Are you an Indian citizen working abroad or an NRI frequently visiting India? Your tax liability in India hinges on a critical determination: your residential status under Section 6 of the Income Tax Act. With the Income Tax Act 2025 effective from April 1, 2026, understanding the 182-day stay rule, the ₹15 lakh threshold, the 120-day test, and the deemed residency provision is crucial for tax planning. Many NRIs mistakenly believe the new Act changed these rules—it hasn't. The residency framework remains identical, but compliance requirements demand your attention for FY 2025-26.
- The 182-day rule under Section 6 remains unchanged: stay 182+ days in India during FY 2025-26 and you become a tax resident, triggering tax on Indian income (or global income if ROR)
- For Indian citizens/PIOs earning over ₹15 lakh Indian income (excluding foreign sources), the 60-day threshold extends to 120 days when combined with 365+ days in prior four years
- Section 6(1A) deemed residency applies to Indians earning ₹15 lakh+ who aren't taxed abroad—you're deemed RNOR even with zero days in India, but only Indian income is taxed
- Section 216 of Income Tax Act 2025 exempts NRIs from filing ITR if income consists only of investment income or long-term capital gains with TDS deducted
Understanding NRI Residential Status Under Section 6 of Income Tax Act 2025
Your tax liability in India begins with one fundamental question: are you a Resident or Non-Resident for the financial year? Under the Income Tax Act 2025, the 182-day test moved from Section 6(1)(a) to Section 6(2)(a) with identical wording—it works exactly as before. Section 6 of the Income Tax Act 2025 applies for tax years beginning on or after April 1, 2026, determining resident, non-resident, deemed resident, and not ordinarily resident status entirely under the new Act.
You qualify as a resident if you stay in India for 182 days or more during a financial year. The 182-day rule is straightforward—you're classified as a tax resident if you stay in India for 182 days or more in a tax year, and this main criterion remains unchanged in current regulations.
The Two Primary Tests for Tax Residency
Section 6 of the Income Tax Act 2025 establishes two alternative conditions to determine residential status:
Test 1: The 182-Day Rule
You are in India for 182 days or more in the financial year. This is the primary and most straightforward test. If you meet this condition, you are automatically a Resident for tax purposes, regardless of your history.
Test 2: The 60-Day + 365-Day Combination
You are in India for 60 days in the financial year and 365 days or more during the preceding 4 financial years. Both conditions must be satisfied simultaneously.
Special Exceptions to the 60-Day Rule
Indian citizens leaving the country for employment abroad, or as crew members of Indian ships, are eligible for a relaxation. For them, the 60-day test combined with the 365-day requirement does not apply. They qualify as residents only if their stay in India reaches 182 days during the relevant tax year.
This exception ensures that Indian professionals working overseas, seafarers, and merchant navy officers are not inadvertently classified as residents due to brief home visits.
The ₹15 Lakh Threshold: 120-Day Rule for High-Income NRIs
A critical modification affects Indian citizens and Persons of Indian Origin (PIOs) earning significant income from India. If their income other than income from foreign sources exceeds ₹15 lakh, the alternative residency test may apply. In such cases, the 60-day threshold is replaced by 120 days, provided they have also spent at least 365 days in India during the preceding four years.
Who Does the 120-Day Rule Apply To?
The Finance Act 2020, effective from Assessment Year 2021-22, amended the provision to substitute the period of 60 days with 120 days if an Indian citizen or a person of Indian origin has total income, other than income from foreign sources, exceeding ₹15 lakh during the previous year. This rule continues unchanged under the Income Tax Act 2025.
Key Points:
- Applies only to Indian citizens and PIOs (not OCIs or foreign nationals)
- The ₹15 lakh threshold considers only Indian-source income, excluding foreign income
- If you stay 120-182 days in India with 365+ days in prior four years, you become RNOR
- You are an Indian Citizen/Person of Indian Origin (PIO) who stayed in India for more than 120 days but less than 182 days in a Financial Year and had an Indian-sourced income exceeding ₹15 lakh.
