The Residential Status conundrum
Updated: Jan 4, 2023
Planning your residential status is probably the oldest trick in the book. However, so many Returning Indians/ Recent Immigrants miss out on the immense tax planning opportunities. Sometimes, simple is elegant. Simple is all you need.
Let's start with the basics.
Why is Residential Status so important?
The taxability of your income depends on your Residential Status in India. See Scope of Total Income below:
TLDR:
ROR - Worldwide income is taxable in India
RNOR - Indian income is taxable in India. Income earned outside India is not taxed in India
NR - Indian income is taxable in India. Income earned outside India is not taxed in India
What are these Residential Status connotations? How are they determined?
Glad you asked. Below are the three types of residential status:
Resident and Ordinarily Resident (ROR)
Resident but not Ordinary Resident (RNOR)
Non-Resident (NR)
See the below simplified chart to see how residential status is determined:
In the following cases, a person may be NR if he is present in India for less than 182 days:
Being a citizen of India and leaving India as a member of the crew on a ship of the Indian Merchant Navy
Being a citizen of India or a Person of Indian Origin leaving India for the purposes of employment outside India
Being a citizen of India and a NR, returning to India for the purposes of visit.
The last 2 conditions are very important for tax planning for NRIs visiting India and people planning to take up a job outside India.
Further amendments were made by the Finance Act, 2020. Read about them here. Shorter version is as below:
The 182 days condition indicated above will be replaced by 120 days if:
You have income other than the income from foreign sources, exceeding INR 15 lakh. OR
You have income less than INR 15 lakh but are not liable to tax in any other country or territory by reason of your domicile or residence or any other criteria of similar nature.
Pro-tip:
Date of arrival and date of departure are both considered as days of stay in India. A lot of people are off in their calculation by a single day which changes everything!
How to plan your Residential Status?
Returning Indians - A Returning Indian should try to come back on or after February 1 (or February 2 in case of a leap year) of a FY in order to ensure NR status in the year of return.
Leaving India - A person planning to leave India for the purpose of employment should leave India before 28 September.
Useful links:
Galactic Tip: Planning your residential status is probably the oldest trick in the book. However, so many Returning Indians/ Recent Immigrants miss out on the immense tax planning opportunities.
Is there any shortcut to verifying my Residential Status?
You could enter your days of stay in the calculator provided by the Income Tax Department. However, this assumes that you are doing your calculations right.
Better option? Use Galactic Advisor's Residential Status calculation service! A Chartered Accountant from our team will help you calculate your Residential status allowing you to breathe easy.
Software generated results are based on the inputs you provide, a CA meanwhile knows all the usual errors and can help you avoid them. Read on below for details of our Residential Status calculation service:
Still, confused about your Residential Status? Feel free to reach out to us
A Chartered Accountant from our team will hand-hold you through the process of determination of Residential Status.
STEP 1 Download our Residential Status sheet
STEP 2 Fill your days of stay in India
STEP 3 Send us the file at help@thegalacticadvisors.com
STEP 4 Our team will share details of your CA point of contact from Galactic Advisors.
STEP 5 Sit back and relax as our team shares a detailed report on your residential status for the year!
