A Simple Guide to Residential Status for ITR-2 Filers (AY 2025-26)
- Asharam Swain
- Aug 28
- 10 min read
Knowing your residential status is the most important first step for filing your Income Tax Return (ITR). This is especially true for those filing ITR-2, who often have foreign income or assets to report. The Income Tax Act has specific rules to determine if you are a resident, non-resident, or something in between. This guide simplifies these rules for the Assessment Year 2025-26 (for income earned in the Financial Year 2024-25) with clear examples.
Table of Index
Why Your Residential Status is Crucial for ITR-2 Filing
Your residential status is crucial for ITR-2 filing because it dictates how your income is taxed in India. The ITR-2 form is designed for individuals and Hindu Undivided Families (HUFs) who have income from sources other than a business or profession. This often includes people with capital gains or, critically, foreign income and assets. You must use ITR-2 if you have foreign income or assets to declare.
The status you hold directly impacts the scope of your taxable income and what you need to disclose. Incorrectly determining your status can lead to notices from the tax department and potential penalties.
Your residential status determines:
Scope of Taxable Income: It decides whether you pay tax only on your Indian income or on your global income (income earned both in and out of India).
Disclosure Requirements: It affects your obligation to report foreign assets and income in the Foreign Asset (FA) schedule of the ITR-2 form.
Tax Treaty Benefits: Your ability to claim benefits under a Double Taxation Avoidance Agreement (DTAA) is linked to your residential status.
Properly identifying your status is the foundation for correctly filing your ITR-2 form.
The 3 Types of Residential Status Under the Income Tax Act
The Income Tax Act classifies a person's residential status into three types. Each category has different tax rules. The classification depends on the number of days a person has physically stayed in India.
The three types of residential status are:
Resident and Ordinarily Resident (ROR): An ROR is taxed on their global income, which means both Indian and foreign income are taxable in India.
Resident but Not Ordinarily Resident (RNOR): An RNOR is generally taxed only on their Indian income. Foreign income is not taxed in India unless it is received in India or comes from a business controlled from India.
Non-Resident (NR): An NR pays tax only on income that is earned or received in India.
These categories are defined under Section 6 of the Income Tax Act, 1961. The first step is to find out if you are a Resident or a Non-Resident.
Step 1: Are You a Resident of India? The Basic Conditions
To determine your residential status for ITR-2, you must first check if you qualify as a "Resident" of India for the financial year (April 1, 2024, to March 31, 2025). This is based on the basic conditions laid out in Section 6(1) of the Income Tax Act. An individual only needs to satisfy one of the two basic conditions to be considered a Resident. Your physical presence in the country is the key factor.
Basic Condition 1: The 182-Day Rule
The first basic condition for becoming a resident is straightforward. An individual who stays in India for 182 days or more during the financial year is considered a Resident. The stay does not need to be continuous. When counting the days, both the day of arrival and the day of departure are included.
Example: Ananya, a consultant based in the US, visited India and stayed from April 1, 2024, to October 15, 2024. Her total stay in India was 198 days. Since this is more than 182 days, she satisfies this condition and qualifies as a Resident for the financial year 2024-25.
Basic Condition 2: The 60-Day + 365-Day Rule
The second basic condition for becoming a resident is an alternative test. An individual is a Resident if they were physically present in India for 60 days or more in the relevant financial year (FY 2024-25) AND for 365 days or more in the four years just before that year (FY 2020-21 to FY 2023-24).
Example: Ben, a foreign citizen, came to India for a project. In FY 2024-25, he was in India for 75 days. In the four preceding years, his total stay was 400 days. Since he meets both parts of this condition (more than 60 days in the current year and more than 365 days in the last four), he is a Resident.
Important Exceptions: The 60-day period in the second condition is extended to 182 days for two specific cases:
An Indian citizen who leaves India for employment purposes or as a crew member on an Indian ship.
An Indian citizen or a Person of Indian Origin (PIO) who lives outside India and comes for a visit. However, if their total income from Indian sources exceeds ₹15 lakh, this period is only extended to 120 days.
Step 2: Are You an Ordinarily Resident (ROR) or Not Ordinarily Resident (RNOR)?
Once you meet one of the basic conditions and qualify as a "Resident," the next step is to determine if you are an "Ordinarily Resident" (ROR) or "Not Ordinarily Resident" (RNOR). This distinction is crucial as it further refines your tax liability, especially concerning foreign income.
