Tax Residency & POEM Determination

What is tax residency determination?

Your tax residency decides what India taxes. Residents who are ordinarily resident are taxed on worldwide income; non-residents only on Indian income; and those 'resident but not ordinarily resident' (RNOR) sit in between. For individuals, residency depends mainly on days spent in India, with special rules for citizens and people of Indian origin.

For companies, a foreign-incorporated company is treated as resident in India if its place of effective management (POEM) is in India — that is, if key management and commercial decisions are, in substance, made here.

The key terms

The rules that decide residency:

182-day test

An individual is resident if in India for 182 days or more in the financial year.

60-day test

Also resident if in India for 60 days or more in the year and 365 days or more in the preceding four years — with modifications for citizens and persons of Indian origin.

120-day rule

For Indian citizens and persons of Indian origin visiting India with Indian income above ₹15 lakh, the 60 days becomes 120 days.

Deemed residence

An Indian citizen with Indian income above ₹15 lakh who isn't liable to tax in any other country can be deemed resident.

RNOR

Resident but not ordinarily resident — a transitional status, often for returning NRIs, under which most foreign income isn't taxed in India.

POEM

The place of effective management of a company: where key management and commercial decisions for the business as a whole are, in substance, made.

Treaty tie-breaker

If a person is resident in two countries, the treaty's tie-breaker rules decide where they're treated as resident.

Why it matters

Residency decides the scope of Indian tax:

Worldwide income

Ordinarily resident individuals are taxed on income from everywhere, and must report foreign assets.

RNOR window

Returning NRIs can use the RNOR period to plan the transition of foreign assets and income.

Day counting is precise

A few days can change status, so travel records matter.

Deemed residence

Citizens living in tax-free jurisdictions with significant Indian income can be deemed resident.

POEM for companies

A foreign company managed from India can be taxed in India on its global income.

Treaty residence

Dual residents need tie-breaker analysis and certificates to avoid double tax.

Withholding and banking

Residency affects TDS rates, bank account types, and FEMA status.

Who is this for?

Tax residency under the Income-tax Act is different from residential status under FEMA, which affects bank accounts and investments. Both need to be considered.

Residential statuses compared

For individuals:

What we'll need from you

Travel records

Passport stamps or travel history for the relevant years.

Indian income

Indian income, to apply the ₹15 lakh tests.

Foreign tax status

Whether you're liable to tax in another country, with a TRC if available.

Residency history

Status in the preceding years, for RNOR.

For companies

Board meeting records, where decisions are made, and management locations.

Foreign assets

For planning the transition to ordinary residence.

Advice is quoted per engagement, depending on complexity.

How we determine residency

Our approach:

1. 1

   Count the days

   Days in India are counted for the year and preceding years.

2. 2

   Apply the tests

   Basic, 120-day, and deemed residence tests are applied.

3. 3

   Check RNOR

   RNOR conditions are checked for returning individuals.

4. 4

   Check treaty residence

   For dual residents, the treaty tie-breaker is applied.

5. 5

   Assess POEM

   For companies, management and decision-making are reviewed.

6. 6

   Plan

   We advise on reporting and on planning the transition.

Planning around residency

Using the rules well:

Track days

Keep a day count when you're close to a threshold.

Use the RNOR window

Plan the sale, transfer, or restructuring of foreign assets before becoming ordinarily resident.

Update bank status

Update FEMA status and convert NRE/NRO accounts as required when you return.

Get a TRC

If resident abroad, get a TRC to claim treaty benefits in India.

Document POEM

For companies, keep records showing where decisions are made.

Review annually

Residency is decided year by year.

Benefits and responsibilities