NISM-Series-V-A: Mutual Fund Distributors · Taxation

Basics of Income Tax and Residential Status

Updated 11 October 2026 · Fact-checked

Residential status decides which of your income India can tax. An individual is resident if they stay in India 182 days or more in the previous year, or 60 days or more plus 365 days or more in the preceding four years. Residents are then split into ROR or RNOR. Otherwise the person is a non-resident.

Understand Basics of Income Tax and Residential Status

Income tax in India is charged on income earned in a previous year and taxed in the next year, called the assessment year. The previous year is the financial year from 1 April to 31 March. For income earned in 2024-25, the assessment year is 2025-26. The exception is a new business or profession, where the first previous year runs from the date of setting up to the next 31 March. Note that the new Income-tax Act, 2025 replaces these two terms with a single "tax year" from 1 April 2026. Follow the terms used in your workbook version.

The tax is levied on a person. The term covers an individual, a Hindu Undivided Family (HUF), a company, a firm, an association of persons or body of individuals, a local authority and other artificial juridical persons. All income is sorted into five heads of income: Salaries, Income from house property, Profits and gains of business or profession, Capital gains, and Income from other sources. Mutual fund gains usually fall under Capital gains. Dividends and interest usually fall under Income from other sources. Agricultural income is outside the tax net.

Why does residential status matter? It decides the scope of tax. Income received or accruing in India is taxable for everyone. Income earned abroad is taxable only for some residents. So you must fix the status first, and only then decide what is taxable.

An individual is classified by counting days of stay. There are three possible outcomes: Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), and Non-Resident (NR). An ROR is taxed on global income. An RNOR is taxed on Indian income, plus foreign income only if it comes from a business controlled in India or a profession set up in India. An NR is taxed only on income received or accruing in India, or deemed to do so.

HUFs and companies follow different tests. Residential status under the Income-tax Act is a separate matter from the term NRI under FEMA. A person can be an NRI under FEMA and still be resident for income tax in a given year. Do not mix the two tests.

Key formulas to remember

Basic conditions for an individual to be resident: Resident if: (a) stay in India ≥ 182 days in the previous year, OR (b) stay ≥ 60 days in the previous year AND ≥ 365 days in the 4 years before it; Satisfying any one condition makes the person resident. If neither is met, the person is non-resident.
Relaxation: 60 days becomes 182 days: Indian citizen leaving India for employment abroad, or as crew of an Indian ship: condition (b) needs 182 days, not 60; The same relaxation applies to an Indian citizen or person of Indian origin visiting India, where total income other than foreign-source income is ₹15,00,000 or less.
Relaxation: 60 days becomes 120 days: Indian citizen or PIO visiting India with Indian income > ₹15,00,000: condition (b) needs ≥ 120 days AND ≥ 365 days in the 4 preceding years; Such a person who is resident is treated as RNOR, not ROR.
Deemed resident: Indian citizen with Indian-source income > ₹15,00,000 and not liable to tax in any other country is treated as resident (RNOR); This applies even if the day-count tests are not met.
ROR test (both must be met): Resident in India in at least 2 of the 10 preceding years AND stay in India ≥ 730 days in the 7 preceding years; If either fails, the resident is RNOR.
HUF: Resident if control and management is wholly or partly in India; non-resident if wholly outside India; A resident HUF is ROR only if its manager (Karta) meets both ROR conditions. Otherwise it is RNOR.
Company: Indian company: always resident. Foreign company: resident only if its place of effective management (POEM) is in India in that year; Companies have no ROR/RNOR split.
Scope of tax by status: ROR: global income. RNOR: Indian income + foreign income from business controlled or profession set up in India. NR: Indian income only; Income received in India is taxable for every status.

How to solve Basics of Income Tax and Residential Status questions

Use this order for any residential status question. Do not jump to the answer from one number.

1Identify the person: individual, HUF or company. Each has its own test.
2For an individual, note whether they are an Indian citizen or person of Indian origin, and whether the case says leaving for employment, crew member or visiting.
3Pick the day threshold for condition (b): 60 days normally, 182 days for the relaxations, 120 days where Indian income exceeds ₹15,00,000.
4Test condition (a) first: 182 days or more in the previous year. If yes, the person is resident.
5If not, test condition (b): the current-year days against the threshold AND 365 days or more in the 4 preceding years. Both parts must hold.
6If resident, apply the ROR test: 2 of the 10 preceding years as resident AND 730 days in the 7 preceding years. Failing either gives RNOR. Also check for the deemed-resident rule and the 120-day case, which give RNOR.
7State the scope of tax for that status and match it to the income in the question.

Quickest way: Three-gate shortcut for individuals

When to use it: Use this when the question gives day counts and asks for the status in one line.

