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January 3, 2023
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.
As an expert in income tax regulations and Indian tax laws, I can confidently provide detailed insights into the concepts discussed in the article posted on January 3, 2023, by Zarana Mehta. Let's delve into each concept mentioned:
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Resident Indian:
- An individual is considered a resident of India if they stay in the country for more than 182 days in a financial year.
- Alternatively, if a person stays at least 60 days in India each year and at least 365 days in the prior four years, they are also considered a resident.
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Non-Resident Indian (NRI):
- According to Section 6(6)(a) of the Income Tax Act of 1961, an individual is a non-resident if they have been outside India for 9 out of the previous 10 years or have spent less than 729 days in India in the previous seven years.
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Resident but Not Ordinary Resident (RNOR):
- Two conditions determine RNOR status: a. If a person is in India for less than the previous seven years or lives in India for 729 days. b. If a person has been a non-resident Indian or non-resident India (NRI) in nine of the ten previous years.
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Benefits of RNOR Status:
- RNOR status holders enjoy tax exemptions on various sources of income, including rent received from abroad, dividends or interest from investments, withdrawals from offshore retirement accounts, and capital gains from abroad.
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Rule of Taxation for RNOR:
- The taxation rules for RNOR differ based on the source of income, distinguishing between income earned in India and income earned abroad.
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Taxable Income for RNOR:
- The article outlines the taxability of different types of income for RNORs, specifying which categories are taxable and which are not.
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Preserving RNOR Status:
- RNORs can preserve their status for up to three financial years after returning to India. After obtaining resident status, all income, both domestic and international, becomes taxable unless exemptions under Double Taxation Avoidance Agreements (DTAA) apply.
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Earning and Accrual in India:
- The article defines what constitutes "earned" and "accrues in India" for tax purposes, including revenue received in India and income earned or derived in the country.
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Conclusion:
- The RNOR status is highlighted as beneficial for filing income tax in India, particularly for managing overseas transactions in a tax-efficient manner. The distinction is made between meeting RNOR requirements and being a resident Indian, where all earnings are considered taxable income.
In conclusion, understanding these concepts is crucial for individuals navigating the complex landscape of Indian income tax regulations, and the article provides a comprehensive overview of these key concepts.
