Resident but not Ordinarily Resident (RNOR)
Are you a resident but not ordinarily resident in India? If so, then you’re likely looking for more information about what this status means and how it affects you. Being an RNOR (Resident but Not Ordinarily Resident) has both advantages and disadvantages that you should be aware of.
In this blog post, we will explore the definition of RNOR and provide an overview of the key definitions, rules, and regulations related to this status. We’ll also look at the tax implications so that you can make informed decisions about your financial future.
Types of residential status
There are three types of residential status for an individual in India – Resident, Non-Resident, and Resident but not Ordinarily Resident (RNOR). An individual is classified as a resident if he/she satisfies any of the following conditions:
- He/she has stayed in India for a period of 182 days or more during the financial year.
- He/she has stayed in India for a period of 60 days or more during the financial year and has also been present in India for at least 365 days during the four years preceding the financial year.
- He/she has been employed in India for a period of 182 days or more during the financial year.
An individual is classified as a non-resident if he/she does not satisfy any of the above conditions and is also not liable to tax in India. An individual is classified as RNOR if he/she satisfies any of the following conditions:
- He/she has been employed outside India for a continuous period of at least 3 years immediately preceding the financial year.
- He/ she has been residing outside India for a continuous period of at least 1 year immediately preceding the financial year.
Who is a Resident (R)?
A Resident (R) is defined as an individual who has stayed in India for at least 182 days during the immediately preceding financial year, 365 days spread over four consecutive financial years, and at least 60 days during the immediately preceding financial year.
However, there are certain exceptions to this rule. An individual who does not meet the above criteria may still be considered a Resident if they:
- Have come to India for the purpose of employment.
- Have come to India to carry on business or profession.
- Have been deputed to India by their employer-based outside of India.
Who is Resident Not Ordinarily Resident (vs. Resident Ordinarily Resident)?
The term “resident but not ordinarily resident” (RNOR) is used to describe individuals who are considered residents of India for tax purposes, but who are not considered “ordinarily resident”. An individual is considered RNOR if they satisfy any one of the following conditions:
- They have been a non-resident in India in at least 9 out of the 10 previous years.
- They have been a resident in India for less than 7 out of the 10 previous years.
- They have been employed outside of India for at least 3 years in the 5 years prior.
Why does it matter?
It’s important to understand the difference between resident but not ordinarily resident (RNOR) and resident and ordinarily resident (ROR) for tax purposes. RNOR status is granted to individuals who have returned to India after living abroad for at least nine years, while ROR status is granted to those who have been living in India for less than six months in a financial year.
RNOR status is beneficial because it allows individuals to maintain their foreign income and assets without being taxed on them in India. This is possible because RNOR status is accorded only if the individual can prove that he or she has been a non-resident of India for at least nine out of the past 10 years.
Further, under Indian tax laws, an RNOR is treated as a non-resident for certain purposes such as availing the benefit of double taxation treaties, gifting foreign assets, and so on. This means that an RNOR can receive certain benefits that are not available to residents and ordinary residents.
However, it’s important to note that an individual’s RNOR status can be withdrawn if he or she fails to meet the conditions required to maintain it. For instance, if an RNOR spends more than 182 days in India in a financial year, his or her status will be converted to resident and ordinarily resident (ROR). Therefore, it’s important to be aware of the conditions attached to RNOR status before making any decisions.
There are three categories of income.
- Income received in India (a Swiss national who works for the UN is posted to India and receives his salary through the CitiBank, New Delhi branch)
- Income arising in India (A person on an H-1B visa living abroad for the past five years and has never visited India in that time receives a dividend from Infosys worth ₹800,000)
- Income arising abroad (A person on an H-1B visa living abroad receiving a salary from Amazon in New York).
An individual is considered a resident but not ordinarily resident (RNOR) in India if he/she:
- Has been a resident in India for less than 9 out of 10 previous financial years preceding the relevant financial year, or
- Has been in India for 729 days or less during the 7 previous financial years preceding the relevant financial year.
An individual who does not satisfy either of the two conditions above is considered a non-resident in India.
The RNOR category is a very broad class of individuals. The IRS defines it as “a nonresident alien who is not an employee and who is not engaged in a trade or business in the United States.”
Individuals who meet this definition have an obligation to file an income tax return if they are required to do so but also have special filing requirements. They also have fewer tax benefits than other taxpayers.
If you are an RNOR, you will not normally be eligible for any tax credits or deductions unless you are specifically mentioned in the Internal Revenue Code.