Tax residency rules: Who is a resident or non-resident as per Income-Tax Bill 2025?

The Income Tax Bill 2025 has tried to simplify the rules for determining tax residency in India. It is expected that the simplified language of the new bill would help prevent tax avoidance and make it easy for non-resident Indians (NRIs) to plan their taxation in India.

"Earlier, NRIs could maintain their status if they stayed in India for less than 182 days in a financial year. Now, if an NRI earns over ₹15 lakh in India, they will be considered a resident if they stay for 120 days or more," said Ram Medury, founder and CEO of Maxiom Wealth, a wealth management firm.

"This change follows global best practices, preventing tax avoidance through prolonged foreign stays. Those planning to retain NRI status must carefully track their days spent in India and adjust travel plans accordingly," he added.

Who will be considered a resident or non-resident?

a) lived in India for a total period of 182 days or more in a tax year; or

b) lived in India cumulatively for 60 days or more in a tax year and has been in India cumulatively for 365 days or more in four years preceding the tax year. However, there are two exceptions to this provision:

• It will not apply to an Indian citizen, who leaves India in any tax year as a member of the crew of an Indian ship or for employment outside India.

• It will also not apply to a person, who is a citizen of India or a person of Indian origin and comes on a visit to India in any tax year while being outside India. However, for such a person, the residency rule will apply if he has a total income exceeding ₹15 lakh in India during that tax year (other than income from foreign sources) and lived in India cumulatively for 120 days or more in that year.

Foreign income taxation for RNORs

Non-resident Indians (NRIs) classified as a Resident but Not Ordinarily Resident (RNOR) will be taxed on their foreign passive income. This is similar to how the US taxes its citizens under FATCA. For NRIs with rental income, dividends, or interest earnings abroad, this would mean a higher tax liability in India, according to Medury.

NRIs and residents will be required to disclose their overseas assets and bank accounts to Indian tax authorities.

"This aligns with global information-sharing agreements, ensuring tax compliance across jurisdictions. Those with investments in foreign stocks, bank accounts, or properties must maintain detailed records and ensure compliance to avoid penalties," said Medury.