Are You Still an NRI? Section 6 Residency Tests, the 120-Day Trap and the Deemed-Resident Rule

Whether you are still a Non-Resident Indian for tax purposes is not a matter of how you feel about your passport or where your family lives. It is a day-counting exercise governed by Section 6 of the Income-tax Act 1961, and since the Finance Act 2020 (effective assessment year 2021-22 onward) that count has become sharper for high-income visitors. Cross the wrong threshold by even a single day and your global income can walk into the Indian tax net. This guide walks through the 182-day rule, the 120-day trap that catches frequent flyers earning over Rs 15 lakh of Indian income, and the Section 6(1A) deemed-resident rule that was designed to stop "stateless" tax planning.

The stakes are concrete. A Resident and Ordinarily Resident (ROR) is taxed in India on worldwide income. A Non-Resident is taxed only on income that accrues, arises or is received in India. The intermediate Resident but Not Ordinarily Resident (RNOR) status is the safe harbour that shields most foreign-source income even after you technically become "resident". Getting the count right is therefore worth lakhs, not rupees.

FEMA / DTAA Position

Residency under the Foreign Exchange Management Act 1999 (FEMA) and residency under the Income-tax Act 1961 are two separate tests, and confusing them is the single most common NRI error. FEMA Section 2(v) determines whether you may hold an NRE, NRO or FCNR account and whether you may buy property; it turns largely on intent and the purpose of your stay. The Income-tax Act's Section 6 determines what India may tax, and it turns purely on physical days present in the previous year (1 April to 31 March). You can be a FEMA non-resident and an income-tax resident in the same year, or the reverse.

Under Section 6(1) of the Income-tax Act, an individual is resident in India in a previous year if either (a) they are in India for 182 days or more in that year, or (b) they are in India for 60 days or more in the year AND 365 days or more across the four preceding years. For an Indian citizen or person of Indian origin (PIO) who lives abroad and comes to India on a visit, condition (b) is relaxed and the 60-day figure is read as 182 days, per Explanation 1 to Section 6(1) on incometax.gov.in. This is the concession that lets genuine NRIs visit for up to about six months without losing status.

A Double Taxation Avoidance Agreement (DTAA) does not change your day count; it allocates taxing rights once residency is fixed. Where both countries claim you as resident, the treaty "tie-breaker" article (permanent home, then centre of vital interests, then habitual abode, then nationality) assigns a single treaty residence. Crucially, no DTAA treats capital gains on Indian assets as outright exempt for the source country. Under the India-United States treaty (in force from 12 September 1991), India retains the right to tax long-term capital gains on Indian securities at 12.5%; the treaty's Article 24 then gives you a foreign tax credit in your country of residence rather than an exemption. Read the mechanics on our DTAA glossary entry before assuming any income is treaty-free.

Tax Treatment in India

The Finance Act 2020 inserted two changes that redraw the map for higher earners. First, the 120-day trap: for an Indian citizen or PIO visiting India whose total income other than income from foreign sources exceeds Rs 15 lakh in the previous year, the 182-day relaxation is cut to 120 days. Such a person who stays 120 days or more (and also meets the 365-days-in-four-years condition) becomes resident. Second, Section 6(1A) deems an Indian citizen resident if their India-sourced income exceeds Rs 15 lakh and they are not liable to tax in any other country by reason of domicile or residence. This "deemed resident" rule targets people who arrange to be tax-resident nowhere.

There is an important cushion. Anyone who becomes resident via the 120-day rule or the Section 6(1A) deemed-resident rule is classified as RNOR under Section 6(6). An RNOR is taxed in India only on Indian-source income and on foreign income derived from a business controlled in or a profession set up in India; ordinary foreign-source income (your overseas salary, foreign bank interest, foreign dividends) stays outside the Indian net. So the 120-day trap rarely means worldwide taxation immediately; it usually means RNOR status. Check your own position with our NRI income tax calculator.

The residency ladder and its tax reach can be summarised as follows.

Once you are taxed in India, the rate arithmetic matters. NRIs are taxed on investment income and long-term capital gains largely at special rates and, importantly, cannot claim the Section 87A rebate (that rebate of up to Rs 60,000 under the new regime for FY 2025-26 is confined to residents). NRIs also cannot adjust the basic exemption shortfall against Section 111A or 112A gains the way residents can. The applicable surcharge and cess stack on top of the base rate as below.

Tax is collected up front through withholding. Section 195 requires the payer to deduct tax at source on most sums paid to a non-resident, and NRO interest is subject to tax deducted at source (TDS) at 30% plus applicable surcharge and cess. Where a DTAA offers a lower rate, the NRI must furnish a Tax Residency Certificate and Form 10F to claim it. Our TDS glossary note sets out the compliance chain.

Tax Treatment Abroad

Because India taxes Indian-source income at source, the same income can also be taxable in your country of residence, and the DTAA's foreign tax credit (FTC) article is what prevents genuine double taxation. Under Article 24 of the India-US treaty, a US resident who pays Indian tax on Indian dividends, interest or capital gains claims a credit against US tax on that same income, subject to US limitation rules. The credit is a subtraction from foreign tax owed, not an Indian refund, and it is capped at the foreign country's own tax on that slice of income.