According to Section 6(6) of the Income Tax Act, a Resident becomes an ROR only if they satisfy both of the following additional conditions. If a Resident fails to meet even one of these two conditions, they are classified as an RNOR.
Additional Condition 1: Resident in 2 out of 10 Previous Years
The first additional condition for becoming an ROR requires a history of residency. A person must have been a Resident in India for at least 2 out of the 10 financial years immediately preceding the current financial year.
Example: Vikram is a Resident for FY 2024-25. To check this condition, we look at his status from FY 2014-15 to FY 2023-24. If his stay patterns made him a Resident in three of those ten years, he satisfies this condition.
Additional Condition 2: 730 Days Stay in 7 Previous Years
The second additional condition for becoming an ROR relates to the total physical stay over a longer period. A person must have been physically present in India for a total of 730 days or more during the 7 financial years immediately preceding the current financial year.
Example: Continuing with Vikram, who is a Resident for FY 2024-25 and met the first additional condition. We now check his total stay in India from FY 2017-18 to FY 2023-24. If his total physical presence during these seven years adds up to 800 days, he satisfies this second condition as well. Since he meets both additional conditions, Vikram is a Resident and Ordinarily Resident (ROR).
If he had stayed for only 700 days, he would have failed this condition and been classified as a Resident but Not Ordinarily Resident (RNOR).
The "Deemed Resident" Rule: A Special Case
The "Deemed Resident" rule is a special provision under Section 6(1A) of the Income Tax Act. It was introduced by the Finance Act, 2020, to bring certain high-net-worth Indian citizens into the tax net who may not be paying taxes in any country.
An individual is considered a "Deemed Resident" if they meet all the following criteria:
They must be an Indian citizen.
Their total income (excluding income from foreign sources) must be more than ₹15 lakh during the financial year.
They are not liable to pay tax in any other country or territory due to their domicile, residence, or any similar reason.
A person who qualifies as a Deemed Resident is automatically treated as a Resident but Not Ordinarily Resident (RNOR). This means their foreign-source income will not be taxed in India unless it is derived from a business controlled in or a profession set up in India. This rule ensures that Indian citizens cannot avoid taxation by arranging their affairs to not be a resident of any country.
Comparison Table: Tax Implications for ROR vs. RNOR vs. NR
The taxability of your income directly depends on your residential status. This table provides a clear summary of how different types of income are taxed for each status. Understanding these differences is fundamental to filing an accurate ITR-2.
Type of Income | Resident & Ordinarily Resident (ROR) | Resident but Not Ordinarily Resident (RNOR) | Non-Resident (NR) |
Income received or deemed to be received in India | Taxable | Taxable | Taxable |
Income accruing or arising or deemed to accrue or arise in India | Taxable | Taxable | Taxable |
Income from a business controlled from or profession set up in India | Taxable | Taxable | Not Taxable (unless it accrues or is received in India) |
Income accruing or arising outside India (Foreign Income) | Taxable | Not Taxable (unless received in India) | Not Taxable |
For RNORs and NRs, relief from double taxation may be available under the provisions of a Double Taxation Avoidance Agreement (DTAA) between India and the other country.
Checklist: Determine Your Residential Status for FY 2024-25
Use this simple checklist to determine your residential status. Go through the questions step-by-step.
Part A: Basic Conditions (Check if you are a Resident)
Were you in India for 182 days or more in the financial year 2024-25?
Yes: You are a Resident. Proceed to Part B.
No: Go to the next question.
Were you in India for 60 days* or more in FY 2024-25 AND 365 days or more between FY 2020-21 and FY 2023-24?
Yes: You are a Resident. Proceed to Part B.
No: You are a Non-Resident (NR). You do not need to proceed to Part B.
\Remember the 120-day and 182-day exceptions for Indian citizens and PIOs.*
Part B: Additional Conditions (Check if you are ROR or RNOR)
(Only for those who are "Residents" from Part A)
Were you a Resident of India in at least 2 out of the 10 previous financial years (FY 2014-15 to FY 2023-24)?
Was your total stay in India 730 days or more in the 7 previous financial years (FY 2017-18 to FY 2023-24)?
If you answered YES to BOTH questions: You are a Resident and Ordinarily Resident (ROR).
If you answered NO to ONE or BOTH questions: You are a Resident but Not Ordinarily Resident (RNOR).
