The deemed residency rule gets more anxious attention among NRIs than its actual reach justifies. It was introduced by the Finance Act 2020, originally as Section 6(1A) of the Income-tax Act, 1961, and is renumbered Section 6(7) under the Income-tax Act, 2025, now in force from FY2026-27. The provision exists to close a specific loophole: an Indian citizen who spends enough time abroad to avoid being a tax resident anywhere under a physical-presence test, and who happens to base themselves in a jurisdiction with no personal income tax, could historically go a full year owing income tax to no country at all despite substantial Indian-source income. That's the target. It is not a general tightening of NRI taxation, and it doesn't touch most people who already pay tax as residents somewhere else.
The two conditions, and both have to be true
This provision only applies to someone who is already a non-resident under India's ordinary physical-presence test — it's a backstop, not a first-line residency rule. On top of that, both of the following have to hold in the same previous year:
- You are an Indian citizen (not an OCI or PIO cardholder, and not a foreign citizen of Indian origin — the rule is written narrowly to citizenship)
- Your total income other than income from foreign sources — broadly, income accruing or arising outside India, excluding income from a business controlled or a profession set up in India — exceeds ₹15 lakh in the previous year
- You are not liable to income tax in any other country or territory by reason of domicile, residence, or any similarly framed criterion
Who this actually catches
The clearest fact pattern is an Indian citizen based in the UAE, Bahrain, Saudi Arabia, Kuwait, or another jurisdiction that levies no personal income tax on individuals, who spends few enough days in India to avoid residency under the ordinary test, but who still earns more than ₹15 lakh a year from Indian rental income, a directorship, consulting fees routed to an Indian entity, or a business controlled from India. Because that person owes personal income tax nowhere — not in India under the ordinary test, not in their country of residence because it simply doesn't tax individuals — they fall squarely into the gap Section 6(7) was written to close.
Who it doesn't touch
This is where the rule is narrower than its reputation suggests. It does not apply to OCI holders or foreign passport holders of Indian origin — only Indian citizens. It does not apply to anyone below the ₹15 lakh Indian-income threshold, which excludes the majority of salaried NRIs. And critically, it does not apply to someone who is a genuine tax resident of another country, even a low-tax one — being 'liable to tax' by reason of residence is generally read as being within that country's tax jurisdiction on your worldwide or resident income, not as actually owing a positive tax bill after credits and deductions bring it to zero. An NRI who is a bona fide tax resident of the US, UK, Singapore, or any other jurisdiction that taxes based on residence stays outside this provision, because they are, by definition, liable to tax somewhere else.
If you are caught, it's a soft landing, not full residency
A person deemed resident under this provision is always classified as 'resident but not ordinarily resident' (RNOR), never as an ordinarily resident. That distinction does real work: RNOR status means foreign-source income stays outside India's tax net, exactly as it would for a straightforward NRI, and only Indian-source income — along with income from any business controlled or profession set up in India — becomes taxable at resident slab rates. It also means the deemed resident does not pick up Schedule FA foreign-asset disclosure obligations under the Black Money Act framework, since that requirement is tied to ordinarily-resident (ROR) status specifically, not RNOR. Deemed residents also generally fall outside DTAA tie-breaker analysis in practice, since the provision is aimed at people with no residence-based tax liability anywhere else to tie-break against in the first place. The practical effect for someone who does get caught is closer to a reclassification for a handful of Indian-source income items than a wholesale change in tax treatment.