The 120-Day NRI Rule:
When Staying Under 120 Days Does (and Does Not) Make You Non-Resident

Staying outside India for most of the year does not, by itself, make you an NRI for income-tax purposes. For an Indian citizen living abroad, the analysis depends on the residential-status tests under Section 6, the person's income level, the purpose of leaving India, whether the person is actually tax resident somewhere else and the nature and source of the income.

The most misunderstood provision is the 120-day rule.

There is a widespread misconception that staying in India for fewer than 120 days automatically confers Non-Resident (NR) status. This is incorrect. Tax residency depends on cumulative physical presence over preceding years, Indian-sourced income thresholds and deemed residency rules. This article explains the rules in a practical way, including the distinction between NR, RNOR and ROR, the deemed-resident provision, foreign-source income and the additional issues that arise when someone is relocating or working remotely from different countries.

1. Start with the basic residence test

An individual is generally resident in India if either of these conditions is satisfied:

1. Stay in India for 182 days or more during the relevant tax year; or
2. Stay in India for 60 days or more during the relevant tax year and 365 days or more during the preceding four tax years.

But there are important exceptions for:

• an Indian citizen leaving India for employment outside India;
• an Indian citizen who is a crew member of an Indian ship; and
• an Indian citizen or person of Indian origin visiting India.

The exact exception that applies must be identified before calculating the result.

Residential Status Decision Matrix

2. Where does the 120-day rule actually apply?

The 120-day rule is relevant to an Indian citizen or person of Indian origin who is visiting India, where their total income other than income from foreign sources exceeds ₹15 lakh. For such a person, the 60-day threshold is replaced by 120 days, along with the requirement of 365 days or more in India during the preceding four years.

So, broadly:

The key point is that 120 days is a threshold within a specific statutory test. It is not a standalone definition of NRI status.

Example

Suppose an Indian citizen living abroad:

• has relevant income above ₹15 lakh;
• visits India for 130 days; and
• was in India for at least 365 days during the preceding four years.

The person can satisfy the residence test. If the same person spends 100 days in India, that particular 120-day limb is not satisfied. But the analysis should still check the other residence and deemed-residence provisions.

3. Leaving India for a foreign job is different

If an Indian citizen leaves India for employment outside India, the special relaxation applies: the 60-day + 365-day test is replaced by the 182-day threshold. In practical terms, for that category, staying in India for less than 182 days generally means the individual does not become resident under the ordinary day-count test, subject to the separate deemed-resident rules.

This is why the reason for leaving India matters. Do not automatically apply the 120-day rule to someone who has moved abroad for employment.

4. The ₹15 lakh test needs careful attention

The law does not simply ask whether your foreign income exceeds ₹15 lakh. It refers to total income other than income from foreign sources. This distinction can materially change the analysis.

For example, a person cannot automatically classify income as “foreign income” merely because:

• the customer is outside India;
• the invoice is in USD;
• payment is received in a foreign bank account; or
• a foreign company is involved.

The underlying source of the income and the relevant statutory definitions must be examined. This is particularly important for freelancers, consultants, entrepreneurs and people operating businesses across borders.

5. Deemed residency: the rule people often miss

India also has a deemed-resident provision.

Broadly, an Indian citizen can be deemed resident where:

• total income other than income from foreign sources exceeds ₹15 lakh; and
• the person is not liable to tax in any other country or territory by reason of domicile, residence or a similar criterion.

For deemed residency, the number of days spent in India is not the decisive factor.

Why this matters

Consider someone who:

• spends only 80-100 days in India;
• earns more than ₹15 lakh of relevant income; and
• travels between several countries without becoming tax resident in any of them.

It is unsafe to conclude:

“I stayed below 120 days, so India cannot treat me as resident.”

The deemed-residency provision must also be tested.

6. A foreign company does not automatically make you a foreign tax resident

This is one of the most common cross-border tax mistakes.

Suppose an Indian citizen:

• incorporates a company abroad;
• opens a foreign bank account;
• invoices foreign customers through that company;
• spends limited time in India; but
• is not actually tax resident in the country where the company is incorporated.

The company and the individual have separate residence questions.

You need to distinguish between:

Individual tax residence

Where is the individual resident under the relevant country's domestic law?

Entity residence

Where is the company resident?

Business control

Where are important business decisions actually made?

Source of income

Where does the individual's income arise?

Treaty residence

If a DTAA is relevant, does the individual qualify as a resident of the treaty country?

These questions should not be collapsed into one.

7. NR, RNOR and ROR: why the classification matters

Once residential status is determined, the next question is whether the individual is:

• Non-Resident (NR)
• Resident but Not Ordinarily Resident (RNOR)
• Resident and Ordinarily Resident (ROR)

The tax scope can differ significantly.

ROR

An ROR is generally taxable in India on worldwide income, subject to applicable exemptions, foreign-tax relief and treaty provisions.

RNOR

An RNOR is generally taxable on:

• income received or deemed received in India;
• income accruing or arising or deemed to accrue or arise in India; and
• foreign income from a business controlled in India or a profession set up in India.

The RNOR classification therefore matters greatly for someone who has recently moved abroad.

NR

An NR is generally taxed in India on income received, accrued or deemed to accrue in India, subject to the detailed provisions applicable to the income.

The practical lesson is simple:

8. What happens to foreign income?

For an NR, foreign income that genuinely accrues outside India and is first received outside India will generally fall outside the Indian tax net, subject to the specific facts and provisions. But the location of the bank account does not by itself determine the source of income.

For example, a consultant working physically from India for a US client cannot assume that the income is foreign-source merely because:

• the client is American;
• the invoice is in USD; or
• the payment is credited to a foreign account.

