If you are an NRI visiting India for an extended stay — or an Indian professional living in the UAE, Saudi Arabia, Bahrain, or any zero-tax jurisdiction — you need to read this before 1 April 2026. The Income Tax Act 2025, effective from that date, carries forward and formalises two rules that could change your tax residency status dramatically: the 120-day threshold for high-income visiting NRIs, and the deemed residency rule that taxes you as a resident of India even if you never set foot here. Your global income could become taxable in India — and most NRIs don't realise it until after the financial year ends.
1. Did you stay in India for 182+ days this year? → You are a full Resident. Global income is taxable.
2. Is your Indian income above ₹15L and did you stay 120–181 days? → You are likely RNOR. Only Indian income is taxable.
3. Are you in UAE/Gulf with Indian income above ₹15L and no tax paid anywhere? → You are a Deemed Resident. Global income becomes taxable.
Under the Income Tax Act 1961, an individual was treated as a tax resident of India if either of two conditions was satisfied: staying in India for 182 days or more in the financial year, or staying for 60 days or more in the financial year AND 365 days or more in the preceding four years.
For Indian citizens and Persons of Indian Origin (PIOs) visiting India, however, the 60-day rule was relaxed — the threshold was raised to 182 days. This meant a visiting NRI could stay for up to 181 days in India without triggering resident status, regardless of their income level. This was the "safe zone" most NRIs used to plan their India visits.
The Finance Act 2020 changed this for one specific category — high-income NRIs. It substituted the 60-day threshold with 120 days for Indian citizens and PIOs whose total Indian income (excluding foreign income) exceeded ₹15 lakh. The Income Tax Act 2025 retains this rule exactly as introduced by Finance Act 2020 — it does not introduce a new change, but it codifies and continues the rule in the new statutory framework. This makes 1 April 2026 a critical date because the new Act comes into force.
The Income Tax Act 2025 introduces no new NRI residency changes beyond what Finance Act 2020 had already brought in. However, it is essential to understand the framework as it stands effective 1 April 2026 under the new Act:
| Rule | Who It Applies To | Condition | Result |
|---|---|---|---|
| 182-Day Rule | All individuals | Stay in India ≥ 182 days in FY | Full Resident (ROR or RNOR) |
| 60-Day Rule | Resident Indians, certain categories | Stay ≥ 60 days in FY + ≥ 365 days in preceding 4 years | Full Resident |
| 120-Day Rule | Indian citizens / PIOs visiting India with Indian income > ₹15 lakh | Stay 120–181 days in FY + ≥ 365 days in preceding 4 years | RNOR (not full resident) |
| Deemed Residency Rule | Indian citizens (not OCIs) with Indian income > ₹15 lakh not paying tax anywhere | Zero days in India condition — applies regardless of stay | Deemed RNOR |
The 120-day and deemed residency rules result in RNOR status — not full resident status. This means only Indian income remains taxable; foreign income is still largely exempt. The critical worry for many NRIs — that their global income will suddenly be taxed in India — applies only when they cross the 182-day threshold or when they lose RNOR status and become a full Resident and Ordinarily Resident (ROR).
| What Is Taxable? | NRI | RNOR | ROR (Full Resident) |
|---|---|---|---|
| Indian salary / professional income | ✅ Yes | ✅ Yes | ✅ Yes |
| Indian rental income | ✅ Yes | ✅ Yes | ✅ Yes |
| Indian capital gains (property, stocks, MF) | ✅ Yes | ✅ Yes | ✅ Yes |
| NRO account interest | ✅ Yes (TDS @30%) | ✅ Yes | ✅ Yes |
| NRE account interest | ❌ Exempt | ❌ Exempt | ✅ Taxable |
| FCNR deposit interest | ❌ Exempt | ❌ Exempt | ✅ Taxable |
| Foreign salary / overseas income | ❌ Not taxable in India | ❌ Not taxable in India | ✅ Fully taxable |
| Foreign property rental | ❌ Not taxable in India | ❌ Not taxable in India | ✅ Fully taxable |
| Foreign capital gains | ❌ Not taxable in India | ❌ Not taxable in India | ✅ Fully taxable |
| Foreign bank interest | ❌ Not taxable in India | ❌ Not taxable in India | ✅ Fully taxable |
| Foreign dividends | ❌ Not taxable in India | ❌ Not taxable in India | ✅ Fully taxable |
This table underscores the critical difference between RNOR and ROR. An RNOR — whether triggered by the 120-day rule or by returning from abroad — enjoys the same foreign income exemption as an NRI. The only trigger for global taxation is crossing into full resident (ROR) status.
