New Indian Tax Rules for NRI: Residency, 120 Days and the Income Tax Act 2025

Every few weeks an NRI writes to me with a version of the same line. “I have been out of India for 200 days, so I am safe, correct?”

Ten years ago that answer was yes. It has not been yes since 2020.

There are now four separate tests that can pull you back into Indian residency, and two of them do not care how many days you spent abroad. One cares about your Indian income. One cares about whether any other country taxes you at all.

Start here – Who is an NRI, exactly?

The four tests, in the order they actually apply

Residency is decided fresh every single year. Last year’s status means nothing this year. Work through these in order.

Notice what the last two rows have in common. Both make you a resident. Neither makes you an ordinary resident. That distinction is worth more than most people realise.

The Rs 15 lakh number, and what actually counts

Rs 15 lakh is the hinge on which both new rules turn. Get the definition wrong and you will worry about nothing, or worse, relax about something.

It means total income sourced in India, other than income from foreign sources. Rent from your Gurgaon flat counts. Interest on your NRO deposits counts. Capital gains on Indian shares and mutual funds count. Directors’ fees or consultancy billed to an Indian company count.

What does not count: your Dubai salary, your Singapore CPF, your US brokerage gains. Those are foreign source income and they sit outside the Rs 15 lakh test entirely.

So a Dubai engineer earning AED 40,000 a month with one small flat in Kochi is nowhere near the threshold. A retired promoter with Rs 3 crore in NRO fixed deposits and two rented commercial units in Mumbai crosses it without noticing.

Deemed residency, and the panic that never needed to happen

When Section 6(1A) arrived in 2020, half the Gulf woke up to headlines saying India would now tax salaries in the UAE. That was never what the section said, and six years of practice has confirmed it.

Deemed residency needs three things at once. You must be an Indian citizen, not an OCI or foreign passport holder. Your Indian income must exceed Rs 15 lakh. And you must not be liable to tax in any other country by reason of domicile, residence or any similar criterion.

That third condition is the one people misread. It asks whether a country can tax you, not whether it actually collects anything. The UAE has a corporate tax regime and issues tax residency certificates. A salaried UAE resident who holds a valid TRC is generally liable to tax there under treaty terms, so the deeming provision does not bite.

The section was written for a very specific person: the stateless high earner. The one who spends 100 days in Dubai, 90 in London, 80 in Singapore, files nowhere, and draws Rs 4 crore a year out of India. He was invisible. Now he is not.

Read – Tax Residency Certificate in India and why yours matters

The part almost nobody explains: you land as RNOR

Both the 120-day route and the deemed residency route deposit you in the Resident but Not Ordinarily Resident category, through clauses 6(6)(c) and 6(6)(d). This was not an accident. Parliament wrote those two clauses into the same amendment that created the new tests.

RNOR means India taxes your Indian income and leaves your foreign income alone. The practical difference between RNOR and ordinary resident is enormous.

Deep dive – All you want to know about RNOR status

The two original RNOR tests still stand, exactly as they were. You are RNOR if you were non-resident in 9 of the 10 preceding years, or if you were in India for 729 days or less across the preceding 7 years. Budget 2020 floated a proposal to replace these with a four-in-ten test and scrap the 729-day condition. That proposal did not survive into law.

What the Income Tax Act 2025 changed, and what it did not

The new Act replaced the 1961 law from 1 April 2026. The language is shorter, the section numbering has moved, and “previous year” and “assessment year” have collapsed into a single tax year.

For residency, almost nothing moved. The tests still sit in Section 6. The 120-day rule, the Rs 15 lakh threshold, deemed residency and both RNOR categories were carried across intact.

Budget 2026 left the slabs alone. Under the new regime, nil up to Rs 4 lakh, then 5%, 10%, 15%, 20%, 25% and 30% above Rs 24 lakh, with surcharge capped at 25%. Two things NRIs should hold on to: the Section 87A rebate is not available to non-residents, and NRIs cannot set capital gains against the basic exemption limit. Budget 2026 also opened a one-time window to disclose previously unreported foreign assets. If you have an old brokerage account or a dormant pension somewhere, this is the cheapest time you will ever get to clean it up.

The confidence that costs people the most

There is a bias that shows up in almost every residency conversation I have. Optimism bias. We consistently believe our own plans will go the way we intend, even when we have watched them not do so before.

“I will be in India for six weeks, tops.” Then a parent falls ill. Then a property dispute needs a court date. Then a wedding gets postponed into your next visit. By March you are at 138 days and genuinely surprised.

The fix is boring and it works. Keep a running day count on your phone from 1 April. Not a mental estimate. An actual number, updated on the day you land and the day you fly out. Log it against your passport stamps.

Because there is no appeal against a calendar. Din gin lo, warna Income Tax gin lega.

Also read – How a change in residential status hits your investments

Questions I get on the new residency rules

Does the 120-day rule apply to me if I hold an OCI card?
The 120-day rule applies to Indian citizens and persons of Indian origin who visit India. Deemed residency under 6(1A) is narrower and applies only to Indian citizens. An OCI holder with a foreign passport is outside the deeming provision.

I live in Dubai and pay no income tax. Am I deemed resident?
Only if your Indian income exceeds Rs 15 lakh and you are not liable to tax anywhere. Hold a valid UAE tax residency certificate and file where required, and the provision generally does not apply. Even if it did, you would be RNOR and your UAE salary would stay out of Indian tax.

How exactly is a day in India counted?
The department counts the day of arrival and the day of departure as days in India. Two weekend trips can quietly cost you four days you never budgeted for.

What happens to seafarers?
Days spent on an Indian ship on a foreign voyage, with a valid Continuous Discharge Certificate, are excluded from the India count under Rule 126. Merchant navy officers were specifically protected when the rules changed.

If I become resident, do I have to declare my foreign bank accounts?
An ordinary resident must report all foreign assets in Schedule FA. An RNOR does not have that obligation. This is one of the largest practical gaps between the two statuses, and the penalties under the black money law for getting it wrong are severe.

Which Indian income is taxed how, once I know my status?
That is a separate subject and it deserves its own space. Read how each head of Indian income is taxed for an NRI.

The old advice was to count to 183 and stop thinking. The rules have moved on. Most of the people relying on that advice have not.

Your passport records where you were. The question is whether you do.