The place where the services are actually performed and the nature of the business/profession can be relevant. For an RNOR, foreign income from a business controlled in India or profession set up in India also requires particular attention.

9. Digital nomads and freelancers need a broader analysis

Consider an Indian citizen who:

• has foreign clients;
• spends 100-150 days in India;
• works while travelling internationally;
• receives payments in a foreign account;
• has no clear foreign tax residence; and
• operates the business personally.

A day-count calculation alone is not enough.

The review should cover:

1. Indian residential status;
2. deemed residency;
3. NR/RNOR/ROR classification;
4. where the services are physically performed;
5. where the business or profession is set up or controlled;
6. where income is received;
7. Indian-source income;
8. foreign tax residence;
9. DTAA relief, where applicable; and
10. FEMA and banking requirements separately.

10. A recent case shows why the first year abroad needs care

The Bangalore ITAT's January 2026 decision in Binny Bansal's case is useful as a cautionary example. The case related to AY 2020-21 under the Income-tax Act, 1961. Mr. Bansal had moved to Singapore for employment and was in India for 141 days during the relevant previous year.

The Tribunal examined the applicable residential-status provisions and the India-Singapore treaty. On the facts before it, the Tribunal did not accept the taxpayer's position that the move had already established the necessary change in residence. Among other factors, it considered the timing of the relocation, Indian economic interests, property and the circumstances of the Singapore move.

The important takeaway

Do not read the decision as:

“Anyone leaving India must stay below 60 days.”

That would be an overstatement. The case was fact-specific and concerned an earlier tax year.

Its practical lesson is more useful:

If you are relying on a foreign treaty residence position, your family arrangements, home, economic interests, employment, actual relocation and foreign residence should be reviewed consistently with that position.

11. Income-tax residency and FEMA residency are different

Another common mistake is treating these as the same test. Income-tax residential status is determined under the Income-tax law. FEMA residential status is determined under FEMA and its rules.

They have different tests and different consequences.

Therefore, becoming an income-tax NR does not automatically resolve questions concerning:

• NRO/NRE accounts;
• foreign investments;
• remittances;
• assets held abroad; or
• other FEMA compliance.

Those issues should be reviewed separately where applicable.

12. What documents should you maintain?

If your tax position depends on living abroad, keep evidence from the beginning.

Travel and residence

• Passport
• India entry/exit records
• Day-count working
• Foreign residence permit/visa
• Foreign lease or residential documents

Foreign tax residence

• Tax Residency Certificate, where applicable
• Foreign tax registration
• Foreign tax returns
• Tax payment records

Employment/business

• Employment agreement
• Client agreements
• Invoices
• Bank statements
• Payment-platform statements
• Business registration documents
• Evidence showing where services are actually performed

India

• Indian bank statements
• Investment statements
• Property records
• Indian-source income records
• Indian tax returns

Good documentation is particularly important when residential status or treaty residence could later be questioned.

13. A simple decision framework

Use this sequence instead of starting with “How many days can I stay?” Step 1 - Count your India days. Keep an exact travel log. Step 2 - Identify why you are outside India.

Are you:

• employed abroad;
• visiting India from a foreign residence; or
• travelling between countries without a settled foreign residence?

Step 3 - Apply the correct Section 6 test. Do not automatically use the 120-day rule. Step 4 - Check the ₹15 lakh condition. Determine whether the statutory “income other than income from foreign sources” threshold is crossed. Step 5 - Test deemed residency. Especially if you are not actually liable to tax in another country by reason of residence, domicile or a similar criterion.

Step 6 - Determine NR/RNOR/ROR. The result affects the scope of taxable income. Step 7 - Analyse the income separately. Check source, receipt, accrual and business/profession connections with India. Step 8 - Review foreign residence and DTAA. If claiming treaty residence, make sure the facts and documentation support it.

Step 9 - Review FEMA separately. Income-tax residency and FEMA residency are different questions.

Common misconceptions

“Under 120 days means NRI.”

Not universally. The 120-day rule applies only in the specified statutory circumstances.

“My foreign bank account means my income is foreign income.”

Not necessarily. The bank account location does not determine the source of income.

“A foreign company makes me a foreign tax resident.”

No. Company residence and individual residence are separate.

“A foreign visa means I am tax resident there.”

Not necessarily. Immigration status and tax residence are different concepts.

“I can become tax resident nowhere by travelling.”

Do not assume this. The deemed-resident rules can become relevant for certain Indian citizens.

“If I become NR, all my Indian tax disappears.”

No. Indian-source income can remain taxable in India.

The bottom line

There is nothing inherently wrong with planning your move outside India and managing your Indian tax residence correctly. But day counting should be the starting point, not the entire tax plan.

The correct sequence is:

India days → applicable residence test → ₹15 lakh test → deemed residency → NR/RNOR/ROR → source of income → business/profession connection → foreign tax residence → DTAA → FEMA compliance.

If you are genuinely relocating abroad, the objective should be a defensible tax position supported by facts and documentation, rather than simply targeting an arbitrary number of days.

Planning to move abroad?

If you are relocating from India, working remotely for foreign clients, setting up a business abroad or spending substantial time outside India, get the residential-status analysis done before the move or at the beginning of the relevant tax year.

Anmol Aniket and Associates can assist with:

• NRI/RNOR/ROR analysis
• foreign-income taxation
• residential-status planning
• DTAA considerations
• cross-border compliance
• documentation and tax-return review

Official references

• Income Tax Department - Residential Status / Non-Resident guidance.
• Income Tax Department - Non-Resident Individual guidance for AY 2026-27.
• Income Tax Department - Transition to the Income-tax Act, 2025.
• Income Tax Appellate Tribunal, Bangalore - Binny Bansal v. DCIT, IT(IT)A No. 571/Bang/2023.