For an NRI, owning immovable property in India creates two distinct tax events — rental income taxed as ordinary income, and capital gains on sale. Both attract TDS at the buyer's or tenant's level. The Income Tax Act, 2025 has renumbered the relevant provisions but has not fundamentally altered the tax burden — the key rates, DTAA eligibility, repatriation conditions, and lower deduction certificate mechanism remain substantially intact. This note maps every relevant ITA 1961 section to its ITA 2025 equivalent, works through computations for both sale and rental, and identifies the practical advisory points that matter most.
1. Residential Status — The Starting Point
Every tax analysis for an NRI begins with residential status. Under Section 6 of the Income Tax Act, 2025 (old Section 6 of ITA 1961 — unchanged in substance), an individual is Resident in India in a Tax Year if they satisfy either of the following two conditions:
- Section 6(2)(a): Physical presence in India for 182 days or more during the Tax Year; or
- Section 6(2)(b): Physical presence of 60 days or more in the Tax Year AND 365 days or more cumulatively in the 4 preceding Tax Years.
A person who satisfies neither condition is a Non-Resident. It is therefore incorrect to say that merely staying less than 182 days makes a person NRI — the 60-day/365-day second limb must also fail for NRI status to arise.
1.1 Section 6(3) — Citizen Leaving India for Employment or Crew Service
Section 6(3) provides that Section 6(2)(b) — the 60-day + 365-day combined test — shall not apply to a citizen of India who leaves India in any Tax Year:
- Section 6(3)(a): As a member of the crew of an Indian ship; or
- Section 6(3)(b): For the purposes of employment outside India.
This protects first-year NRIs. A person leaving India on an H-1B visa or for any employment abroad — in that Tax Year, only the 182-day test of Section 6(2)(a) applies. Even if they have 365+ days in the preceding 4 years (satisfying the second limb of Section 6(2)(b) otherwise), that limb is fully excluded. Note: Section 6(3) applies only to citizens of India — PIOs or foreign citizens moving abroad do not get this protection and are tested under Section 6(2)(b) normally.
1.2 Special Rule for Citizens of India / PIO visiting India [Section 6(4) & 6(5)]
For an Indian citizen or Person of Indian Origin (PIO) who is outside India and comes on a visit to India, Section 6(4) excludes the applicability of Section 6(2)(b) — i.e., only the 182-day test applies. However, Section 6(5) creates a further carve-out:
"Where the person referred to in sub-section (4) has a total income exceeding fifteen lakh rupees during the tax year (other than the income from foreign sources), sub-section (2)(b) shall apply as if the words 'sixty days' had been substituted with 'one hundred and twenty days'."
In practical terms: if a visiting NRI citizen or PIO has Indian income (excluding foreign income) exceeding ₹15 lakh, the 60-day threshold in Section 6(2)(b) is substituted with 120 days. This means they become Resident only if they stay 120+ days AND have 365+ days in India in the preceding 4 years — both limbs must still be satisfied. If Indian income is ₹15 lakh or below, Section 6(4) completely excludes Section 6(2)(b) — so only the 182-day test of Section 6(2)(a) applies. The 60+365 day test has no application to a visiting citizen/PIO in this income bracket. Practical illustration: An NRI with ₹20 lakh Indian rental income who visits India for 125 days — verify both limbs: (i) Do they have 365+ days in India in the preceding 4 years? If YES and they stayed 120+ days this year → they become Resident (RNOR under Section 6(13)(b) read with Section 6(5)). If they have fewer than 365 days in the preceding 4 years → they remain NRI regardless of the ₹15 lakh income or the 125-day stay. Both limbs must be satisfied every year.
