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January 3, 2023
Information on RNOR, Taxation for Resident but not Ordinary Resident in India, and Benefits of having RNOR status
In India, you can either be a ‘Resident Indian’ or a ‘Non-Resident Indian’ for income tax purposes, you can also be a Resident but Not Ordinary Resident (RNOR). In this blog, we’ll look at what an RNOR is and tax-based information for RNOR.
For understanding RNOR first, we need to understand the criteria for Non-Resident and Resident Indian as per the Income Tax Department.
Table of Content
What is a Resident?
If an individual stayed in India for more than 182 days or is equal to that then an individual is considered as a resident of India. A person spends at least 60 days in India each year and at least 365 days in the prior four years than he/she is considered as a resident of India.
What is a Non-Resident?
According to Section 6(6)(a) of the Income Tax Act of 1961, an individual is a NOR if he or she has been a non-resident in India for 9 out of the previous 10 years, or has spent less than 729 days in India in the previous seven years preceding that year.
What is a Resident but Not Ordinary Resident in India?
There are two conditions for RNOR, first one is If a person is in India for less than the previous seven years, or live in India for 729 days then at that time the person is considered as RNOR. The second one is if a person has been a non-resident Indian, or non-resident India (NRI), in nine of the ten previous years preceding that year will be considered as RNOR.
Related read: How Residential status of an Individual or Company determined for Income Tax Purpose?
Benefits of having RNOR status
For the following income, the RNOR status holder does not need to pay Income Tax.
- Rent received from abroad.
- Dividend or Interest received from Investing in Deposits and Securities.
- Withdrawals from offshore retirement accounts.
- Capital gains from abroad.
- NRE deposit and Interest on FCNR deposits, If it is converted into RFC.
Rule of taxation for RNOR (Resident but Not Ordinary Resident)
Income |
RNOR Status |
ROR |
NR |
Income which is deemed to be accrued in India |
Taxable |
Taxable |
Taxable |
Accrued income in India |
Taxable |
Taxable |
Taxable |
Income which is deemed to be received in India |
Taxable |
Taxable |
Taxable |
Income received in India |
Taxable |
Taxable |
Taxable |
Income generated from a business, which is situated in India |
Taxable |
Taxable |
Non-taxable |
Any income which is earned from outside India |
Non-taxable |
Taxable |
Non-taxable |
Taxable income for RNOR as per Indian Tax Law
If you are a RONR (Resident but Not Ordinary resident), you are allowed to preserve your RNOR status for up to three financial years after you return to India. However, once you have obtained the status of a Resident, all of your income, both outside and inside India, will be taxable in India, unless you qualify for any exemptions under the DTAA (Double Taxation Avoidance Agreement) between India and the country from which your overseas income originated.
What does it imply to be “Earned” in India?
- Any revenue that you or someone on your behalf receives in India or that the law considers to be received in India.
- Any income that is earned or derived in India, or that the law believes is earned or derived in India.
What does it imply by ‘Accrues in India’?
Section 9 of the Income Tax Act explains this (Note that this applies to everyone when calculating the income that accrues or arises to them, regardless of where they live). Though you respond yes to any of these questions, the law will treat your earnings as if they were earned in India:
- Gain on the sale or transfer of a capital asset in India.
- If the services are provided in India, you will receive a salary.
- When you are an Indian citizen, you can earn money from the wage that the government of India pays you for services performed outside of India.
- Even though the dividend was paid outside of India, it was paid by an Indian Corporation.
Conclusion
The RNOR Status (Resident but Not Ordinary Resident) would assist you in filing your Income Tax in India. If a person meets the RNOR requirements, it will be simple for them to manage their overseas transactions in a Tax-Efficient manner. If a person meets the requirements for being a resident Indian, all earnings will be deemed as Taxable Income.
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