NRI Residency Rules 2025 – Changes for FY 2026‑27 | HRA

Legal basis: Income‑tax Act, 2025, Section 6 — Effective: 1 April 2026. Source: https://www.incometaxindia.gov.in/documents/d/guest/income_tax_act_2025_as_amended_by_fa_act_2026-pdf. Last reviewed by CA Harun Raaj: October 2026

India’s Income‑tax Act 2025 (ITA 2025) comes into force on 1 April 2026, i.e. for Tax Year 2026‑27 (FY 2026‑27). For NRIs and Persons of Indian Origin (PIOs) the substantive residency tests are unchanged, but the statutory framework and the forms you file shift. Below is a practical guide to what changes, what does not, and how to stay compliant.

Which Law Applies to Which Year?

Assessment Year 2026‑27 (Financial Year 2025‑26) – The earlier Income‑tax Act 1961 continues to govern. Use the 1961‑Act forms and follow its procedural rules.
Tax Year 2026‑27 (FY 2026‑27) onward – ITA 2025 becomes the governing statute. Section 536 of ITA 2025 expressly saves the 1961 Act for earlier years, so do not file AY 2026‑27 on the new forms.

The Three Residency Categories – Unchanged

Section 6 of ITA 2025 retains the familiar three buckets:

Category	Taxation scope
Resident and Ordinarily Resident (ROR)	Global income taxed in India
Resident but Not Ordinarily Resident (RNOR)	Primarily Indian‑source income taxed; foreign income generally excluded and no Schedule FA required
Non‑Resident (NR)	Only Indian‑source income taxed

Day‑Count Rules – Carried Over

182‑day rule – Presence in India for 182 days or more in the FY makes you a Resident.
60‑day + 365‑day rule – 60 days (or 120 days where Indian income > ₹15 lakh) and 365 days in the four preceding FYs also create residency. The 120‑day variant applies only to Indian citizens/PIOs whose total Indian income exceeds ₹15 lakh.
RNOR qualification – A Resident becomes RNOR if either:

* He/she was Non‑Resident in 9 of the 10 preceding years, or * He/she was in India for ≤ 729 days in the 7 preceding years.

Deemed Residency for Indian Citizens Not Taxed Abroad

Section 6(1A) of ITA 2025 mirrors the 1961 Act: an Indian citizen is deemed Resident if (a) total income other than foreign‑source income exceeds ₹15 lakh and (b) the person is not liable to tax in any other country by virtue of domicile, residence, or similar criteria. A deemed resident is treated as RNOR, not ROR.

FEMA Residency Is Independent of Income‑Tax Residency

FEMA s.2(v) defines “person resident in India” for foreign‑exchange purposes. Consequently, eligibility for NRE, NRO, and FCNR(B) accounts follows FEMA rules, not the Income‑tax Act. You can be a tax NR while being a FEMA resident, or vice‑versa.

The RNOR Window and the NRE Interest Catch

During RNOR years, foreign income is generally exempt from Indian tax and Schedule FA is not required. However, the NRE interest exemption under Section 10(4)(ii) of the 1961 Act (and its counterpart in ITA 2025) depends on FEMA residency – it is available only to persons who are “resident outside India” under FEMA. If you return to live in India, FEMA treats you as a resident, you must redesignate NRE accounts as resident accounts, and the interest exemption ceases, even though you may still be RNOR for income‑tax purposes.

Practical Checklist for FY 2026‑27

Count India days for the FY; apply the 120‑day test only if Indian income > ₹15 lakh and the 365‑day‑in‑4‑years condition is also met.
Verify RNOR eligibility using the 9‑of‑10 NR test or the 729‑day rule.
Assess deemed residency if you are an Indian citizen living in a zero‑tax jurisdiction – confirm both the income threshold and the “not liable to tax” condition.
Separate FEMA residency – update NRE/NRO account designations when your FEMA status changes.
File AY 2026‑27 on the 1961‑Act forms; switch to ITA 2025 forms only from AY 2027‑28 onward.

Comparison Table – What Changes When?

Aspect	AY 2026‑27 (FY 2025‑26)	Tax Year 2026‑27 (FY 2026‑27)
Governing statute	Income‑tax Act 1961	Income‑tax Act 2025
Forms to file	1961‑Act ITR forms	ITA 2025 ITR forms (from AY 2027‑28)
Residency tests	182‑day, 60‑day+365‑day, RNOR criteria (1961)	Same tests, now codified in ITA 2025 s.6
Deemed residency rule	s.6(1A) 1961	s.6(1A) 2025 (identical wording)
NRE interest exemption	FEMA‑based, s.10(4)(ii) 1961	FEMA‑based, equivalent provision in ITA 2025

Key point: From FY 2026‑27 onward the Income‑tax Act 2025 governs, but the residency categories and day‑count rules remain exactly as they were under the 1961 Act.

I’m CA Harun Raaj, Visakhapatnam. If the new residency regime affects you, please get in touch for personalised advice.

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Frequently Asked Questions

Do I file Assessment Year 2026‑27 on the Income‑tax Act 2025 forms?

No. AY 2026‑27 (FY 2025‑26) is still governed by the Income‑tax Act 1961, as saved by Section 536 of ITA 2025. Use the 1961‑Act ITR forms for that year.

Has the 182‑day residency rule changed under the 2025 Act?

The 182‑day rule remains unchanged. Section 6 of ITA 2025 continues to treat anyone present in India for 182 days or more in the FY as a Resident.

What is the 120‑day test and when does it apply?

For Indian citizens or PIOs whose total Indian income exceeds ₹15 lakh, the 60‑day threshold becomes 120 days, provided they also satisfy the 365‑day‑in‑four‑years condition. This is the same provision carried over from the 1961 Act into Section 6 of ITA 2025.

How does deemed residency work for Indian citizens living in a zero‑tax country?

Section 6(1A) of ITA 2025 deems such a citizen Resident if (a) income other than foreign‑source exceeds ₹15 lakh and (b) the person is not liable to tax in any other country. The deemed resident is classified as RNOR, not ROR.

If I am RNOR, does my NRE interest remain tax‑free?

NRE interest exemption depends on FEMA residency, not income‑tax residency. Under Section 10(4)(ii) (and its 2025 counterpart), the exemption is available only while you are a “person resident outside India” under FEMA. Returning to India as a FEMA resident ends the exemption, even if you stay RNOR for tax purposes.

Do the NRE/NRO account eligibility rules change under ITA 2025?

No. Account eligibility continues to be governed by FEMA s.2(v). The Income‑tax Act 2025 does not alter NRE or NRO eligibility.

What are the two ways to qualify as RNOR under the 2025 Act?

A Resident qualifies as RNOR if (a) they were Non‑Resident in 9 of the 10 preceding years, or (b) they were in India for 729 days or less in the 7 preceding years, as set out in Section 6 of ITA 2025.

Topics:NRI residency rules 2026Income tax Act 2025 residencyRNOR eligibility IndiaFEMA residency vs tax residencyNRE interest exemption FEMAdeemed residency Indian citizentax year 2026-27 NRI filing

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