1.3 Deemed Resident — Section 6(7) [Critical Provision Often Overlooked]
An Indian citizen who is not liable to tax in any other country or territory (by reason of domicile, residence or any similar criterion) AND whose Indian income exceeds ₹15 lakh (excluding foreign-sourced income) shall be deemed Resident in India for that Tax Year — regardless of actual days in India. This provision catches NRIs in zero-tax jurisdictions (UAE, Bahrain, certain others) who hold substantial Indian income-producing property. Such persons cannot claim NRI status even if they do not set foot in India for the entire year. Important: Section 6(7) deems them Resident but NOT Ordinarily Resident (RNOR) — not a full Resident and Ordinarily Resident. The consequence is that they are taxed on India-sourced income (including property income) but their foreign-sourced income is not taxable in India. They are NOT taxed on global income. This distinction is frequently misunderstood — being a Deemed Resident under Section 6(7) does not create full ROR tax exposure. Section 6(8) further provides that Section 6(7) is a residual provision — it does not apply to an individual who is already resident under Sections 6(2) to 6(6). Section 6(7) only catches those who would otherwise fall through as non-resident despite having substantial Indian income and zero tax liability abroad.
1.4 RNOR Status — Section 6(13)
A person who is Resident under Section 6(2) may still qualify as Resident but Not Ordinarily Resident (RNOR) if they satisfy Section 6(13). RNOR applies if the individual:
- Was a Non-Resident in India in 9 out of the 10 Tax Years preceding the current year [Section 6(13)(a)(i)]; or
- Was in India cumulatively for 729 days or less in the 7 Tax Years preceding the current year [Section 6(13)(a)(ii)]; or
- First becomes Resident under Section 6(2)(b) (triggered by the 120-day substitution under Section 6(5) for income > ₹15 lakh and 365+ days in preceding 4 years) — and then qualifies as RNOR because they stayed 120 days or more but less than 182 days in the Tax Year [Section 6(13)(b) read with Section 6(5)]. Note: RNOR under Section 6(13)(b) only arises after the person first crosses the residency threshold.
- Is a citizen of India who is deemed resident under Section 6(7) — not taxable in any other country with Indian income > ₹15 lakh [Section 6(13)(c)].
The duration of RNOR status is not fixed at 3 years — it depends entirely on the individual's actual prior residence history. An NRI returning after 10 years abroad will typically be RNOR for 2–3 years, but someone with a shorter stint abroad may exit RNOR status sooner. The RNOR status is highly fact-specific and must be computed year by year. During RNOR years, foreign-sourced income from a business controlled outside India or a profession set up outside India is not taxable in India — a significant advantage for NRIs transitioning back. Section 6(14) defines "income from foreign sources" as income accruing or arising outside India, except income derived from a business controlled in India or a profession set up in India. Even during RNOR, if the foreign business is effectively controlled from India, that income remains taxable in India.
An NRI's Indian tax liability is restricted to income that accrues or arises in India, or is deemed to accrue or arise in India under the deemed accrual provisions of ITA 2025 (corresponding to old Section 9 of ITA 1961 — the exact new section number should be verified on the income tax portal as ITA 2025 may have renumbered this provision). Property situated in India always falls within the Indian tax net regardless of the owner's residential status — rental income and capital gains on sale are taxable in India whether the owner is NRI, RNOR, or ROR. The residential status determines the rate of tax and eligibility for special NRI provisions under Sections 212–215, but not the basic chargeability of property income.
Frequently Asked Questions — Residential Status
Critically, Section 6(13)(c) makes such a person RNOR — not full Resident. Their foreign-sourced income remains non-taxable in India. Section 6(8) further confirms Section 6(7) is residual — it does not apply if the person is already resident under Sections 6(2)–6(6).
The duration is not fixed — it depends on the individual's actual prior residence history assessed year by year. During RNOR years, only Indian-sourced income is taxable — foreign-sourced income as defined in Section 6(14) is not taxable in India.
Need Help With Your NRI Residential Status?
Residential status determines your entire Indian tax exposure. Wrong determination can result in excess TDS or missed exemptions. We evaluate your status year by year under Section 6 of ITA 2025.
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