Determining whether an individual is a resident or non-resident for Indian tax purposes has become increasingly important as more Indians work, invest and maintain financial interests across countries. A person may spend part of the year in India, work overseas, maintain property or investments in India and still have tax and regulatory obligations in more than one jurisdiction.
To help professionals and taxpayers navigate these issues, the Institute of Chartered Accountants of India (ICAI) has published the Handbook on Residential Status for NRIs: Tax and FEMA Aspects, with its July 2026 edition prepared by the International Taxation Committee.
The Handbook focuses on residential status under the Income-tax Act, 2025 and the Foreign Exchange Management Act, 1999 (FEMA) and explains how the two laws can sometimes lead to different conclusions for the same individual.
Why residential status matters for NRIs
Residential status is not merely a classification. It determines the extent to which an individual's income may fall within the Indian tax net.
Under the Handbook's explanation of the Income-tax Act, 2025, a Resident and Ordinarily Resident (ROR) is generally taxable in India on worldwide income. A Resident but Not Ordinarily Resident (NOR) has a narrower tax exposure, covering Indian-source income and certain foreign income linked to a business controlled in India or a profession set up in India. For a Non-Resident (NR), taxation is generally restricted to income received, accruing or deemed to accrue or arise in India.
This makes the residential-status determination the starting point for analysing an individual's Indian tax liability.
Income-tax Act, 2025 changes the framework
The Income-tax Act, 2025 applies from April 1, 2026, for Tax Year 2026-27, replacing the Income-tax Act, 1961 subject to the savings provisions. The Handbook notes that the new law aims to simplify statutory language, improve structural clarity and modernise the presentation of tax provisions.
For residential status, the provisions have been reorganised and renumbered. The Handbook specifically takes readers through Sections 6(1) to 6(8), 6(13) and 6(14) of the new Act and maps them with the corresponding provisions of the earlier law.
182-day rule remains a key test
Under Section 6(2)(a) of the Income-tax Act, 2025, an individual becomes resident in India if they are present in India for 182 days or more during the relevant tax year.
There is also a second test. An individual can become resident if they stay in India for 60 days or more during the relevant year and have stayed in India for at least 365 days during the four preceding tax years, subject to the specified exceptions.
This means that simply staying below 182 days does not automatically make a person a non-resident.
The Handbook highlights that the four-year rolling day count can become particularly important for professionals living abroad who regularly return to India for business, family or other purposes.
Special rules for Indians leaving India for employment
The second residency test does not apply in the same manner to an Indian citizen who leaves India during the tax year for employment outside India or as a crew member of an Indian ship.
For such individuals, the relevant test is the 182-day threshold. The Handbook also discusses judicial interpretation of the term employment, noting that it can extend beyond a traditional employer-employee relationship to situations involving self-employment, setting up a business or establishing a professional practice abroad.
The Handbook cautions that this benefit is linked to the specific year in which the individual leaves India for employment and cannot automatically be assumed to apply in later years.
Visiting NRIs and the ₹15 lakh threshold
Special provisions apply to Indian citizens and persons of Indian origin who are ordinarily living outside India and visit India.
For such visitors, the second residency test is initially excluded. However, where the individual's total income, excluding income from foreign sources, exceeds ₹15 lakh, the threshold can effectively change from 60 days to 120 days, provided the other conditions are met.
The Handbook explains that the ₹15 lakh calculation requires careful examination of the nature and source of income. Indian rental income, dividends from Indian companies, certain Indian interest income and gains from Indian assets can fall on the Indian-source side of the calculation, while specified foreign-source income is excluded.
Deemed residency: an important provision for certain Indian citizens
Another significant area covered by the Handbook is deemed residency under Section 6(7).
The provision can apply where an Indian citizen:
- is not liable to tax in another country because of domicile, residence or a similar criterion; and
- has total income exceeding ₹15 lakh, excluding income from foreign sources.
The Handbook describes this as a residual provision intended to address situations where an Indian citizen could otherwise fall outside tax-residency rules in every jurisdiction.
Importantly, deemed residency does not automatically mean worldwide income becomes taxable in India. Under Section 6(13)(c), a person deemed resident under Section 6(7) is treated as NOR, meaning the narrower NOR taxability rules apply.
