Indian tax law does not care what passport you hold or where you live. It cares how many days you spent in India and where your income came from. Section 6 of the Income Tax Act sorts every individual into one of four buckets each financial year — Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), Non-Resident (NRI), or the new Deemed Resident bucket introduced by Finance Act 2020. The bucket decides whether your US salary, your UAE bonus, your Singapore CPF, your London rental income is taxable in India or not. Most NRIs get the bucket wrong by misreading the 182-day test, missing the Finance Act 2020 ₹15-lakh trap, or skipping the 2-3 year RNOR planning window on return. Here is the 2026 decoded rulebook with worked examples.
The four buckets and what India taxes in each
| Status | India-source income | Foreign-source income |
|---|---|---|
| Resident and Ordinarily Resident (ROR) | Taxable | Taxable (worldwide) |
| Deemed Resident (Sec 6(1A)) | Taxable | Taxable on income from business controlled from India or profession set up in India; other foreign income generally not |
| Resident but Not Ordinarily Resident (RNOR) | Taxable | Generally exempt (except business controlled from / profession set up in India) |
| Non-Resident (NRI) | Taxable | Exempt |
The financial year runs 1 April to 31 March. Your status can change every year. A US-based software engineer who comes home for an extended sabbatical can flip from NRI to ROR in a single year and find their entire US salary in scope of Indian tax. This is not theoretical — Indian tax authorities are matching FATCA and CRS data, and the cost of wrong classification compounds.
Step 1 — The two basic residency tests
You are a Resident in a financial year (FY) if you meet either of these:
- The 182-day test — You were in India for 182 days or more during the current FY.
- The 60+365 test — You were in India for 60 days or more in the current FY and 365 days or more across the previous 4 FYs taken together.
If neither is met, you are a Non-Resident (NRI) for that FY. Sounds simple. Two carve-outs make it less simple.
Step 2 — The Indian-citizen carve-outs
Carve-out A — Leaving India for employment. If you are an Indian citizen leaving India during the FY for the purpose of employment outside India, OR you are an Indian citizen working as a crew member of an Indian merchant ship, then only the 182-day test applies. The 60+365 test is disabled for that FY. The Income Tax Department has consistently interpreted "for employment" broadly — taking up a job, joining a US Masters programme that explicitly leads to OPT/work, starting an overseas business — all qualify.
Carve-out B — Indian citizen / PIO visiting India. If you are an Indian citizen or Person of Indian Origin (PIO) who lives outside India and is visiting India during the FY, the 60-day threshold in the 60+365 test is replaced by:
- 182 days if your total Indian-source income (other than from foreign sources) in the FY is ≤ ₹15 lakh; OR
- 120 days if your total Indian-source income is > ₹15 lakh (Finance Act 2020 amendment, applicable from AY 2021-22 onwards).
The 120-day rule was the Finance Act 2020 anti-avoidance amendment targeted at "stateless persons" — wealthy Indian-origin individuals who claimed tax-residency nowhere. Combined with the new Deemed-Resident bucket (next section), it materially changed the planning landscape for HNI NRIs returning home or splitting time between India and a tax-haven base.
Step 3 — The Deemed-Resident trap (Section 6(1A))
Effective AY 2021-22 onward (Finance Act 2020), an Indian citizen is deemed to be a Resident of India if:
- Total Indian-source income (excluding foreign-source income) in the FY exceeds ₹15 lakh; AND
- The person is not tax-resident in any other country by reason of their domicile or residence (i.e., a "stateless" person for tax purposes).
A Deemed Resident is taxed on India-source income at resident rates AND on income from a business controlled from India or a profession set up in India — but foreign-source income generally remains outside India's net. This rule disproportionately catches Indian citizens parked in UAE, Bahrain, Cayman, BVI and other zero-income-tax jurisdictions. UAE residents in particular need to file the UAE Tax Residency Certificate (TRC) carefully — the UAE introduced corporate tax in 2023 and individual TRC procedure changed, raising the risk that an HNI Indian-passport UAE-resident gets pulled into the Deemed-Resident bucket inadvertently.
Step 4 — RNOR, the most-missed planning window
Even if you are a Resident under Step 1, you are Not Ordinarily Resident (RNOR) if either:
- You were a Non-Resident in 9 out of 10 previous FYs; OR
- You were physically in India for 729 days or less in the previous 7 FYs.
For a Deemed Resident (Section 6(1A)), the rule is automatic: a Deemed Resident is always treated as RNOR.
Why this matters: RNOR keeps foreign-source income outside India's tax net. For a returning NRI, the RNOR window is typically 2 to 3 financial years after permanent return. During this window, US 401(k) distributions, UK SIPP withdrawals, foreign rental income, foreign-fund capital gains, and foreign-employer RSU vesting from pre-return grants can be timed to fall inside the RNOR window and escape Indian tax. Once you become Ordinarily Resident (ROR), worldwide income is fully taxed in India and the Black Money Act 2015 disclosure obligation kicks in on foreign assets and accounts.
