What is the concept of residential status under the Income Tax Act?

Residential status is a crucial concept under the Income Tax Act, 1961 as it determines the scope of an individual’s tax liability in India. It classifies taxpayers into three categories: Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), and Non-Resident (NR). The residential status is determined based on the individual’s physical presence in India during the relevant financial year and certain other conditions prescribed under the Act. The scope of taxable income and applicable tax rates differ for each category.