In India, income tax laws categorise persons based on their residential status, which directly determines the tax they are required to remit. Most individuals are aware of Resident and Non-Resident (NR) categories, but there is a middle category, Resident but Not Ordinarily Resident (RNOR), that is likely to confuse.
This status is particularly relevant to returning NRIs, expatriates, and those with international income, as it offers numerous tax advantages and exemptions.
This blog defines RNOR, its criteria, and its taxability in India in a simplified form.
Who is a Resident but Not Ordinarily Resident (RNOR)?
According to the Income Tax Act, a person is declared to be RNOR if they are a resident of India during the financial year and do not fully meet the requirements to be considered an ordinarily resident.
This status is a status of transition of:
- Indians who go back to India after having spent time in other countries.
- Visitors who spend some time in India.
- NRIs who have recently shifted back
- Foreigners employed in India temporarily.
- Global firms have placed expatriates in India.
RNOR status is useful in ensuring that the global income is not subjected to instant taxation whenever an individual moves to India.
How to Determine Residential Status?
The first is that he or she has to meet the requirements of a basic resident, and then other examinations are done that enable the person to be classified as an ordinary resident or not ordinarily resident.
- A person will qualify as a resident when he or she meets:
- Reside in India for 182 days or above in the financial year.
OR
- Reside in India for 60 days in the year and 365 days in the 4 preceding years.
In case the individual becomes a resident, the second test will be whether he or she is an RNOR or an ordinary resident.
Conditions for RNOR Status
A resident is RNOR, assuming either of the following:
- Residence in India for less than 730 days in the 7 previous financial years.
OR
- Not a resident during 9 out of the 10 financial years before.
- In case one of the above is fulfilled, the person is categorised as RNOR.
- Until the individual meets both requirements and attains Ordinarily Resident, this is their status.
Taxability of RNOR in India
This is the part that is most critical. The taxing regulations of RNOR are between residents and non-residents.
1. Income Taxed for RNOR
The following are taxed in India by an RNOR:
- Income accrued or accrued in India.
- Earnings that are obtained or received in India.
- One can only accrue income from another country if it is generated by a business or profession established in India.
Thus, the income of Indians is taxable in totality, and foreign income is partially taxable.
2. Income Not Taxable for RNOR
The most significant benefit of RNOR status is that the following sources of income cannot be subject to taxation in India:
- Foreign income obtained outside India through a business that is not controlled in India.
- Foreign wages, rental revenue, interest revenue and capital gains realised outside India.
- Foreign investment earnings in the form of stocks, mutual funds, crypto, etc.
- Foreign pension in foreign countries.
- Income deposited at foreign banks.
- The global income is not directly related to Indian operations.
Concisely, RNORs are only taxed on Indian income and not their worldwide income.
Why RNOR Status Matters?
RNOR is particularly useful to returning NRIs, expatriates and people going back to India. Major advantages include:
- No tax on foreign income
- No schedule FA to disclose foreign assets.
- The interest of foreign banks is entirely exempted.
- None of the foreign capital gains, like sales of foreign property, is taxed.
- Tax exemption in the course of relocation.
- Appropriate for those who have offshore works or investments.
It enables individuals to move back to India in time without experiencing heavy taxation at once.
Comparative Table: RNOR vs Resident vs Non-Resident
| Income Type | Ordinary Resident | RNOR | Non-Resident |
| Indian Income | Taxable | Taxable | Taxable |
| Foreign Income | Taxable | Not taxable (except income from business controlled from India) | Not taxable |
| Disclosing foreign assets | Mandatory | Not required | Not required |
| NRE interest | Taxable | Exempt | Exempt |
What is the longest time that a person can remain RNOR?
Normally, 1-3 years, based on their record of stay. As soon as they meet the requirements for a common resident, the RNOR status ceases. The NRIs who come back budget to ensure that this period is whole.
Conclusion
The Resident but not ordinarily resident (RNOR) status is a beneficial tax status under Indian income tax laws. It offers a safe transition zone for people returning to India, so they are not immediately inundated by global income tax.
The income retained by Indians remains fully taxable, whereas the income of foreign countries is not taxed unless associated with an Indian-owned company. Knowledge of RNOR taxability assists people in planning their finances, managing offshore assets, and minimising tax liability during relocation.
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