The treaty rate table for the United States illustrates why the source-country rate is only half the story. India's domestic TDS on many payments is higher than the treaty ceiling, so the treaty is what brings the effective rate down (provided documentation is filed).

Two practical cautions. First, timing mismatches bite: India's tax year ends 31 March while the US tax year ends 31 December, so the year in which you paid Indian tax may not line up with the US return claiming the credit. Second, tax-exempt-in-India income is not automatically exempt abroad; NRE interest that India exempts under Section 10(4)(ii) is still ordinary taxable income on a US Form 1040. Model your credit position with our foreign tax credit calculator before filing on either side.

Repatriation Mechanics

Your residency status also dictates how money leaves India, and the account you hold it in matters more than the amount. Under the Reserve Bank of India's Master Direction on Deposits and Accounts, NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) balances are freely and fully repatriable, both principal and interest, because they were funded from foreign earnings. NRE interest is also exempt from Indian income tax under Section 10(4)(ii), so an NRE fixed deposit is the cleanest structure for genuinely foreign money.

NRO (Non-Resident Ordinary) accounts hold Indian-source income (rent, dividends, pension, sale proceeds) and are subject to a repatriation ceiling. Under FEMA's remittance-of-assets framework, an NRI may remit up to USD 1 million per financial year (1 April to 31 March) out of NRO balances, sale proceeds of assets and inherited assets, over and above current-income items such as rent, which are freely repatriable after tax. Every outward remittance requires a chartered accountant's Form 15CB and the remitter's Form 15CA filed on the income-tax portal. See the RBI position on rbi.org.in and our NRO repatriation calculator for the paperwork sequence.

A frequent pain point is the NRO-to-NRE transfer. Because it converts Indian-source funds into freely repatriable form, it falls within the USD 1 million annual cap and again needs Forms 15CA and 15CB certifying that applicable tax has been paid. When you return to India for good and become resident, existing NRE and FCNR accounts should be redesignated as resident accounts (or FCNR balances allowed to run to maturity and then moved to a Resident Foreign Currency account), a step many returnees overlook until a bank audit flags it.

FAQ

Does a single extra day in India really change my residency?

Yes. Section 6 is a bright-line day count with no rounding and no "substantially present" softening. If you are an Indian citizen or PIO with Indian income above Rs 15 lakh and you spend 120 days in India while also having 365 days across the prior four years, you become resident (as RNOR); at 119 days you do not. Keep dated boarding passes and passport stamps, because the burden of proving non-residency sits with you.

I earn a salary in Dubai and pay no income tax there. Am I a deemed resident?

Possibly. Section 6(1A), effective assessment year 2021-22, deems an Indian citizen resident if their India-sourced income exceeds Rs 15 lakh and they are not liable to tax in any other country by reason of domicile or residence. A UAE-based Indian citizen with over Rs 15 lakh of Indian income and no tax liability anywhere else can be caught, but is then treated as RNOR, so the Dubai salary itself stays outside the Indian net. The rule targets Indian income, not your overseas earnings.

Is the 120-day rule the same as the 182-day rule?

No. The 182-day test in Section 6(1)(a) applies to everyone. The 120-day figure is a narrowed version of the visitor concession that applies only to Indian citizens or PIOs whose total income other than foreign-source income exceeds Rs 15 lakh in the year, introduced by the Finance Act 2020. If your Indian income is Rs 15 lakh or less, the visitor threshold stays at 182 days.

Can an NRI claim the Section 87A rebate to pay zero tax up to Rs 12 lakh?

No. The Section 87A rebate, raised to a maximum of Rs 60,000 under the new regime for FY 2025-26, is available only to resident individuals. A Non-Resident cannot use it, which is why NRIs often pay tax from the first rupee of taxable Indian income above the basic exemption, and cannot set the basic exemption shortfall against Section 111A or 112A capital gains.

How much can I repatriate from my NRO account each year?

Up to USD 1 million per financial year from NRO balances, sale proceeds and inherited assets under FEMA's remittance-of-assets rules, in addition to freely repatriable current income such as post-tax rent. Each remittance needs Form 15CA and a CA-certified Form 15CB. NRE and FCNR balances have no such cap and are fully repatriable.

Is my NRE fixed deposit interest taxable if I become RNOR?

NRE interest is exempt under Section 10(4)(ii) only while you qualify as a person resident outside India under FEMA. The moment you return and become a FEMA resident, the exemption stops and the account should be redesignated; new interest becomes taxable. RNOR status under the Income-tax Act does not by itself preserve the NRE exemption, because the exemption is tied to FEMA residency, not income-tax residency.

Which capital gains rate applies to my Indian mutual funds as an NRI?

Long-term gains on listed equity and equity mutual funds are taxed at 12.5% above the Rs 1,25,000 annual exemption under Section 112A, without indexation, and short-term gains under Section 111A at 20% for transfers on or after 23 July 2024. A DTAA may let you credit this Indian tax abroad, but it does not exempt the gain in India, which retains the taxing right at 12.5%.