Are You an NRI This Year? Decoding Residential Status Under Section 6 and the 120-Day Trap

Residential status is the single switch that decides how much of your worldwide income India can tax in a financial year. It is not about your passport, your Overseas Citizen of India (OCI) card, or where your salary is credited. It is decided arithmetically, day by day, under Section 6 of the Income-tax Act 1961. Get the count wrong by a single week and a Gulf-based professional earning tax-free salary abroad can find that salary pulled into the Indian net at rates of up to 30% plus surcharge and cess. This guide walks through the day-count tests, the 120-day trap introduced by the Finance Act 2020, and how the answer interacts with the Foreign Exchange Management Act 1999 (FEMA), Double Taxation Avoidance Agreements (DTAAs), and your repatriation rights.

FEMA / DTAA Position

India runs two entirely separate definitions of residency, and confusing them is the most common and most expensive mistake NRIs make. FEMA 1999, which governs bank accounts, property, and money movement, defines a "person resident in India" in Section 2(v) primarily as someone who resided in India for more than 182 days during the preceding financial year, subject to the purpose and intention of the stay (see the bare Act on indiacode.nic.in). The Income-tax Act 1961, which governs how much tax you pay, uses the Section 6 day tests explained below. A person can be a non-resident under FEMA and a resident under the Income-tax Act in the very same year, because the two statutes count different periods and weigh intention differently. Understand the FEMA concept before you assume your bank's NRE tagging settles your tax position.

The DTAA layer sits on top of both. Where India and your country of residence both claim taxing rights, the treaty allocates them and caps the rate India can charge on cross-border flows such as dividends, interest, and capital gains. Critically, no Indian DTAA treats capital gains on Indian securities as "exempt" in India; India retains the right to tax long-term capital gains at 12.5% even where a treaty applies. To claim treaty relief you must hold a valid Tax Residency Certificate (TRC) from your country of residence and file Form 10F, a requirement the Income Tax Department has enforced through the e-filing portal since 2022. The interaction between the day count, the treaty, and your bank tagging is exactly what our NRI tax calculator is built to model.

Tax Treatment in India

Section 6(1) sets the basic rule. You are resident in India for a previous year if you satisfy either of two tests: you are in India for 182 days or more during that previous year, or you are in India for 60 days or more in that year and 365 days or more across the four immediately preceding years. Fail both and you are a non-resident for the year. The 60-day limb has always been the trap, because it can catch people who spend barely two months in India in a single year if their prior visits add up.

Two long-standing relaxations soften the 60-day limb. For an Indian citizen who leaves India for the purpose of employment abroad, or who leaves as a member of the crew of an Indian ship, the 60-day figure is replaced by 182 days. The same 182-day substitution applies to an Indian citizen or person of Indian origin (PIO) who is living abroad and comes to visit India. These carve-outs, in Explanation 1 to Section 6(1), are why a seafarer or a first-year emigrant is usually safe as long as the India stay in the departure year is under 182 days. Confirm your own day count against the official worked examples published by the Income Tax Department at incometaxindia.gov.in.

The following table summarises the day-count tests that determine residential status for an individual.

The 120-day trap arrived with the Finance Act 2020, effective from assessment year 2021-22. For an Indian citizen or PIO who visits India and whose total income other than income from foreign sources exceeds Rs 15 lakh in the previous year, the 60-day limb is replaced not by 182 days but by 120 days. So a high-earning visitor who spends 120 to 181 days in India, and 365 days or more across the preceding four years, becomes resident. The relief is that such a person is classified as Resident but Not Ordinarily Resident (RNOR), meaning only Indian-sourced income is taxed in India and genuine foreign income stays outside the Indian net. The RNOR buffer is defined in Section 6(6) and is examined in the table below.

Section 6(1A) is the second Finance Act 2020 change, aimed at "stateless" high earners. An Indian citizen whose total income other than foreign-source income exceeds Rs 15 lakh, and who is not liable to tax in any other country or territory by reason of domicile, residence, or any similar criterion, is deemed to be resident in India regardless of physical presence. This provision was written for individuals arranging their affairs so as to be tax-resident nowhere; it does not catch an NRI who genuinely pays tax in a jurisdiction such as the UK or the USA. A deemed resident under Section 6(1A) is always an RNOR, so only Indian income and income from a business controlled from India is taxed.

Once you are a resident and ordinarily resident, your worldwide income is taxable in India. Under the new regime slabs for FY 2025-26 the top marginal rate is 30%, applying to income above Rs 24 lakh, with a health and education cess of 4% on tax plus surcharge. The surcharge in the new regime is capped at 25% for incomes above Rs 5 crore, lower than the 37% that once applied in the old regime. A non-resident, by contrast, is taxed only on income that accrues, arises, or is received in India, such as rent from an Indian flat, capital gains on Indian shares, or interest on an NRO deposit.

Tax Treatment Abroad

Where India taxes an NRI's Indian income and the country of residence also taxes the same income on a worldwide basis, the DTAA prevents the amount being taxed twice. The mechanism is usually a foreign tax credit: your country of residence gives credit for the Indian tax you have paid. Under Article 24 of the India-USA treaty, effective from 12 September 1991, a US resident claims a credit in the United States for Indian tax borne on Indian-source income. The credit is generally limited to the US tax otherwise payable on that income, so if the Indian rate is higher you may not recover the full difference.

