The 182-Day Trap: How NRIs Accidentally Become Residents and What It Costs
Complete guide to residential status determination, the new 120-day rule for high-income NRIs, deemed residency provisions, and practical strategies for frequent visitors
Written by
CA Ashama Rajawat
Critical Alert for NRIs
Staying even ONE day beyond 182 days can change your entire tax status from Non-Resident to Resident, potentially making your worldwide income taxable in India. For high-income NRIs earning ₹15 lakh+ from India, the threshold is even lower at just 120 days!
Understanding Residential Status: The Foundation
Your residential status under the Income Tax Act determines whether you pay tax only on Indian income or on your worldwide income. The stakes are incredibly high, making it crucial to understand these rules.
Resident & Ordinarily Resident (ROR)
Most stringent category
Tax Liability: Global income taxable in India
Asset Disclosure: Must disclose foreign assets in Schedule FA
DTAA Relief: Available
Resident but Not Ordinarily Resident (RNOR)
Middle ground category
Tax Liability: Indian income + Foreign income from Indian business/profession
Asset Disclosure: Required for certain assets
DTAA Relief: Available
Non-Resident (NR)
Most favorable for NRIs
Tax Liability: Only Indian-sourced income
Asset Disclosure: Not required
DTAA Relief: Available
The Basic 182-Day Rule Explained
The primary test for residential status is simple: If you stay in India for 182 days or more during a financial year (April 1 to March 31), you become a Resident for tax purposes.
Day Counting Rules
Pro Tip
Many NRIs make the mistake of counting days casually. Use your passport stamps, boarding passes, and create a detailed spreadsheet tracking every entry and exit. This documentation becomes critical if questioned by tax authorities.
The New 120-Day Rule (High-Income Trap)
Finance Act 2020 introduced a stricter rule specifically targeting high-income NRIs who might be spending significant time in India while earning substantial Indian income.
When 120-Day Rule Applies
You become a Resident if you satisfy BOTH conditions:
Stay in India: 120 days or more in the financial year
AND
Indian Income: ₹15,00,000 or more in the financial year
Includes salary, business income, rental income, interest on NRO account, capital gains, etc.
Example: The 120-Day Trap
Scenario: Rajesh works in Dubai and visits India frequently to manage his rental properties.
FY 2024-25 Details:
- • Total stay in India: 140 days (spread across 5 trips)
- • Rental income from 3 properties: ₹18,00,000
- • Interest on NRO savings account: ₹50,000
- • Total Indian income: ₹18,50,000
Result: Rajesh becomes Resident!
Even though he stayed less than 182 days, the combination of 120+ days stay and ₹15 lakh+ Indian income triggers resident status. His Dubai salary might now also become taxable in India (subject to DTAA provisions).
Alternative Residency Test (365/730 Days)
Even if you stay less than 182 days (or 120 days), you can still become a Resident under the second condition.
Second Condition for Resident Status
You become Resident if:
Current Year Stay: 60 days or more in the current financial year
AND
Historical Stay: 365 days or more in the preceding 4 financial years
Example:
If you stayed 70 days in FY 2024-25 and cumulatively stayed 380 days during FY 2020-21 to FY 2023-24, you become Resident even though you never crossed 182 days in any single year.
Important Exception
The 60-day threshold increases to 182 days for:
- • Indian citizens who leave India for employment abroad
- • Indian citizens or Persons of Indian Origin who come to visit India (with income from foreign sources less than ₹15 lakh)
Deemed Residency Provision (POEM Rule)
Finance Act 2021 introduced "deemed resident" status to prevent tax avoidance by Indian citizens who are not tax residents anywhere in the world.
Place of Effective Management (POEM)
An Indian citizen becomes "deemed resident" if:
Who This Impacts:
- • Indians working in UAE, Saudi Arabia, or other tax-free countries
- • Digital nomads not establishing tax residency anywhere
- • Individuals with significant Indian business/rental income
Tax Implication:
Deemed residents are taxed only on Indian-sourced income (not worldwide income), but lose NRI banking benefits and must file ITR as resident.
ROR vs RNOR: Understanding the Difference
Once you become a Resident, the next question is whether you're Resident & Ordinarily Resident (ROR) or Resident but Not Ordinarily Resident (RNOR). This distinction is crucial for worldwide income taxation.
| Status | Conditions | Tax on Worldwide Income? |
|---|---|---|
| ROR | Resident in current year AND (Resident in 2 out of 10 preceding years OR In India for 730+ days in 7 preceding years) | YES |
| RNOR | Resident in current year BUT (Non-resident in 9 out of 10 preceding years OR In India for less than 730 days in 7 preceding years) | LIMITED |
Why RNOR Status Matters
Most NRIs who accidentally become residents qualify for RNOR status, which is far more favorable. RNOR individuals are taxed only on Indian income plus foreign income derived from Indian business/profession. Foreign salary and passive income remain non-taxable.
