Tax Residency Explained: How It Affects Your Property and Money

Ever wondered why the same house can feel cheap for one buyer and pricey for another? The hidden factor is tax residency. In simple terms, tax residency tells a country whether you’re a local for tax purposes. It decides which income you report, which taxes you pay, and even how you’re treated when you buy or sell a home.

If you’re moving, working abroad, or own property in more than one place, figuring out your tax residency can feel like a maze. The good news is you don’t need a law degree to get the basics right. Below are the key points you need to know, plus practical steps to keep your taxes and property deals on track.

How to Know If You’re a Tax Resident

India uses two main tests to decide if you’re a tax resident: the Physical Presence Test and the Residential Status Test. The first one looks at how many days you spend in the country during a financial year (April 1 to March 31). If you’re in India for 182 days or more, you’re automatically a resident for tax purposes.

Even if you fall short of 182 days, you can still be deemed a resident if you meet the “180‑day rule” over the last four years – that is, you’ve been in India for at least 60 days in the current year and 365 days in total over the preceding four years.

Once you’re labeled a resident, the tax office further classifies you as either a “resident and ordinarily resident” (ROR) or a “resident but not ordinarily resident” (RNOR). The ROR status gives you the fullest tax liability on worldwide income, while RNOR limits you to Indian‑sourced income only. Your exact classification depends on how long you’ve lived in India over the past nine years and how many years you’ve been a resident.

Why Tax Residency Matters for Real Estate

When you buy or sell a property, tax residency decides which capital gains tax rules apply. A resident (ROR) pays tax on any profit from a property anywhere in the world, whereas an RNOR only pays on Indian sales. That can change the tax you owe by thousands of rupees.

Stamp duty and registration fees also vary by state, but many states offer concessions to residents, especially first‑time homebuyers. If you’re a non‑resident, you might face higher rates or stricter documentation checks. Knowing your residency status helps you plan the right time to purchase and avoid surprise costs.

Rental income follows the same logic. Residents declare global rental earnings, while non‑residents only report Indian rentals. Some double‑taxation avoidance agreements (DTAA) let you claim credit for taxes paid abroad, but you need the correct residency certificate to benefit.

Finally, financing options differ. Banks often require proof of resident status before approving home loans at the best rates. An RNOR may still get a loan, but interest rates could be higher, and the paperwork longer.

To keep everything smooth, follow these three steps:

1. Track your days in India each calendar year. A simple spreadsheet does the trick.
2. Request a Tax Residency Certificate (TRC) from the Income Tax Department whenever you need to prove your status for a property transaction or foreign tax credit.
3. Consult a tax professional early, especially if you have income from multiple countries. A quick review can save you from costly mistakes later.

Understanding tax residency isn’t just about staying compliant; it’s about making smarter decisions with your money and property. Keep an eye on the days you spend, get the right certificates, and let the rules work for you, not against you.