With the Union Budget 2026-27 scheduled to be presented on February 1, tax residency rules applicable to visiting Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) have once again come under scrutiny. In its pre-Budget representation, the Bombay Chambers of Commerce and Industry (BCCI) has urged the government to roll back the additional residency conditions introduced by the Finance Act, 2020 and restore the earlier 182-day rule as the principal test for non-resident status.
The representation reflects sustained concerns over complexity in residency determination, rather than a challenge to the underlying tax base itself.
Residency Law: Legal Position Before 2020
Prior to the Finance Act, 2020, Section 6 of the Income-tax Act provided that a visiting NRI or PIO would be treated as non-resident if:
- their stay in India during the relevant financial year was less than 182 days, and
- they did not satisfy the alternative residence test involving 60 days in the current year plus 365 days in the preceding four years (which, for NRIs, effectively stood substituted by the 182-day threshold).
Crucially, no income-based condition was linked to residency determination for visiting NRIs during this period.
What Changed in 2020 for NRIs
The Finance Act, 2020 did not abolish the 182-day rule outright, but introduced additional conditional tests, materially complicating its application.
The revised framework operates as follows:
- If stay in India is below 120 days → individual remains non-resident, irrespective of income.
- If stay is 120 days or more but less than 182 days:
- and India-sourced income exceeds ₹15 lakh → individual becomes Resident but Not Ordinarily Resident (RNOR).
- and India-sourced income does not exceed ₹15 lakh → individual continues as non-resident.
- If stay is 182 days or more → individual becomes resident, subject to RNOR conditions where applicable.
Thus, residency is now determined by a combination of:
- physical presence,
- India-sourced income threshold, and
- historical stay tests.
This layered structure replaced the earlier single, bright-line standard.
What BCCI Is Actually Seeking for NRIs
BCCI is not seeking exemption from tax on India-sourced income, nor is it advocating relaxation for high-net-worth NRI individuals engaged in Indian economic activity.
Instead, it has requested:
- restoration of 182 days as the sole primary trigger for residency determination for visiting NRIs/PIOs,
- removal of the 120-day conditional trigger linked to income, and
- retention of existing RNOR rules for returning residents.
The focus is on predictability and administrability, not base erosion.
Why Current Framework Considered Problematic
According to BCCI feedback:
- Taxpayers must now monitor three variables simultaneously:
- current-year stay,
- cumulative stay over four preceding years, and
- India-sourced income exceeding ₹15 lakh.
- This increases the risk of unintended RNOR classification, even for individuals without global income exposure.
- The compliance burden has increased without materially expanding the tax base, as individuals can still avoid residency by restricting stay below 120 days.
Importantly, the ability to avoid residency has not been eliminated, only the planning window has narrowed, which weakens the policy objective.
Likely Impact if 182-Day Rule Is Restored
Tax Residency Outcomes
- Fewer NRIs falling into RNOR status unintentionally.
- Reduced disputes around classification where India-sourced income marginally crosses ₹15 lakh.
- Simplification of residency analysis without reopening loopholes for full residents.
What Will Not Change
- India-sourced income (interest, dividends, rent, capital gains) will remain taxable in India for NRIs.
- TDS obligations on NRO income will continue unchanged.
- DTAA tie-breaker rules will still apply where dual residency arises.
The rollback would simplify residency determination, not dilute source-based taxation.
Revenue Implications
The likely fiscal impact is not loss of tax on Indian income, but:
- shift from slab-rate taxation under RNOR to
- special-rate taxation applicable to non-residents in some cases.
Industry submissions argue that this impact would be limited and offset by:
- higher travel, consumption, and investment,
- increased diaspora engagement, and
- lower litigation and administrative costs.
Budget 2026-27: Policy Signal at Stake
Any amendment to Section 6 via the Finance Act, 2026 would signal whether the government:
- continues to prioritise anti-avoidance signalling, or
- re-emphasises certainty, clarity, and economic engagement with overseas Indians.
The issue is therefore less about revenue arithmetic and more about tax system design philosophy.
Conclusion
The demand to restore the 182-day rule reflects a broader principle in tax law: residency tests must be simple, predictable, and behaviour-neutral. The post-2020 framework, while well-intentioned, has introduced complexity without eliminating planning opportunities.
As Budget 2026-27 approaches, a calibrated rollback would represent course correction, not concession, aligning residency law with both administrative efficiency and economic pragmatism.
Source: BusinessStandard