All About Resident But Not Ordinary Resident And Why This Special Status Is Accorded
For the income tax purposes in India, you can be a 'Resident Indian' or a 'Non Resident Indian.' Or you also can be a 'Resident but not Ordinary Resident (RNOR).' Let’s us look at who an RNOR is and why this special status is accorded.
Who is an RNOR?
We first need to understand the definitions of resident and non-resident Indian.
person is a resident Indian in a particular year if he fulfils either of these two conditions: -
- He/she has been in India in that particular year for 182 days or more.
- He/she has been in India for 60 days or more in that particular year and 365 days or more in the 4 years previous to that particular year.
A person who does not fulfill the above conditions is considered to be a non-resident.
Now, if you have recently moved back to India after spending many years overseas, you must check for the status of RNOR.
A person is an RNOR if he meets either of these two conditions:
- He/she has been a non-resident in India, that is, an NRI, in 9 financial years out of the 10 financial years previous to that particular year,
- He/she has been in India for a period of 729 days or less during the 7 previous years previous to that particular year, been in India for a period of 729 days or less.
Depending on the date of returning, a person can take the benefit of the RNOR status for up to 3 years. A tax year in India is from 1st of April to 31st March.
Mr. pankaj Bahukhandi returns back to India on 20th February 2014 after spending more than 10 years abroad. The first tax year for him in India will be 2013-2014. Does he qualify as the RNOR in 2013-2014? Yes he does because he has been an NRI for all the years previous 2013-2014.
Will he qualify as RNOR in 2014-2015?
Yes, he does because he will have been an NRI for 9 out of the ten previous years. That is, except for 2013-2014, he will have been an NRI in all the other years
Will he qualify as RNOR in 2015-2016?
He will not have been NRI for 9 out of the ten previous years because he would have been RNOR for 2013-2014 and 2014-2015. - During the seven previous years that is for the seven tax years he would have been in India for the entire 2014-2015 (366 days) and for 75 days in 2013-2014. That's 441 days in total which is less than 729 days because he will fulfil this second condition only if he will qualify as an RNOR in 2015-2016 as well.
Will he qualify for RNOR in 2016-2017?
He will not have been NRI for 9 out of the 10 previous years because he would have been RNOR from 2013-14 to 2015-16. During the 7 previous tax years, he would have been in India for 365 days in 2015-2016, 366 days in 2014-2015 and 75 days in 2013-2014. That's 806 days in total. Since then he will not fulfil either condition, he will be considered as Resident Indian in 2016-2017.
Why this status?
The RNOR is a special status given in order to provide some benefits to the returning NRIs. For the Indian income tax purposes, an RNOR is treated at par with the NRIs means, an RNOR requires to pay tax in India only on his Indian income. Any income earned in abroad will not be taxed in India. These include:
- Any interest or dividends from the foreign securities.
- Any capital gains earned from the sale of foreign assets including property.
- Any withdrawals made from the foreign retirement funds such as 401K plans for the US based NRIs.
- Interest on the Foreign Currency Non Resident (FCNR) bank account held in India until the maturity period.
- Interest on the Resident Foreign Currency (RFC) account.
There is one exception here. Any income received and accumulated outside India from a business controlled or set up in India is taxable as per the income tax law in India, even for an RNOR.
These exemptions allow the NRIs to bring back their foreign assets into India without the load of heavy taxes. Once the person becomes a Resident Indian from the RNOR then all his foreign income will be taxable in India. Therefore, concessions and exemptions granted under the Double Taxation Avoidance Agreement, if any, between India and the other country of the NRI's original residence will be relevant and reprieve will be granted as regards for the tax paid outside India on the overseas income subject to tax in India.
Another exemption is that for RNOR, assets located outside India are excluding from Wealth tax in India. Once his status changes from RNOR to Resident India then his foreign assets will come under the attention of Wealth Tax.
Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.
With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.
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