The rate India can charge at source is capped by the treaty, and those caps differ by country. The table below sets out the headline withholding caps under three of the most-used Indian DTAAs. Note again that capital gains are not exempt anywhere; India retains taxing rights and applies its domestic long-term rate of 12.5%.

The India-USA dividend cap deserves a footnote. Article 10 of that treaty charges 15% only where the recipient company holds at least 10% of the voting stock of the payer in a parent-subsidiary situation; an ordinary NRI portfolio investor falls into the 25% category. The India-UAE treaty, effective from 22 September 1993, offers the lowest interest cap at 12.5% but requires a TRC backed by proof of a UAE establishment before the DTAA rate can be applied. The India-UK treaty has been in force since 26 October 1993 and includes a tie-breaker rule in Article 4 for individuals who are resident in both countries in the same year, resolving dual residence by permanent home, centre of vital interests, and habitual abode in that order.

For UAE and other zero-income-tax jurisdictions, the foreign tax credit is largely academic because there is no local tax to credit. The value of the treaty for a UAE resident therefore lies in the reduced Indian withholding rates rather than in double-tax relief, which makes securing a valid TRC each year the single most valuable compliance step. Our recent explainer on the Liberalised Remittance Scheme covers the outbound side of the same coin, the USD 250,000 annual limit for resident Indians sending money abroad.

Repatriation Mechanics

Your residential status decides which bank accounts you may legally hold and how freely you can move money, and this is where FEMA rather than the Income-tax Act governs. A non-resident under FEMA holds three account types. A Non-Resident External (NRE) account holds foreign earnings converted to rupees; both principal and interest are freely repatriable and the interest is exempt from Indian income tax under Section 10(4)(ii) so long as you remain a person resident outside India. A Non-Resident Ordinary (NRO) account holds Indian-source income such as rent, dividends, and pensions; its interest is fully taxable in India and subject to TDS.

Repatriation from an NRO account is capped. Under RBI rules an NRI may remit up to USD 1 million per financial year from NRO balances, including the sale proceeds of inherited assets, after producing a chartered accountant's certificate in Form 15CB and filing Form 15CA (see the Form 15CA and 15CB note). The USD 1 million window and its documentation are set out on rbi.org.in and explained in detail in our guide to the USD 1 million NRO scheme. If your rental flat is the source of those NRO credits, model the tax first with the NRI rental income tax calculator and the remittance ceiling with the repatriation calculator.

The third account, a Foreign Currency Non-Resident (FCNR) deposit, holds funds in foreign currency for one to five years, shielding the depositor from rupee depreciation, and is fully repatriable with tax-free interest for non-residents. The moment you become a resident under FEMA, typically on returning to India for good, these accounts must be redesignated: NRE and FCNR balances are moved to Resident Foreign Currency (RFC) accounts, and NRO accounts convert to ordinary resident accounts. Getting the redesignation date right matters, because interest earned after you become resident loses its exemption. If you hold an OCI card, our explainer on OCI cardholder rights sets out the property and investment limits that survive alongside these banking rules.

FAQ

Does holding an OCI card make me a non-resident for tax?

No. An OCI card is an immigration and travel document; it has no bearing on the Section 6 day count. Your Indian tax residency for FY 2025-26 turns entirely on how many days you were physically present in India, tested against the 182-day and 120-day or 60-day thresholds. An OCI holder who spends 182 days or more in India in the year is a resident for tax, card notwithstanding.

How exactly are days in India counted?

The Income Tax Department counts the day of arrival and the day of departure as days in India, so both endpoints of a trip are included. Presence is measured in the previous year running 1 April to 31 March. There is no requirement that the days be continuous; a series of short visits adds up, which is why frequent travellers must keep boarding passes and passport stamps to substantiate the count.

I earn a tax-free salary in the UAE. Can Section 6(1A) make me resident?

Only if two conditions are met together: your total income other than foreign-source income exceeds Rs 15 lakh, and you are not liable to tax in any country by reason of domicile or residence. A bona fide UAE resident who holds a TRC and is treated as tax-resident in the UAE is generally outside Section 6(1A), because that provision targets individuals who are tax-resident nowhere, not those living in a zero-tax jurisdiction under a genuine residence.

What is the difference between RNOR and non-resident status?

A non-resident is taxed in India only on Indian-source income. An RNOR is also taxed only on Indian income plus income from a business controlled or profession set up in India, but not on genuine foreign income. RNOR is a transitional buffer under Section 6(6): you can enjoy it if you were non-resident in 9 of the past 10 years, or present for 729 days or less in the past 7 years, which typically shelters foreign income for two to three years after returning to India.

Can I keep my NRE account after moving back to India permanently?

No. Once you become a person resident in India under FEMA, your NRE and FCNR balances must be redesignated, usually to a Resident Foreign Currency account, and NRO accounts convert to resident accounts. The tax-free status of NRE and FCNR interest under Section 10(4)(ii) applies only while you remain a person resident outside India, so interest accruing after your return becomes taxable.

Are capital gains on my Indian shares exempt under any DTAA?

No. India retains the right to tax capital gains on Indian securities and applies a domestic long-term rate of 12.5%. No Indian treaty, including those with the USA, the UK, and the UAE, treats such gains as exempt in India. Any claim that a DTAA makes Indian capital gains tax-free is incorrect and will not survive scrutiny by the Income Tax Department.