Step 5 — How days are counted (the rules people get wrong)
- Arrival day in India counts. Land at 11:50 PM on 31 March — that day counts.
- Departure day from India counts. Leave at 1:30 AM on 1 April — that day counts.
- This means a day-trip in and out can count as two days. Conservative tax planners assume both ends.
- Transit at an Indian airport without clearing immigration does not count.
- The Income Tax Department uses the immigration records ("foreigner registration" data + Bureau of Immigration arrival/departure logs). Maintain your own diary as well — if your status is borderline, you will need to defend it.
- Days are counted by financial year (1 April to 31 March), not calendar year. A relocation in mid-November splits the year.
Step 6 — Worked examples
Example 1 — Software engineer relocating to the USA mid-year
Indian citizen, employed in Bangalore until 30 September 2026, then joins a US company on H-1B and physically leaves India on 5 October 2026. India presence in FY 2026-27: 1 April to 5 October = 188 days. Result: Resident (182-day test met). Need to check the 10-year RNOR test: if previously always in India, then ROR — full US-salary post-October is taxable in India for FY 2026-27, subject to India-USA DTAA Article 22 relief on US-source income. From FY 2027-28 onwards, if abroad full year, NRI.
Example 2 — UAE professional with India business income
Indian citizen, UAE resident since 2019, returns to India for family visits totalling 105 days in FY 2026-27. India-source income (dividends + rental): ₹22 lakh. UAE Tax Residency Certificate held.
- Test 1 — 182-day test: 105 < 182 ✗
- Test 2 — 120-day visit-test under Carve-out B (income > ₹15L): 105 < 120 ✗
- Section 6(1A) Deemed Resident test: India-source income > ₹15L ✓ — BUT the person is tax-resident in UAE (TRC held), so the second limb of the Deemed-Resident test fails.
Result: NRI for FY 2026-27. The TRC is doing the heavy lifting — without it, the person would be Deemed Resident.
Example 3 — Returning NRI in RNOR window
NRI in the US for 12 years (2013–2025), permanently returns to India on 1 May 2025. India presence FY 2025-26: 11 months = ~335 days. Resident under 182-day test. Test for RNOR: NRI in 9 of last 10 FYs (yes, 2015-16 through 2024-25 = 10 NR years). Result: RNOR for FY 2025-26 and FY 2026-27. US 401(k) distribution timed to FY 2025-26 or FY 2026-27 is exempt from Indian tax under RNOR rules. From FY 2027-28 onwards, becomes ROR — worldwide income taxable + Black Money Act disclosure mandatory.
Practical playbook
- Track your India days every year. Conservative bookkeeping beats post-facto reconstruction.
- If you are an HNI Indian citizen with significant Indian-source income, get a foreign-country Tax Residency Certificate every year — UAE residents especially.
- If you are returning to India after a long NRI stint, model the RNOR window carefully. Time large foreign-asset realisations to fall inside it.
- Get a Permanent Account Number (PAN) and link Aadhaar even as an NRI — TDS reconciliation and DTAA-rate application require it.
- File Form 10F and obtain a TRC each year if you intend to claim DTAA-reduced TDS on Indian-source income — this is mandatory since October 2022.
Frequently asked questions
Does my passport decide my residential status?
No. Passport (citizenship) is irrelevant to Section 6 except for the two carve-outs (Indian-citizen leaving for employment; Indian-citizen / PIO visiting India). The day-count test is the primary driver.
I am OCI cardholder — am I treated as NRI for tax?
OCI is an immigration status, not a tax status. Tax residency is decided by Section 6's day-count test. Most OCI holders are NRI by virtue of being abroad most of the year, but the residency test is independent of the OCI label.
What is the ₹15 lakh threshold based on?
Total Indian-source income in the financial year — salary credited to India, rental from Indian property, dividends from Indian companies, capital gains from Indian assets, interest from NRO and Indian deposits. Excludes foreign-source income.
If I travel through India on a layover, does that day count?
No, transit at an Indian international airport without clearing immigration does not count as India presence.
How does RNOR help on a foreign pension?
RNOR keeps foreign-source income outside India's net (with the narrow business-controlled-from-India exception). A returning NRI in the 2-3 year RNOR window who withdraws US 401(k) or UK SIPP during that window avoids Indian tax on the foreign-source distribution. After becoming ROR, the same distribution is taxable in India (subject to DTAA credit).
I am UAE-resident with no UAE income tax — am I Deemed Resident in India?
Only if your India-source income exceeds ₹15 lakh AND you are not tax-resident in any other country. UAE granted you a residence permit and post-2023 you may qualify for a TRC after meeting day-count and economic-substance requirements. Without a TRC, you face Deemed-Resident risk in India.
Sources: Income Tax Act, 1961 — Section 6 and Section 6(1A); Finance Act 2020 explanatory notes; CBDT circulars on residential-status determination; UAE Federal Tax Authority TRC issuance rules; accessed May 2026. This article is general guidance — borderline residency calls require a qualified Indian Chartered Accountant who can review your specific day-count and income profile. Editorial research, not tax advice.