Resident status is not the end of the analysis
A common mistake is to stop the analysis after determining that an individual is a resident.
The next question is whether the person is ROR or NOR.
Under Section 6(13), a resident individual can qualify as NOR where, among other conditions, they were non-resident in 9 out of the 10 preceding tax years or their cumulative stay in India during the preceding seven tax years did not exceed 729 days. These are alternative conditions, meaning satisfaction of either condition can result in NOR status.
The distinction can significantly affect the taxation of foreign income.
Income-tax residence and FEMA residence can be different
One of the most practical aspects of the ICAI Handbook is its emphasis on the difference between income-tax residency and FEMA residency.
Income-tax residency is primarily determined through physical-presence tests under Section 6. FEMA, on the other hand, considers factors including the purpose and intention of the individual's stay.
As a result, an individual can be a FEMA non-resident while remaining an Indian tax resident for the same year.
The Handbook illustrates this through a case involving an Indian professional who relocates to Dubai. Even after becoming a person resident outside India under FEMA and redesignating Indian bank and demat accounts, the individual could remain an Indian tax resident if the applicable day-count test is satisfied.
The practical message is clear: FEMA status should not simply be assumed from income-tax status, or vice versa.
DTAA can provide another layer of analysis
The situation becomes more complex where an individual is considered resident under the domestic laws of both India and another country.
The Handbook explains that a Double Taxation Avoidance Agreement (DTAA) may contain tie-breaker rules to determine treaty residence. These can consider factors such as the availability of a permanent home, centre of vital interests, habitual abode and nationality.
The Handbook also notes that a Tax Residency Certificate can be relevant when seeking treaty protection, although it does not by itself determine the outcome of the treaty tie-breaker analysis.
Why accurate travel records matter
For individuals whose stay in India is close to a residency threshold, maintaining accurate travel records becomes especially important.
The Handbook points to immigration records as the primary official record for determining physical presence and notes that passports, boarding passes and travel itineraries can serve as supporting documentation. Even small differences in the day count can become significant when an individual's stay is close to the applicable threshold.
This is particularly relevant for NRIs who make frequent short visits to India.
ICAI Handbook covers more than residential status
The publication goes beyond the basic day-count rules. Its 11 chapters cover:
- Overview and taxability framework
- Individual residency
- Income-tax Act, 1961 vs Income-tax Act, 2025
- Treaty and foreign tax credit
- Global mobility
- Transfer pricing
- Taxability
- Judicial precedents
- Residential laws in major foreign jurisdictions
- FEMA
- Practical case studies
The Handbook also covers jurisdictions including the United Kingdom, United States, United Arab Emirates, Singapore, Canada, Australia and the Netherlands, along with relevant DTAA considerations.
Practical takeaway for NRIs and tax professionals
The key takeaway from the ICAI Handbook is that NRI residential status cannot always be decided by looking at one number or one document.
A proper analysis may require checking:
- Number of days spent in India during the relevant tax year.
- Stay in India during the preceding four years.
- Whether the individual left India for employment.
- Whether the individual is an Indian citizen or person of Indian origin visiting India.
- Indian-source income and the ₹15 lakh threshold, where relevant.
- Conditions for ROR or NOR status.
- Tax residency in another country.
- Applicable DTAA provisions.
- FEMA residential status and the purpose or intention behind the individual's stay.
- Bank, demat, foreign-asset and reporting requirements.
The Handbook's case studies reinforce that the same individual can receive different residential-status outcomes under the Income-tax Act and FEMA. Therefore, the two analyses need to be carried out separately rather than treating one determination as automatically settling the other.
Conclusion
With international mobility becoming increasingly common, residential status has moved far beyond a simple question of whether an individual spent more or less than 182 days in India.
The ICAI's July 2026 Handbook on Residential Status for NRIs: Tax and FEMA Aspects brings together the new Income-tax Act, 2025 provisions, FEMA framework, treaty considerations, judicial precedents and practical case studies in one reference guide.
For NRIs, returning Indians and professionals advising clients with cross-border income or assets, the central lesson is straightforward: determine tax residency, determine ROR/NOR status, examine FEMA separately and then consider treaty relief wherever applicable.
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