Income Tax Bill 2025: Who is an Indian Resident Now? [Read Bill]

The Income Tax Bill 2025 introduces huge amendments to the definition of "resident in India," affecting individuals, Hindu Undivided Families (HUFs), firms, and companies. This reform alters tax liabilities for various categories of taxpayers, particularly Non-Resident Indians (NRIs), high-income earners, and foreign businesses.

This article compares the old tax law (Income Tax Act, 1961) with the proposed changes in the Income Tax Bill 2025, focusing on residency rules and tax implications with specific section references.

1. Individual Residency: Changes for Indian Citizens and NRIs

Old Law: Income Tax Act, 1961 (Section 6)

An individual was considered a resident in India if they:

1. Stayed in India for 182 days or more in a financial year, OR
2. Stayed in India for at least 60 days in a financial year AND 365 days in the preceding four years.

Exceptions:

• Indian citizens leaving India for employment or as crew members of an Indian ship were not subject to the 60-day rule.
• Indian citizens or Persons of Indian Origin (PIOs) visiting India were considered residents only if they stayed for 182 days or more.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

New Law: Income Tax Bill 2025 (Section 6(2))

Under Section 6(2) of the proposed bill, an individual will be classified as resident in India if they:

1. Spend 182 days or more in India in a financial year, OR
2. Spend 60 days or more in a financial year AND 365 days or more in the preceding four years​.

Key Changes (Section 6(5))

• For NRIs and PIOs visiting India, the threshold is reduced to 120 days (instead of 182 days) if their Indian income exceeds Rs. 15 lakh in a financial year​.

Implications: NRIs and PIOs earning over Rs. 15 lakh in India could now be classified as tax residents with just 120 days of stay. This change will increase the number of people falling under the tax net.

2. Introduction of 'Deemed Residency' for Tax Avoidance

Old Law: Income Tax Act, 1961

• Global income was taxed only if an individual was a resident.
• No provision existed for individuals who were not taxed in any other country.

New Law: Income Tax Bill 2025 (Section 6(7))

A new provision introduces "deemed residency", stating:

• Any Indian citizen earning over Rs. 15 lakh from Indian sources who is NOT liable to tax in any other country will be deemed a resident of India​.

Implications: This targets Indian citizens avoiding tax by residing in tax-free jurisdictions and High-earning NRIs without tax obligations elsewhere may now have to pay Indian taxes.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

3. Residency Rules for Hindu Undivided Families (HUFs), Firms, and Associations

Old Law: Income Tax Act, 1961 (Section 6(2))

• A HUF, firm, or association of persons was considered resident if its control and management was "wholly or partly" in India.

New Law: Income Tax Bill 2025 (Section 6(9))

• A HUF, firm, or association of persons is now considered resident in India unless their "control and management" is wholly outside India​.

Implications: More entities may now be classified as residents, increasing their tax obligations.

4. Corporate Residency: Place of Effective Management (POEM)

Old Law: Income Tax Act, 1961 (Section 6(3))

• A company was resident in India if:
  • It was incorporated in India, OR
  • Its Place of Effective Management (POEM) was in India.

New Law: Income Tax Bill 2025 (Section 6(10))

• The definition remains similar, but stricter enforcement of the POEM rule is expected.
• Foreign companies with significant control in India will face greater scrutiny​.

Implications: Multinational corporations (MNCs) operating in India could face higher tax liabilities.

5. ‘Not Ordinarily Resident’ (RNOR) Status

Old Law: Income Tax Act, 1961 (Section 6(6))

• A person was RNOR if they:
  • Had been a non-resident for 9 out of 10 preceding years, OR
  • Spent less than 730 days in India in the last 7 years.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

New Law: Income Tax Bill 2025 (Section 6(13))

A broader RNOR definition now includes:

• Individuals earning more than Rs. 15 lakh from Indian sources, AND
• Staying in India between 120 and 181 days in a financial year​.

Implications: More NRIs will be classified as RNORs, increasing their taxable income in India and RNORs are not taxed on foreign income, but this rule tightens the criteria.

6. Changes in Taxation for Foreign Companies

Old Law: Income Tax Act, 1961 (Section 9)

• A foreign company was taxed in India if it had a "business connection" in India.

New Law: Income Tax Bill 2025 (Section 9(10))

• Foreign companies are now considered residents in India if their "effective management" is in India.
• Foreign branches converting into subsidiaries in India will now face stricter taxation​.

Implications: Foreign banks and corporations operating in India will be taxed more aggressively.

Conclusion: Who Will Be Affected the Most?

The Income Tax Bill 2025 tightens residency rules, impacting NRIs, HNIs, and businesses. NRIs earning over Rs. 15 lakh from Indian sources will be taxed if they stay in India for 120 days or more, while Indians not taxed elsewhere will be deemed residents. HNIs who previously avoided Indian taxes will now be liable, and foreign companies with effective management in India may be taxed as residents under the POEM rule. HUFs and firms will also face stricter scrutiny on their control and management. These changes aim to expand the tax base and prevent tax avoidance.

To Read the full text of the Tax Bill CLICK HERE

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