The 120-day rule applies specifically to Indian citizens and Persons of Indian Origin (PIOs) who are visiting India (i.e., they ordinarily reside outside India) and whose total Indian income, excluding foreign income, exceeds ₹15 lakh in the financial year. For this category, if they satisfy both of the following, they become RNOR rather than NRI:
If only the first condition is met (120+ days in the year) but not the second (365 days in preceding 4 years) — they remain an NRI for that year. Both conditions must be satisfied simultaneously.
Rajiv is an Indian citizen living in the UK. He earns ₹22 lakh per year from Indian rental properties and fixed deposits — well above the ₹15 lakh threshold. He visits India every year to manage his properties.
| Scenario | Days in India (FY 2026-27) | Days in India (Preceding 4 FYs) | Residency Status |
|---|---|---|---|
| Scenario A | 90 days | 400 days | NRI — 90 days is below 120-day threshold |
| Scenario B | 125 days | 300 days | NRI — 125 days is above 120 but preceding 4-year count is below 365 |
| Scenario C | 125 days | 420 days | RNOR — both conditions met. Only Indian income is taxable. Foreign income exempt. |
| Scenario D | 185 days | Any | Full Resident (ROR or RNOR) — 182-day rule triggered regardless of income |
Even in Scenario C (RNOR), Rajiv's foreign income — his UK salary, UK savings interest, any UK capital gains — remains exempt from Indian tax. Becoming RNOR does NOT mean paying Indian tax on global income. It means the same tax treatment as an NRI on foreign income, plus paying tax on Indian income (which Rajiv was already doing as an NRI).
This is the rule that most NRIs in the Gulf region are understandably anxious about. Under Section 6(1A) of the Income Tax Act 1961 (introduced by Finance Act 2020 and continued in the new Act), an Indian citizen will be treated as a deemed resident of India — and classified as RNOR — if ALL of the following conditions are met:
These countries levy zero personal income tax. An Indian citizen living in any of these countries who earns ₹15 lakh+ from Indian sources (NRO interest, rental income, capital gains, dividends, etc.) is not "liable to tax" in UAE. Under the deemed residency rule, such a person is treated as a deemed resident of India — RNOR status — even if they spent zero days in India during the year. This was the law from FY 2020-21 and continues under the new Act.
Being a deemed resident (RNOR) means only Indian income is taxable — the same as before for most Gulf NRIs who were already paying tax on their Indian income. The feared outcome — global income becoming taxable — does NOT happen under RNOR. It only happens if the deemed resident also somehow qualifies as Resident and Ordinarily Resident (ROR), which requires meeting the 182-day stay rule for multiple years.
However, deemed residency does have practical compliance consequences:
OCI (Overseas Citizen of India) card holders are explicitly excluded from the deemed residency rule. Foreign citizens of Indian origin are also not covered. The rule applies only to Indian passport holders who are not liable to tax in any country and have Indian income above ₹15 lakh.
Whether triggered by the 120-day rule (visiting NRI) or by returning to India permanently, RNOR is one of the most valuable tax statuses available under Indian law. It gives you the best of both worlds during a transition period.
All income earned and received outside India is exempt from Indian tax for an RNOR — provided it does not arise from a business controlled or profession set up in India. This includes:
Interest earned on NRE savings accounts and FCNR fixed deposits is exempt from Indian income tax as long as the individual holds NRI or RNOR status. This exemption is lost only upon becoming a full Resident and Ordinarily Resident (ROR). This is particularly valuable for NRIs with large FCNR deposits — carefully timing the transition from RNOR to ROR can save significant tax.
For an NRI who returns to India permanently, RNOR status typically lasts for two to three financial years after return, depending on their past stay history. The exact duration depends on whether the individual: was an NRI for nine out of the last ten financial years, and stayed in India for less than 730 days during the last seven years. If both conditions are met, they qualify as RNOR — and the longer they have been away, the longer RNOR status can be preserved.
Returning to India after 2 October in any financial year means you will have spent less than 182 days in India in that year, which can help preserve RNOR status for that year and potentially extend the transition window. Timing your return and restructuring foreign investments and asset sales during the RNOR window can result in significant tax savings.
Many NRIs make errors in counting their India stay, which leads to incorrect residency status determination:
The day you arrive in India and the day you depart from India are both counted as days in India. If you fly in on 15 April and fly out on 14 June, that is 61 days — not 59 days as some people calculate.
There is no minimum continuous stay requirement. Three visits of 40 days each count as 120 days, which is identical to a single 120-day visit in terms of residency impact. NRIs who make multiple short trips to India tend to underestimate their cumulative stay.
For the second condition of the 120-day rule (365 days in preceding four years), each year you must recalculate using the actual four preceding years. A single year of extended stay four years ago can push you over the 365-day threshold without you realising it.
