The income tax regulations in India classify taxable people into three categories: a local resident, a resident who is not normally resident (RNOR) and a non-citizen (NR). Each category of these taxpayers has different taxability. Let’s look at how a taxpayer becomes a resident, an RNOR, or an NR before getting into taxability.
Resident: If a taxpayer meets one of the following two criteria, he is considered an Indian resident. A year in India is defined as 182 days or more. Stay in India for 365 days or more in the previous four years and 60 days or more in the current financial year.
Suppose a citizen or person of Indian descent leaves his country for employment outside India within a fiscal year, then he will only be considered a resident of India if he remains in India for 182 days or more. These persons are permitted to stay in India for a period that is higher than 60 days but less than 182 days. For those with total income (other than foreign sources) exceeding Rs 15 lakh, the term is decreased to 120 days or more starting in the financial year 2020-21.
An individual who is a citizen of India and is not liable to tax in any other nation will be assumed to be a resident of India beginning in FY 2020-21. The considered residential status criterion applies only if total income (other than from overseas sources) exceeds Rs 15 lakh and there is no tax liability in other countries or territories due to his domicile or residency or any other comparable criteria.
Resident Not Ordinary Resident: If someone meets the residency requirements, the next stage is to decide if they are a Resident Ordinarily Resident (ROR) or a Resident Not Ordinarily Resident (RNOR). If he satisfies both of the following criteria, he will be a ROR:
Has spent at least 730 days in India in the previous seven years and has been a resident of India for at least two of the past ten years. As a result, anyone who fails to meet even one of the above criteria will be classified as an RNOR.
From FY 2020-21, a citizen of India or a person of Indian origin who leaves India for employment outside India throughout the year would be considered a resident and normally resident if he spends at least 182 days in India. This criterion, however, will only apply if his total income (excluding foreign sources) surpasses Rs 15 lakh. A citizen of India who is judged to be a resident in India will also be a resident and normally resident in India (as of FY 2020-21).
NOTE: Income from foreign sources refers to money earned or obtained outside of India (except income derived from a business controlled in India or a profession set up in India).
Non-resident: An NR for the year is someone who meets neither of the requirements specified in (a) or (b) above.
Taxability:
Resident: A resident will be taxed in India on his global income, including money generated in India and income earned outside India.
NR and RNOR: Their Indian tax responsibility is limited to the money they generate there. They do not have to pay any taxes in India on their international earnings. Also, keep in mind that in the event of double taxation of income, when the same income is taxed both in India and overseas, one can use the Double Taxation Avoidance Agreement (DTAA) that India would have agreed to with the other nation to avoid paying taxes twice.