Gate 1: is the current-year stay 182 days or more? If yes, resident. Move to Gate 3.
Gate 2: if the stay is below the relevant threshold (60, 120 or 182), the person is non-resident. Stop. If it is at or above, check the 365 days in the 4 years. A shortfall means non-resident.
Gate 3: for a resident, ask whether both ROR tests are met. If any fails, mark RNOR. Otherwise mark ROR.
Scan the options for the matching scope of tax and eliminate the others.

Common mistakes in Basics of Income Tax and Residential Status

Treating either 182 days or 60 days as enough on its own.
Students remember both numbers but forget that 60 days must be paired with 365 days in the four preceding years.
Fix: Write condition (b) as one unit: 60 days AND 365 days. Only condition (a) stands alone.
Using 60 days for an Indian citizen who leaves for employment abroad or visits India.
The relaxation is a small exception that is easy to overlook in a long question.
Fix: Read for the words "citizen", "employment abroad", "crew" and "visiting". If present, change the 60-day figure before testing.
Confusing NRI under FEMA with non-resident under the Income-tax Act.
Both terms sound alike and the same person is often called NRI in both contexts.
Fix: For tax questions, use only the day-count tests. Do not decide status from citizenship or passport alone.
Calling every resident an ROR.
Students stop after proving residency and skip the second test.
Fix: After resident, always run the 2-of-10 years and 730-days-in-7-years test. Both must be met for ROR.
Applying the individual test to a company or HUF.
Day counts are the most memorised part, so students use them everywhere.
Fix: Companies depend on Indian incorporation or POEM. HUFs depend on where control and management sits.
Mixing up previous year and assessment year.
Both are periods with similar names and adjacent year labels.
Fix: Remember: income is earned in the previous year and assessed in the assessment year that follows it.

Worked examples

Example 1

Mr Rao is an Indian citizen working in Dubai. In the previous year he visited India for 120 days. He stayed in India for 400 days in the four preceding years. His Indian-source income was ₹8,00,000. What is his residential status?

Show the solution

He is an Indian citizen visiting India, so the relaxed threshold applies.
Condition (a): 120 days is less than 182 days. Not met.
Condition (b): his Indian income is ₹8,00,000, which does not exceed ₹15,00,000, so the 60-day figure becomes 182 days. His 120 days is below 182, so (b) fails even though 400 days exceeds 365.
He meets neither condition, and no deemed-resident rule applies because his income is below ₹15,00,000.

Answer: Non-Resident. He is taxed only on income received or accruing in India.

Example 2

Mr Smith is a foreign national. In the previous year he stayed in India for 75 days. He stayed 500 days in the four preceding years. He was resident in 3 of the 10 preceding years and stayed 600 days in the 7 preceding years. What is his residential status?

Show the solution

He is not an Indian citizen, so no relaxation applies and the 60-day threshold stays.
Condition (a): 75 days is less than 182 days. Not met.
Condition (b): 75 days is at least 60, and 500 days is at least 365. Both parts are met, so he is resident.
ROR test: resident in 3 of 10 preceding years, which meets the 2-year requirement.
ROR test: 600 days in the 7 preceding years is below 730, so this requirement fails.
One ROR condition fails, so he is not ordinarily resident.

Answer: Resident but Not Ordinarily Resident (RNOR). His foreign income is taxable only if it comes from a business controlled in India or a profession set up in India.

Exam tips

Expect direct questions on the 182-day and 60-day plus 365-day tests. Memorise them word for word.
Watch for trap options that swap the 2-of-10 years and 730-days-in-7-years figures, or offer 90 days or 180 days in place of the real numbers.
Negative marking applies in many NISM papers, but V-A has none. So attempt every question and use elimination.
Questions on company status usually test one idea: an Indian company is always resident, while a foreign company needs POEM in India.
Learn the scope of tax for each status. Many questions ask which income an NRI or RNOR is taxed on.

Practice questions from Taxation

Basics of Income Tax and Residential Status in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Basics of Income Tax and Residential Status: frequently asked questions

How do I determine the residential status of an individual?

Count days in the previous year and the four years before it. Resident means 182 days or more in the year, or 60 days or more plus 365 days or more in the four preceding years. Apply the relaxations for Indian citizens visiting India or leaving for employment abroad. Then check ROR or RNOR.

What is the difference between a resident and an NRI for tax purposes?

A resident, if ROR, is taxed on global income. A non-resident is taxed only on income received or accruing in India. NRI is a FEMA term, and the tax status in a given year depends on the day-count tests, not on the label.

What is the difference between ROR and RNOR?

Both are residents. An ROR is taxed on worldwide income. An RNOR is taxed on Indian income and on foreign income only if it is from a business controlled in India or a profession set up in India. A resident is ROR only if both extra tests are met.

How is the residential status of a company decided?

An Indian company is always resident in India. A foreign company is resident only if its place of effective management is in India during the year. Companies are not classified as ROR or RNOR.

What are the five heads of income?

They are Salaries, Income from house property, Profits and gains of business or profession, Capital gains, and Income from other sources. Gains on mutual fund units are generally capital gains.