ICAI handbook on NRI residential status maps the old and new Income-tax Acts and FEMA

The Institute of Chartered Accountants of India (ICAI) has published a reference handbook on how to work out an individual’s residential status now that India has a new income-tax law. It is aimed at practitioners, but the points it settles, and the ones it leaves open, matter to every NRI who files in India.

What changed

The Handbook on Residential Status for NRIs: Tax and FEMA Aspects is dated July 2026 and was issued by ICAI’s International Taxation Committee. It runs to 11 chapters, ranging from individual residency and a side-by-side comparison of the 1961 and 2025 Acts to treaties, judicial precedents, global residency laws and the Foreign Exchange Management Act, 1999.

Which Act applies to which year. The Income-tax Act, 2025 came into force on 1 April 2026. The handbook treats tax year 2026-27 as the first year under the new law and notes that the 1961 Act was repealed from that date. Section 536 of the 2025 Act, a savings clause with 22 sub-clauses, keeps the old law in force for earlier periods. In practice this means:

• For FY 2025-26 (the year ended 31 March 2026), you work out residence under section 6 of the 1961 Act.
• From tax year 2026-27 (1 April 2026 onward), you use section 6 of the 2025 Act.

The handbook warns that practitioners will need to work with both statutes side by side for some time.

Same tests, new numbers. According to the handbook, the 2025 Act does not change any substantive residency condition for individuals. The 182-day test moves from section 6(1)(a) to section 6(2)(a). The 60-day-plus-365-days test sits in section 6(2)(b). The relaxation for citizens leaving India for employment, or as crew of an Indian ship, is in section 6(3). Visiting citizens and persons of Indian origin are covered by section 6(4), and section 6(5) raises the 60 days to 120 when their Indian income exceeds ₹15 lakh. Not-ordinarily-resident status moves to section 6(13).

The stateless rule. Section 6(7) deems an Indian citizen resident if they are not liable to tax in any other country and their income other than from foreign sources exceeds ₹15 lakh. Physical presence plays no part. Under section 6(13)(c), such a person is treated as not ordinarily resident.

Open points. The handbook flags wording changes that could be disputed. Section 6(2)(b) now says “cumulatively”, a term that has not yet been interpreted in this context. The 2025 Act also drops the old cross-reference that defined a “person of Indian origin”. And the deemed-residency clause has been reworded. Its outcome is unchanged, the handbook says, but the new wording could invite fresh litigation.

FEMA is different. The handbook stresses that tax residence turns mainly on physical presence, while FEMA residence turns on the intention and purpose of a stay. The same person can be resident under one law and non-resident under the other in the same year.

Who it affects

NRIs who are close to the day-count limits, people returning to India or leaving it in 2025-26 or 2026-27, Indian citizens living in countries with no income tax, and anyone whose bank account type depends on FEMA status.

What it means for you

1. For your FY 2025-26 return, test your status under the 1961 Act. For 2026-27, use section 6 of the 2025 Act.
2. Count your India days for each year from passport stamps or travel records, and keep the evidence.
3. If you live in a country that does not tax your income and your Indian income tops ₹15 lakh, check section 6(7) with your adviser.
4. Settle your FEMA status separately, because it decides whether your accounts should be NRE/NRO or resident accounts.

Key dates

• 1 April 2026: Income-tax Act, 2025 in force; tax year 2026-27 begins.
• July 2026: ICAI handbook released.