The year of departure is the messiest year an NRI ever has, and most of the mess comes from assuming there is one status that applies to everything. There are at least two, they use different tests, and they change on different dates.
Tax residence is a day count, applied year by year
The Income-tax Act, 2025 determines residential status separately for each tax year. An individual is resident if he is in India for a total period of one hundred and eighty-two days or more in that year, or if he is in India cumulatively for sixty days or more in that year and for three hundred and sixty-five days or more in the four preceding years.
The second limb is then softened for people in your position. It does not apply to a citizen of India who leaves India in a year for the purposes of employment outside India, or as a member of the crew of an Indian ship. And it does not apply to a citizen of India or person of Indian origin who, being outside India, comes on a visit, except that where such a person has total income other than income from foreign sources exceeding fifteen lakh rupees in the year, the sixty days becomes one hundred and twenty.
Two further rules catch people out. An Indian citizen who is not liable to tax in any other country by reason of domicile, residence or similar criteria, and whose total income other than from foreign sources exceeds fifteen lakh rupees, is deemed resident here even if he is not resident on the day count. And the Act has a middle category, not ordinarily resident, which applies among others to an individual who has been non-resident in nine of the ten preceding years, or in India for seven hundred and twenty-nine days or less in the seven preceding years.
Leave in November and you will usually have crossed the day threshold already, which means you are taxable in India on your worldwide income for that whole year, including the salary you earn abroad after departure. That is the single most common shock in the first Indian return after emigration, and it is not an error by the department. Plan the departure date and the first foreign salary with a chartered accountant before you fly, not after.
Exchange control residence is a different test
The Foreign Exchange Management Act, 1999 has its own concept of a person resident in India, and it is not the day count in the tax statute. It looks at the period of stay in the preceding financial year together with the purpose of your stay and, for a person coming to India, the type of visa and the intention to stay for an uncertain period, a point the Reserve Bank spells out in its Master Direction on acquisition and transfer of immovable property. The consequence is that you can be a non-resident for exchange control from the day you leave to take up employment abroad while remaining resident for tax for the rest of that year. Both are correct at the same time.
What to do in the first ninety days
- Redesignate the bank accounts. The Reserve Bank's Master Direction on Deposits and Accounts states that when a resident Indian becomes a person resident outside India, his existing resident account should be designated as a non-resident ordinary account. This is not optional and it is not something the bank does on its own.
- Tell your tenant. Rent paid to a non-resident falls under the deduction provision for payments to a non-resident rather than the resident one, and your tenant needs a deduction account number for it. He cannot comply with a rule he has not been told applies.
- Check your permanent account number details. Address, contact number and bank account for refunds, all of which are about to change.
- Review nominations and the will. Emigration is the point at which most people's nomination records go stale, and a nomination is not a substitute for a will in any event.
- Keep the passport. Entry and exit stamps are the evidence of your day count, and the burden of proving residential status is on you. Keep lawful copies of relevant passport and travel records. Comply with any requirement to surrender or replace a passport.
- Fix the first year's filing early. The year of transition usually needs a return here, and it is the year in which foreign income and any treaty relief have to be reconciled.
What changes once the status settles
A non-resident is taxed in India on Indian source income rather than on world income, but the machinery around that income becomes stricter, not looser. Deduction on payments to a non-resident needs assessment under the non-resident provisions, which our guide on tax deduction when an NRI sells Indian property explains. And moving money out becomes a regulated remittance with an annual ceiling and its own documentation, set out in our guide on repatriating money from India as an NRI. Your status for the transition year, and the return that goes with it, should be worked out with a chartered accountant on your actual travel dates for the specific tax year.