Understanding Residential Status: Transitioning to the Income Tax Act, 2025

This article provides a comprehensive comparison between Section 6 of the Income Tax Act, 1961, and the newly structured Income Tax Act, 2025, focusing on the evolution of residential status in India.

Determining the residential status of a taxpayer is the first step in identifying their tax liability in India. The transition from the Income Tax Act, 1961 (the "Old Act") to the Income Tax Act, 2025 (the "New Act") has simplified the structure while maintaining the core residency criteria.

1. Residential Status of an Individual

An individual is classified as a Resident if they satisfy either of the following basic conditions:

• 1st Basic Condition: Physical stay in India for 182 days or more during the tax year.

• 2nd Basic Condition: Physical stay in India for 60 days or more during the tax year AND 365 days or more during the four preceding tax years.

Exceptions to the 60-Day Rule

The 2nd basic condition (the 60-day rule) is not applicable to:

• Indian citizens leaving India for employment abroad.

• Indian citizens leaving as a crew member of an Indian ship (Also their stay is determined by the Continuous Discharge Certificate).

• Indian citizens or Persons of Indian Origin (PIO) visiting India whose total income (excluding foreign sources) is ₹15,00,000 or less.

2. The "120-Day Rule" for High-Income Visitors

A specific provision exists for Indian citizens or PIOs visiting India who have significant Indian income.

• Criteria: If the individual's total income (excluding foreign sources) exceeds ₹15,00,000, the 60-day threshold in the 2nd basic condition is increased to 120 days.

• Result: If such a person stays in India for 120 days or more (but less than 182 days) and was in India for 365 days in the 4 preceding years, they become a Resident and Ordinary Resident.

3. The "Stateless Person" Rule- This rule specifically targets "stateless persons"—individuals who arrange their global stays in a way that they do not become residents of any single country, thereby avoiding tax everywhere.

Under the New Act, an individual is deemed to be a resident of India if they meet the following three criteria:

• Citizenship: The individual is an Indian citizen.

• Income Threshold: Their total income (excluding income from foreign sources) exceeds ₹15,00,000 during the tax year.

• Tax Liability Elsewhere: They are not liable to tax in any other country or territory by reason of their residence, domicile, or any other criteria of a similar nature.

It is important to note that a "Deemed Resident" is automatically categorized as a Resident but Not Ordinarily Resident (RNOR)

4. Ordinary vs. Not Ordinarily Resident

Once residency is established, an individual is further classified as Resident and Ordinarily Resident (ROR) if they fulfill both of these additional conditions:

1. Resident in India for two or more out of the ten preceding tax years.

2. Stayed in India for 730 days or more during the seven preceding tax years.

Note on High-Income Visitors: Individuals who become residents solely via the 120-day rule or the Deemed Residency (stateless person) provision are automatically classified as Resident but Not Ordinarily Resident (RNOR).

5. Status of Other Entities

The Act also defines residency for non-individual entities based on where their "Control and Management" or "Effective Management" lies:

Entity Type	Residency Criteria
HUF	Resident if control and management is situated wholly or partly in India.
Firm / AOP / BOI	Resident if control and management is situated wholly or partly in India.
Company	Resident if it is an Indian Company OR its Place of Effective Management (POEM) is in India.

6. Key Changes in the New Act (2025)

The New Act focuses on Substantive Consolidation.

• Structural Expansion: Section 6 has grown from 6 subsections to 14 subsections to integrate "Explanations" and "Provisos" directly into the law.

• POEM Definition: The definition of Place of Effective Management is maintained but clarified to focus on where key management and commercial decisions for the company as a whole are made in substance.

• Linguistic Shifts: The Act replaces complex legal jargon like "notwithstanding" with "irrespective," and lengthy sentences have been broken into tabular formats or distinct clauses to reduce litigation and ambiguity.