Are You Really an NRI for Tax Purposes? A Deeper Look at Residential Status Rules

Do you live abroad but frequently visit India? Have you ever assumed your NRI status is automatically valid just because you hold a foreign visa or because you've been outside India for work?

If yes, you're not alone.

Understanding residential status is the first and most critical step in filing your Indian Income Tax Return correctly. Many NRIs unknowingly file under the wrong status—leading to errors in taxable income disclosure, incorrect returns, and future scrutiny.

Let's decode the rules so you can file your taxes confidently and correctly.

 Understanding Residential Status – What Really Counts?

The Indian Income Tax Act doesn't look at your visa type, green card, or citizenship.

It simply looks at how many days you were in India during the financial year and the preceding years.

 There are three categories you must know:

1. Ordinary Resident (OR)

2. Non-Resident (NRI)

3. Resident but Not Ordinarily Resident (RNOR)

 Ordinary Resident (OR):

You're treated as a Ordinary Resident if:

• You stayed in India for 182 days or more during the financial year* or

• You stayed in India for 60 days or more during the year AND at least 365 days in the last four financial years

Impact: You will be taxed on your global income and must report foreign assets and bank accounts (Schedule FA in ITR).

* A financial year starts on April 1st and ends on March 31st of next year.

 Non-Resident (NRI):

You're an NRI if you do not meet either of the above conditions.

Impact: You are only liable to pay tax in India on Indian-sourced income like:

• Rent from Indian property

• Capital gains from Indian shares or mutual funds

• Interest from NRO accounts or FDs

Your foreign income is not taxable in India.

 Resident but Not Ordinarily Resident (RNOR):

You qualify as RNOR if:

• You were a non-resident for 9 out of the last 10 financial years OR

• You were in India for 729 days or less in the last seven financial years

Impact: Foreign income is taxable only if it arises from a business controlled or profession set up in India.

RNOR status is helpful for returning NRIs—providing some relief during the transition years.

 Why This Matters – Real Scenarios

• A person working in Dubai visits India frequently. If their stay exceeds 182 days in a year, they're no longer an NRI—despite not having any income abroad taxable in India.

• A returning NRI from the US who recently relocated to India may qualify as an RNOR for 2–3 years. This can help avoid taxation on foreign salaries or capital gains during this phase.

 Common Mistakes to Avoid

• Assuming a foreign passport equals NRI status

• Not keeping track of arrival and departure days.

• Filing as NRI when technically Resident

• Not updating bank KYC/ITR correctly.

 Pro Tip: Count even partial days when calculating your stay. If you landed in India at 11 PM on March 31st—it still counts as a day.

 Checklist Before Filing as NRI

• Maintain a record of travel dates

• Determine if you qualify as Resident, NRI, or RNOR

• Cross-check with prior years' visit history

• Consult a tax expert if your travel is frequent or borderline

 How Angel Services Can Help

At Angel Services, we help NRIs correctly assess their tax residency, prepare accurate ITRs, and ensure full compliance with Indian tax laws. We simplify the process so you don't have to worry about misclassification, missed disclosures, or unwanted tax notices.