Calculating the ₹15 Lakh Indian Income
The ₹15 lakh threshold applies to Indian-sourced income and excludes foreign income. This calculation determines whether the 120-day rule or deemed residency provision affects you.
Example Calculation:
Mr. Sharma, an Indian citizen working in Singapore, has the following income for FY 2025-26:
- Rental income from Mumbai property: ₹8,50,000
- Interest from NRO account: ₹4,20,000
- Capital gains from selling Indian shares: ₹5,10,000
- Singapore salary (foreign income): ₹42,00,000 (excluded)
Total Indian income = ₹8,50,000 + ₹4,20,000 + ₹5,10,000 = ₹17,80,000
Since his Indian income exceeds ₹15 lakh, Mr. Sharma is subject to the 120-day rule. If he stays in India for 125 days in FY 2025-26 and has stayed 400 days in the prior four years, he becomes a Resident (RNOR) for tax purposes. Use the Income Tax Calculator to estimate your tax liability based on your residential status.
Deemed Residency Under Section 6(1A): The Stateless Indian Provision
One of the most significant provisions affecting NRIs in Gulf countries and other tax-free jurisdictions is the deemed residency rule. The Finance Act 2020 introduced new Section 6(1A) applicable from Assessment Year 2021-22. It provides that an Indian citizen earning total income in excess of ₹15 lakh (other than income from foreign sources) shall be deemed to be Resident in India if he/she is not liable to pay tax in any country.
Who Is Affected by Deemed Residency?
Section 6(1A) introduces deemed residency for Indian citizens earning ₹15 lakh or more from Indian sources who aren't liable to pay tax in any other country. This provision affects Indians living in tax-free jurisdictions like UAE and Saudi Arabia. You can be classified as a tax resident without ever visiting India.
Critical Conditions for Deemed Residency:
- Must be an Indian citizen (not applicable to OCIs or foreign nationals)
- Total Indian income (excluding foreign sources) exceeds ₹15 lakh
- Not liable to tax in any other country by reason of domicile, residence, or similar criterion
The RNOR Relief: Why Deemed Residency Isn't as Harsh as It Sounds
A taxpayer covered by Section 6(1A) is treated as Resident but Not Ordinarily Resident (RNOR)—not as a fully taxable Resident. Foreign salary earned and received abroad, foreign investments, and Indian income are handled differently—global taxation does not apply.
If you earn ₹15 lakh or more in India and do not pay tax elsewhere, you will continue to be classified as Resident but Not Ordinarily Resident (RNOR). This ensures that only your income earned in India is taxed and your global income remains tax-free in India.
Example:
Ms. Patel is an Indian citizen working in Dubai (UAE) with no UAE Tax Residency Certificate. Her income for FY 2025-26:
- Dubai salary: ₹55,00,000 (not taxable in UAE)
- Rental income from Delhi property: ₹18,00,000
- FD interest in India: ₹2,80,000
Her Indian income is ₹20,80,000 (exceeding ₹15 lakh). She doesn't pay tax in UAE. Result: She is deemed a Resident under Section 6(1A), but classified as RNOR. Only her Indian income of ₹20,80,000 is taxable in India. Her Dubai salary of ₹55,00,000 remains tax-free.
Understanding Residential Status Categories: NRI vs. RNOR vs. ROR
Once you determine whether you're a Resident or Non-Resident, the next classification determines your actual tax liability scope.
| Residential Status | Physical Presence Criteria | Indian Income Taxable? | Foreign Income Taxable? |
|---|---|---|---|
| Non-Resident (NRI) | Stay < 182 days (or fail both tests) | Yes | No |
| RNOR | Stay 120-182 days + ₹15L income OR NRI in 9 of 10 prior years OR 729 days or less in prior 7 years | Yes | Generally No |
| ROR | Stay ≥182 days + ordinarily resident conditions | Yes | Yes (Global Income) |
Who Qualifies as RNOR?
