents are taxed on global income, i.e., income earned both in India and abroad.

   • Non-Residents are taxed only on income earned in India.

2. Tax Deductions and Benefits:

   • Residents can claim all available deductions under sections like 80C, 80D, etc.

   • Non-Residents are restricted to claiming deductions only on their Indian income and may not be eligible for some tax benefits available to residents.

3. Foreign Income and Double Taxation Relief:

   • If you are a Resident and have foreign income, you may be eligible for Double Taxation Avoidance Agreements (DTAA) between India and other countries. This helps you avoid paying tax twice on the same income.

   • Non-Residents may also claim relief under DTAA, but only on income sourced from India.

4. Filing Requirements:

   • Residents must file income tax returns (ITR) and disclose both Indian and foreign income.

   • Non-Residents need to file returns only if their taxable income in India exceeds the basic exemption limit.

Conclusion

Understanding your residential status is the first step to accurately filing your tax return in India. By using the Residential Status Calculator, you can easily determine whether you are a Resident, Non-Resident, or Resident but Not Ordinarily Resident (RNOR), and understand how this status affects your tax liabilities.

If you’re unsure about how to determine your status or need assistance with your tax filing, it’s advisable to consult a tax professional or tax consultant. Getting your residential status right ensures that you are in full compliance with Indian tax laws and helps you optimize your tax returns.