Keep a detailed record of every trip to India — date of arrival, date of departure, passport number and immigration stamp reference. Airline boarding passes, hotel receipts, and bank account activity in India can all serve as corroborating evidence. In case of scrutiny, the burden of proof of non-residency is on the assessee.
| Scenario | Days Calculated Correctly | Days Calculated Incorrectly | Difference |
|---|---|---|---|
| Arrive 1 Apr, Depart 31 May | 61 days | 59 days (exclude both dates) | 2 days |
| 3 visits of 38 days each | 114 days | 111 days (exclude flight days) | 3 days |
| Visits spread over 4 months | Count every calendar day | Some count only "working" days in India | Varies |
Residency status under the Income Tax Act and under FEMA (Foreign Exchange Management Act) are determined separately. FEMA uses the criterion of residing outside India — your domicile and intention of settlement matter, not just the day count. However, when you become RNOR under income tax law, it is important to review your FEMA status simultaneously.
As long as you remain an NRI or RNOR under FEMA, you can continue to hold NRE and NRO accounts. Upon returning to India permanently and becoming a FEMA resident, NRE and NRO accounts must be converted to Resident Rupee accounts or RFC (Resident Foreign Currency) accounts within a reasonable time. Continuing to operate NRE/NRO accounts after FEMA residential status changes to resident constitutes a FEMA violation.
A visiting NRI who triggers RNOR status under the Income Tax Act does NOT automatically change FEMA status. FEMA residency is determined by physical presence outside India and intention — a temporary extended visit to India does not make a genuine NRI a FEMA resident. However, if the stays become regular and extended year after year, it is advisable to review FEMA status with a professional.
The 120-day rule applies to Indian citizens and PIOs visiting India whose total Indian income (excluding foreign income) exceeds ₹15 lakh. If such a person stays in India for 120 or more days in the financial year AND has stayed in India for 365 or more days in the preceding four years, they will be classified as RNOR rather than NRI. Both conditions must be satisfied. If only one condition is met, the person remains an NRI. This rule was introduced by Finance Act 2020 and continues under the Income Tax Act 2025.
Yes — under the deemed residency rule. An Indian citizen (not an OCI card holder) whose total Indian income exceeds ₹15 lakh and who is not liable to pay income tax in any other country will be treated as a deemed resident of India (RNOR status), even if they spend zero days in India. Since UAE, Saudi Arabia, Bahrain, Qatar, and Kuwait do not levy personal income tax, Indian citizens in these countries with significant Indian income are potentially covered by this rule.
An RNOR pays Indian tax only on income that accrues, arises, or is received in India — identical treatment to an NRI. All foreign income (foreign salary, overseas rental, foreign bank interest, foreign capital gains, foreign dividends) remains exempt from Indian tax. NRE account interest and FCNR deposit interest also continue to be exempt. The critical difference between RNOR and full Resident (ROR) is that a full resident must pay Indian tax on global income, while an RNOR does not.
No. Triggering the 120-day rule results in RNOR status, not full Resident (ROR) status. As an RNOR, your foreign income remains exempt from Indian taxation. Your Indian income — which as an NRI you were already declaring and paying tax on — continues to be taxable as before. The feared scenario of global income taxation in India only applies when you become a full Resident and Ordinarily Resident (ROR), which requires staying 182 or more days in India.
OCI (Overseas Citizen of India) card holders are explicitly excluded from the deemed residency rule under Section 6(1A). The deemed residency rule applies only to Indian citizens. OCI card holders remain subject to the standard residency tests (182-day and 60-day rules), not the 120-day rule, and are not covered by the deemed residency provision.
RNOR individuals should file their ITR as a resident — not as an NRI. The applicable form is typically ITR-2 (for individuals without business income) or ITR-3 (if there is business income). In the residential status section of the form, select "Resident but Not Ordinarily Resident" (RNOR). You are not required to report foreign assets in Schedule FA if you are RNOR — this is one of the compliance benefits of RNOR versus full ROR status. However, given the complexity, filing through a CA is strongly advisable.
With the Income Tax Act 2025 coming into force from 1 April 2026, this is the right time to get a professional review of your residency status, income structure, and compliance position. Our NRI and FEMA practice at Shahi & Co. advises NRIs across the Gulf, UK, USA, Canada, Australia, and Singapore on Indian income tax, FEMA compliance, NRO account TDS reduction, DTAA claims, and ITR filing. Reach out for a confidential discussion.
Our FEMA & NRI practice at Shahi & Co. covers end-to-end NRI compliance — residency planning, NRO account management, repatriation, Form 15CA/15CB, and income tax filing for NRIs across 20+ countries.
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