Real-Life Scenarios: Day Counting Examples
Scenario 1: Medical Emergency Visit
Situation:
Priya works in London and typically visits India for 40 days annually. In FY 2024-25, her father fell ill, and she stayed in India from October to March (180 days).
Risk Level: HIGH
Total stay: 40 (Jan-Sep) + 180 (Oct-Mar) = 220 days
Result: Becomes Resident (crossed 182 days)
However, she likely qualifies for RNOR status, so only Indian income is taxable. Her London salary remains tax-free in India (subject to UK-India DTAA).
Scenario 2: Work From India Arrangement
Situation:
Amit works for a US company and got approval to work from India for 6 months (April-September 2024 = 183 days). He has ₹5 lakh rental income in India.
Risk Level: CRITICAL
Total stay: 183 days (crossed the 182-day threshold)
Result: Becomes Resident
Tax Implications:
- • Indian income: ₹5 lakh - Taxable in India ✓
- • US salary (6 months while in India): Taxable in India ✗
- • US salary (6 months while in US): May be taxable in India depending on ROR/RNOR status
- • Must file ITR as Resident and claim DTAA benefits
Scenario 3: Multiple Short Visits
Situation:
Sarah visits India 6 times a year: 25 days each time = 150 days total. She has ₹20 lakh rental income from property in Mumbai.
Risk Level: VERY HIGH (120-Day Rule)
Stay: 150 days + Indian Income: ₹20 lakh (>₹15 lakh)
Result: Becomes Resident under 120-day rule!
Even though she stayed less than 182 days, the combination of 120+ days and ₹15 lakh+ income triggers resident status. She should consider reducing either her stay to under 120 days OR restructuring to reduce Indian income below ₹15 lakh.
Strategies to Avoid Unwanted Resident Status
Maintain Meticulous Day Count Records
Create an Excel sheet tracking every entry/exit with passport stamps as proof. Include purpose of visit, dates, and running day count. This is your first line of defense if questioned.
Plan Trips to Stay Under Threshold
If approaching 182 days (or 120 days with ₹15L+ income), cut your visit short. Consider video calls instead of physical presence for business meetings or family events.
Structure Indian Income Strategically
If you have ₹15L+ Indian income and visit frequently, consider: (a) Reducing rental income by prepaying property taxes, (b) Timing property sales to different FY, (c) Shifting interest to NRE account (tax-free).
Obtain Tax Residency Certificate (TRC) from Your Country
TRC from your country of work proves you're tax resident there. This helps claim DTAA benefits and protects against POEM-based deemed residency, especially for those in tax-free countries.
Don't Overstay Without Planning
Medical emergencies, weddings, or family obligations can extend your stay. If you must stay beyond 182 days, immediately: (a) Consult a CA, (b) Calculate RNOR eligibility, (c) Prepare for resident ITR filing, (d) Document DTAA relief claims.
Review Status Annually Before Year-End
By December-January, review your stay for the financial year (Apr-Mar). If you're close to thresholds, plan remaining visits accordingly. Don't wait until March 31st!
What If You Accidentally Become Resident?
Step 1: Determine If You're ROR or RNOR
RNOR status limits tax to Indian income plus foreign income from Indian business. This is far more favorable than ROR.
Step 2: File ITR as Resident
Use ITR-2 (most common) or ITR-3 (if business income). Disclose Indian income and foreign income as applicable based on ROR/RNOR status.
Step 3: Claim DTAA Relief
If you paid tax abroad on income also taxable in India, claim Foreign Tax Credit (FTC) using Form 67. You'll need TRC and foreign tax payment proof.
Step 4: Convert NRE Account (If Required)
If you become resident, technically you cannot maintain NRE account. However, if it's temporary (one-year residency), banks usually allow continuation. Consult your bank.
Step 5: Plan for Next Year
Ensure you stay under thresholds in subsequent years to regain NRI status. RNOR status can extend for 2-3 years providing transitional relief.
Common Mistakes to Avoid
- ✗Assuming "less than 6 months = safe" without precise day counting
- ✗Forgetting to account for the 120-day rule when having ₹15L+ Indian income
- ✗Not maintaining proper entry/exit documentation from passport
- ✗Thinking transit days always count (they usually don't if not passing immigration)
- ✗Ignoring POEM rules if working in tax-free countries with ₹15L+ Indian income
- ✗Not obtaining TRC from country of work to support NRI status claim
Conclusion
The 182-day threshold (or 120-day for high-income NRIs) is a critical line that determines your entire tax liability in India. Crossing it even by a single day can have massive implications, potentially making worldwide income taxable and requiring disclosure of foreign assets.
Maintain meticulous records, plan your India visits carefully, and if you do accidentally become resident, immediately assess your ROR/RNOR status and file accordingly. Most importantly, consult a CA specializing in NRI taxation before you get close to these thresholds.