A Resident is Resident but Not Ordinarily Resident (RNOR) if either (i) he was Non-Resident in India in 9 out of the 10 preceding FYs, or (ii) he was in India for 729 days or fewer in the preceding 7 FYs. Also RNOR: anyone caught only by the 120-day rule above, and anyone treated as deemed resident under Section 6(1A).
RNOR Benefits:
- Only Indian-sourced income is taxable
- Foreign salary, foreign investments, and foreign bank interest remain exempt
- Provides a transitional window for returning NRIs (typically 2-3 years)
- Section 87A rebate not available, but foreign income protection compensates
ITR Filing Requirements and Section 216 Exemption for NRIs
A common question among NRIs: "Do I need to file an Income Tax Return in India?" The answer depends on your income level and nature.
Basic Filing Thresholds for FY 2025-26
As an NRI you must file if your gross Indian-source income before deductions exceeds the basic exemption limit. Under the new regime, the default for FY 2025-26, that limit is Rs 4 lakh; under the old regime it is still Rs 2.5 lakh. The 'do I have to file' line now depends on which regime you are in, and the new default raised the floor for passive-income NRIs by Rs 1.5 lakh.
Important Note: The ₹12 lakh rebate available to eligible resident individuals under the new regime does not apply to you as an NRI. Under the Income Tax Act 2025, this resident-individual rebate is covered by Section 156.
Section 216 Exemption: When NRIs Need Not File ITR
Section 115G of the Income Tax Act 1961 exempted NRIs from filing a return where total income consisted only of investment income or long-term capital gains or both, subject to TDS. This has been continued in the Income Tax Act 2025.
Section 216 of the Income Tax Act 2025 retains this relief in similar terms, maintaining the compliance simplification approach. The conditions—limited income category and proper tax deduction at source—remain the same.
Conditions for Section 216 Exemption:
- You must be a Non-Resident Indian
- Your total Indian income consists only of:
- Investment income (interest, dividends from specified foreign-exchange assets), OR
- Long-term capital gains, OR
- A combination of both
- Tax must have been deducted at source under Chapter XIX-B provisions
Add a rupee of rent, NRO savings interest below the TDS threshold, or any income where TDS fell short, and Section 216 falls away and filing is back on. In practice almost nobody qualifies cleanly, and even those who do usually file anyway to recover the over-withholding. Treat Section 216 as a footnote, not a plan.
Which ITR Form Should NRIs Use?
NRIs cannot file ITR-1 (Sahaj) or ITR-4 (Sugam). The applicable forms are:
- ITR-2: For salary, house property, capital gains, and other sources income
- ITR-3: For business or professional income from India
The ITR filing deadline for FY 2025-26 is July 31, 2026, subject to any extension by the Income Tax Department. Track your TDS credits using the Form 26AS / TDS Fetch Tool before filing.
Practical Tax Planning Strategies for NRIs in FY 2025-26
1. Track Your Days in India Meticulously
Limit visits below 120 days if your Indian income exceeds ₹15 lakh. Spread travel across different tax years to manage thresholds. Maintain passport copies, boarding passes, and entry/exit stamps as evidence.
2. Manage Your Indian Income Below ₹15 Lakh
Compile all income sources earned in India, including salary, property rent, capital gains, and interest from deposits. Keep Indian income below ₹15 lakh if possible to avoid triggering the 120-day rule.
Strategies:
- Defer property sales to spread capital gains across years
- Time rental agreements to manage annual rental income
- Consider moving deposits from taxable NRO accounts to tax-exempt NRE accounts
- Use the Capital Gain Calculator to plan property or equity sales
3. Obtain Tax Residency Certificate (TRC) from Your Country of Residence
If you're in a tax-paying jurisdiction, obtain a TRC from local tax authorities. This document proves you're liable to tax in that country, exempting you from deemed residency under Section 6(1A) even if your Indian income exceeds ₹15 lakh.