After determining your status, you can confidently apply the correct tax rules and check the latest income tax slabs.
Conclusion: File Your ITR-2 with Confidence
Determining your residential status is the first, most critical step in your tax filing journey. This status directly dictates which income is taxable in India and is essential for anyone filing ITR-2, especially those with global financial footprints. Getting it right ensures you are compliant with the Income Tax Act and avoids potential notices or penalties. Remember, your status as ROR, RNOR, or NR depends entirely on your physical presence in India.
Still unsure about your residential status or need help with your ITR-2 filing? Let Taxbuddy's experts handle it for you. Get started today
FAQs
1. How is residential status determined for a HUF?
A Hindu Undivided Family (HUF) is a resident in India if the control and management of its affairs are located wholly or partly in India. If control is entirely outside India, the HUF is a Non-Resident. A resident HUF is considered 'Ordinarily Resident' (ROR) if its Karta (manager) satisfies the two additional conditions applicable to individuals (resident in 2 of 10 preceding years and stay of 730 days in 7 preceding years). Otherwise, it is an RNOR.
2. Do days of arrival and departure count for the physical stay calculation?
Yes, for calculating the number of days of stay in India, both the day of arrival into India and the day of departure from India are counted.
3. I am an Indian citizen working on a ship. How do I calculate my stay in India?
For an Indian citizen who is a crew member on an Indian ship, the period of stay in India does not include the days spent on a voyage that starts from an Indian port and ends at a foreign port (or vice versa), as specified in their Continuous Discharge Certificate (CDC). This effectively means you are considered a non-resident if your physical presence in India, excluding this period, is less than 182 days.
4. What happens if I provide the wrong residential status on my ITR-2?
Providing the wrong residential status can have serious consequences. It may lead to under-reporting of income (if you file as NR but are an ROR, you miss taxing global income), which can attract penalties under section 270A. The tax department can issue a notice, and it may lead to incorrect tax calculations and legal disputes.
5. I am a foreign citizen living in India. Do these same rules apply to me?
Yes, the rules for determining residential status based on physical stay in India apply to all individuals, regardless of their citizenship. A foreign citizen can become a resident of India for tax purposes if they meet the conditions of stay defined in Section 6.
6. Does my residential status affect my capital gains tax?
Yes, it does. An ROR is liable to pay tax on capital gains from the sale of assets located anywhere in the world. An RNOR or NR is generally only liable to pay tax on capital gains from the transfer of assets located in India.
7. How does the DTAA affect my tax liability as an RNOR or NR?
A Double Taxation Avoidance Agreement (DTAA) is a treaty between two countries to prevent taxpayers from being taxed on the same income in both nations. As an RNOR or NR, if you have income that is taxable in India and also in a country with which India has a DTAA, you can claim tax relief as per the agreement, avoiding double taxation.
8. If I am a student studying abroad, what is my residential status?
A student's residential status for income tax is determined by their physical presence in India, just like any other individual. If a student goes abroad for studies and stays outside India for 182 days or more in a financial year, they will become a Non-Resident for that year. It's important not to confuse the Income Tax Act rules with FEMA rules, which may treat students as non-residents for banking purposes as soon as they go abroad.
9. Can my residential status change every year?
Yes, your residential status is determined for each financial year separately based on your physical stay in that year and the preceding years. Therefore, it is possible for your residential status to change from one year to the next.
10. Where do I mention my residential status in the ITR-2 utility?
In the ITR-2 form, the residential status must be selected in the 'Part A - General Information' section. You will need to choose from the dropdown menu whether you are a 'Resident', 'Resident but not Ordinarily Resident', or 'Non-resident'. You also need to select the specific condition that makes you eligible for that status.
11. What is the difference between a financial year and an assessment year?
A Financial Year (FY) is the 12-month period from April 1st to March 31st during which you earn your income. The Assessment Year (AY) is the year immediately following the financial year, in which the income earned in the FY is assessed and taxed. For income earned in FY 2024-25, the corresponding AY is 2025-26.
12. I became a Deemed Resident. Do I have to file ITR-2?
Yes. If you are a Deemed Resident under Section 6(1A), you are automatically considered an RNOR. Since the ITR-1 form cannot be used by an RNOR, you would need to file ITR-2 (or another applicable form if you have business income) to report your Indian income exceeding ₹15 lakh and any foreign assets, if applicable.
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