India’s Income-tax Act, 2025 took effect on 1 April 2026, changing the structure and forms used in tax administration while leaving the core residence tests for NRIs intact. The new law applies from FY 2026-27, also called Tax Year 2026-27.
The Income-tax Act, 1961 still governs FY 2025-26, corresponding to AY 2026-27. Residential status is assessed separately for each year.
Section 536 preserves the previous law for earlier years. Returns for AY 2026-27 must use the 1961 Act, not the new forms.
For the 60-day-and-365-day residence test in the first year under the new law, days spent in India during FY 2025-26 and earlier years still count.
The Income Tax Department’s non-resident FAQ says: “No change has been made in the basic conditions for determining individual residency.” The changes are chiefly structural: section numbering, terminology and forms.
Earlier returns stay under the old law
| Tax period | Governing law | Treatment |
|---|---|---|
| FY 2025-26, AY 2026-27 | Income-tax Act, 1961 | Use the old law and its forms; status is based on stay through 31 March 2026. |
| FY 2026-27, Tax Year 2026-27 onward | Income-tax Act, 2025 | Apply the new law to the relevant tax year. |
The Act also replaces “Previous Year” with “Tax Year.” Section 536 prevents the new statute from being applied retroactively to earlier periods.
Section 6 keeps the familiar day-count tests
Under Section 6(2) of the 2025 Act, an individual is resident if they spend 182 days or more in India during the relevant year. The alternative test is 60 days or more in that year, combined with 365 days or more in the four preceding years.
A citizen leaving India for overseas employment, or serving as crew on an Indian ship, faces the 182-day test alone. The alternative 60-day test does not apply to that group. The provision, formerly an explanation to Section 6(1), now sits in Section 6(3).
Visiting Indian citizens and people of Indian origin are generally treated as resident after spending more than 182 days in India. If their income other than income from foreign sources exceeds ₹15 lakh, the alternative test uses 120 days in the relevant year, plus 365 days or more in the preceding four years. These provisions now appear in Sections 6(4) and 6(5).
The deemed-resident rule applies to an Indian citizen with income above ₹15 lakh, excluding income from foreign sources, who is not liable to tax in another country because of domicile, residence or similar criteria. The number of days spent in India does not determine that status. Deemed residents are classified as not ordinarily resident, rather than ordinarily resident.
The new section numbers gather the provisions in one place:
| Rule | 1961 Act | 2025 Act |
|---|---|---|
| Basic individual residence tests | Section 6(1) | Section 6(2) |
| Citizen leaving for overseas employment or Indian ship crew | Explanation 1(a) to Section 6(1) | Section 6(3) |
| Visiting citizen or person of Indian origin | Explanation 1(b) to Section 6(1) | Section 6(4) |
| Higher-income visitor’s 120-day test | Explanation 1(b) to Section 6(1) | Section 6(5) |
| Crew of a foreign-bound ship | Explanation 2 to Section 6(1) | Section 6(6) |
| Deemed resident | Section 6(1A) | Section 6(7) |
| Carve-out for those already resident | Explanation to Section 6(1A) | Section 6(8) |
| Hindu undivided family, firm or association of persons | Section 6(2) | Section 6(9) |
| Company | Section 6(3) | Section 6(10) |
| Every other person | Section 6(4) | Section 6(11) |
| One source resident, all sources resident | Section 6(5) | Section 6(12) |
| Not ordinarily resident | Section 6(6) | Section 6(13) |
| Meaning of “income from foreign sources” | Explanation at end of Section 6 | Section 6(14) |
An individual qualifies as not ordinarily resident if they were non-resident in nine out of ten preceding years, or spent 729 days or less in India during the preceding seven years. The rule now appears in Section 6(13). Advice about an earlier year must use the section number in force for that period.
Section 5 and treaty forms are rearranged
Section 5 reorganizes the rules on the scope of total income without changing their substance. The old law placed the non-ordinarily-resident treatment in a proviso. The 2025 Act folds it into clause (c) of Section 5(1).
Two explanations now stand as separate subsections. Section 5(3) covers foreign income that does not become income received in India merely because it appears in an Indian balance sheet. Section 5(4) prevents the same income from being taxed twice, once when it accrues and again when it is received.
The Act also replaces Form 10F with Form 41 for treaty-benefit paperwork. Form 10F was prescribed by Rule 21AB(1) of the Income-tax Rules, 1962, for non-residents claiming treaty benefits under Sections 90(5) and 90A(5). It collected information including tax residence, country of residence and the period covered by a Tax Residency Certificate.
The former form was a self-declaration, not proof of residence, and it had no filing fee. The certificate comes from the taxpayer’s home-country tax authority, which may charge a fee. Form 10F and the certificate were to reach the payer before payment, so treaty provisions could be considered when calculating tax deducted at source. The form was meant to cover the same period as the certificate.
The new law leaves the filing exemption in Section 115G of the 1961 Act unchanged. Eligible non-residents need not file an income-tax return when their total income consists only of investment income, long-term capital gains, or both, subject to tax deducted at source. Tax liability and filing requirements otherwise remain unchanged.
FEMA determines account treatment separately
Tax residence and residence under the Foreign Exchange Management Act are separate classifications. FEMA considers a person’s purpose and intention, rather than relying only on a day count. Someone can be a tax non-resident but a FEMA resident, or the reverse.
Eligibility for NRE, NRO and FCNR(B) accounts follows FEMA rules. The NRE interest exemption under Section 10(4)(ii), including its counterpart under the new Act, depends on being resident outside India under FEMA.
A person returning to live in India is treated as resident under FEMA and must have NRE accounts redesignated as resident accounts. The interest exemption then ends, even if that person still qualifies as RNOR for income-tax purposes. Foreign income is generally exempt during RNOR years, and Schedule FA is not required.
CA Harun Raaj of Harun Raaj & Associates in Visakhapatnam advises people to count their days in India, check the nine-of-ten and 729-day tests, and assess deemed-resident conditions. He says the 120-day test applies only when the income threshold and the preceding-years stay condition are both met.
The company residence test remains unchanged: the place of effective management standard was not amended. Nishith Desai Associates said the full effect of the changes will become clearer as the provisions are applied and tested in court over time.
This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA about your specific situation.
