India has emerged as one of the world’s fastest-growing economies and a significant global destination for foreign investment, multinational business operations, technology development, and cross-border employment opportunities. Over the last few decades, the Government of India has progressively liberalised its foreign investment and foreign exchange regulatory framework with the objective of attracting global talent, capital, innovation, and entrepreneurial activities into India.
Simultaneously, India has also developed an extensive international tax framework through the execution of Double Taxation Avoidance Agreements (‘DTAAs’) with more than 90 countries, Social Security Agreements (‘SSAs’), and various cross-border tax relief mechanisms aimed at reducing double taxation and facilitating international mobility of professionals and businesses.
In order to modernise and simplify the direct tax regime, the Government has also introduced the Income-tax Act, 2025, replacing the earlier Income-tax Act, 1961, with a more streamlined, simplified, and technology-driven framework intended to improve ease of compliance, reduce interpretational complexities, and align Indian tax laws with contemporary global economic realities.
The Income Tax Act, 2025, taxes expats based on their residence status during a particular year instead of levying taxes based on their citizenship or country of origin.
An expat may qualify as:
- Non-Resident (NR)
- Resident but Not Ordinarily Resident (RNOR)
- Resident and Ordinarily Resident (ROR)
The basic residency test
The residential status of an Individual can be determined on the basis of their actual physical presence in India during the period April 1 to March 31.
According to the Act, an individual, before categorising either as ROR, RNOR or NR, first needs to be either a resident or a non-resident, which is further categorised as either ROR or RNOR.
An expat qualifies as a resident in India if they satisfy either of two conditions:
- If the expat is in India for 182 days or more during the financial year,
- If an expat is in India for 60 days or more during the financial year and 365 days or
more during the four preceding years.
Once either of the above-mentioned criteria is satisfied, an expat is treated as a resident.
Once an expat qualifies as a resident, the next step is to determine whether they are ROR or RNOR. Determination of ROR or RNOR requires evaluation and determination of the following:
An expat is considered ROR if they have been a resident in India in at least two out of the ten previous years and have been in India for 730 days or more during the seven preceding years. If either of these conditions is not met, the expat becomes RNOR.
A. The scope of taxability of income in India depends on the residential status of expat The scope of taxable income varies based on residential status as follows:
- For Non-Residents (NR): In case of non-residents, income received or deemed to be received in India, income accrued or arisen or deemed to accrue or arise in India are taxable. Further, as an exception to the above rule, income from a business controlled from or a profession set up in India is also taxable in India. Foreign incomes, like salary earned abroad for services rendered in such a country, interest from foreign bank accounts, rental income or capital gain from properties held abroad, may remain outside the ambit of Indian taxation.
- For Resident but Not Ordinarily Resident (RNOR): The scope in respect of RNOR is broader than for NRs’ but narrower than ROR. RNOR expats are taxed on all Indian income plus any income earned from a business controlled in India or a profession set up in India. However, income from all sources abroad other than income from a business or profession set up in India may remain outside the ambit of Indian taxation.
- For Resident and Ordinarily Resident (ROR): The scope in respect of ROR covers the global income of the individual irrespective of the country of source or receipt, and therefore, is the widest among all three categories. ROR must pay tax on their global income regardless of where it is accrued, received or deemed to accrue or receive. Illustratively, income of ROR may include income from properties held outside India (though subject to relief under DTAA), salary from employers abroad, interest on investment held abroad, and dividends from foreign Companies.
In simple terms, all income that accrues and arises in India is subject to taxation, subject to the specific benefits provided based on the type of income or the location of the source of income.
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