4. Leverage RNOR Status When Returning to India
Returning NRIs should structure their India return to maximize RNOR benefits, which typically last 2-3 years. During this period, foreign income and assets accumulated abroad remain tax-free, providing a crucial transition window.
5. Differentiate Between NRE and NRO Account Income
NRE Account Interest: Completely tax-exempt for NRIs
NRO Account Interest: Taxable at slab rates with 30% TDS
Strategically allocate funds to minimize tax liability. Foreign remittances should ideally go to NRE accounts, while Indian-sourced income must be deposited in NRO accounts as per FEMA regulations.
Key Changes from Income Tax Act 1961 to Income Tax Act 2025
The Finance Act 2025 maintained the core taxation framework for NRIs while introducing refinements aimed at enhancing compliance and preventing tax evasion. Notably, the bill did not alter the tax residency criteria, providing certainty to NRIs that their classification would remain unchanged.
| Provision | Income Tax Act 1961 | Income Tax Act 2025 | Change |
|---|---|---|---|
| Residential Status | Section 6 | Section 6 | Unchanged (section number retained) |
| 182-Day Test | Section 6(1)(a) | Section 6(2)(a) | Renumbered, identical wording |
| ITR Filing Exemption | Section 115G | Section 216 | Renumbered, same conditions |
| NRI Taxation Provisions | Sections 115C-115I | Sections 212-218 | Renumbered, substance unchanged |
| Treaty Relief | Section 90 | Section 159 | Renumbered |
| TDS on NRI Payments | Section 195 | Section 393(2) | Renumbered |
What moved is the NRI chapter (115C–115I → 212–218), treaty relief (90 → 159) and withholding on payments to non-residents (195 → 393(2)). Residential status still decides everything else.
Common Mistakes NRIs Make with Residential Status
1. Assuming Living Abroad Automatically Makes You an NRI
Living overseas does not automatically make an Indian citizen a non-resident for income-tax purposes. The determination depends on the number of days spent in India, the nature of income earned, and the individual's residential history.
2. Ignoring the ₹15 Lakh Threshold
Many NRIs with rental properties or investments don't realize their Indian income crosses ₹15 lakh, triggering the 120-day rule or deemed residency.
3. Not Maintaining Day-Count Records
Without passport stamps, boarding passes, and travel documentation, proving your stay period becomes difficult during assessment proceedings.
4. Believing the Income Tax Act 2025 Changed NRI Rules
Despite widespread speculation, the Bill does not change the definition of tax residency for NRIs. The rules have been in force since Finance Act 2020.
5. Overlooking the Section 216 Conditions
Assuming any TDS deduction exempts you from filing is wrong. Section 216 applies only to specific investment income and LTCG, not salary, rent, or business income.
Conclusion
The Income Tax Act 2025 brings clarity and continuity to NRI taxation by retaining the residency framework established by the Finance Act 2020. The 182-day rule remains the primary test, while the ₹15 lakh threshold and 120-day rule target high-income Indians maintaining strong ties with India. The deemed residency provision under Section 6(1A) ensures Indians in tax-free jurisdictions contribute to Indian taxation, but the RNOR classification protects foreign income. Section 216 offers ITR filing relief for specific passive income cases.
For FY 2025-26, maintain meticulous day-count records, understand your Indian income composition, and plan your visits strategically. Whether you're managing rental properties, equity investments, or considering returning to India, your residential status under Section 6 determines your entire tax liability. Don't leave it to chance—calculate your tax liability accurately using TaxFetch's Income Tax Calculator, track your TDS with the Form 26AS Fetch Tool, and analyze your investments with our comprehensive tax tools. Stay compliant, plan strategically, and optimize your tax liability under the new Income Tax Act 2025.
