Taxation for Resident but not Ordinary Resident(RNOR) in India.

In India, you can either be a ‘Resident Indian’ or a ‘Non-Resident Indian’ for income tax purposes, or you can also be a Resident but Not Ordinary Resident (RNOR). In this blog, we’ll look at what RNOR status is and provide tax-based information for those with RNOR status.

For understanding RNOR first, we need to understand the criteria for Non-Resident and Resident Indian as per the Income Tax Department.

What is a Resident?

If someone stays in India for more than 182 days, they are considered a resident of India. Additionally, if a person spends at least 60 days in India each year and at least 365 days in the previous four years, they are also considered a resident of India.

What is a Non-Resident?

As per Section 6(6)(a) of the Income Tax Act of 1961, an individual is considered a Non-Resident (NOR) in India if they have been living outside of India for 9 out of the previous 10 years. Alternatively, if they have spent less than 729 days in India in the seven years before the current year, they are also categorized as a Non-Resident.

What is a Resident but Not Ordinary Resident in India(RNOR)?

There are two conditions for RNOR:

1. if a person has been staying in India for less than the past seven years or has spent a total of 729 days or less in India, they are considered a Resident but Not Ordinarily Resident (RNOR) at that time.
2. If a person has been a non-resident Indian, or (non-resident India (NRI)) for nine out of the ten years before the current year, they will be considered a Resident but Not Ordinarily Resident (RNOR).

Related read: How Residential status of an Individual or Company determined for Income Tax Purpose?

Rule of taxation for RNOR (Resident but Not Ordinary Resident)

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.

Taxable income for RNOR as per Indian Tax Law

The RNOR status offers some tax relief as it limits the scope of taxable income in India. The income that is taxable for RNORs includes:

1. Income obtained or believed to have been obtained in India: RNORs are subject to taxes on any income obtained or believed to have been obtained in India.
2. Income occurring, accruing, or presumed to arise in India: RNORs are subject to taxation on any income that does not originate, accrue, or arise in India.
3. Income accruing or arising outside India:

• Income from a business controlled in or a profession set up in India: If an RNOR has a business or profession that is controlled from India or set up in India, any income accruing or arising from such business or profession outside India will be taxable in India.
• Other Foreign Income: Other foreign income (income from sources outside India) is not taxable for RNORs unless it is derived from a business controlled from or a profession set up in India.

Or,

If you are a Resident but Not Ordinary Resident (RNOR), you can maintain this status for a maximum of three financial years after returning to India. However, once you become a Resident, all your income, whether earned in India or abroad, will be subject to taxation in India. There may be exemptions available under the Double Taxation Avoidance Agreement (DTAA) between India and the country where your overseas income originated.

What does it mean in India to be “Earned”?

• 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 “Accrues in India” mean?

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.