Everything You Need to Know About RNOR

An RNOR status has many benefits in India, which help you to manage your financial operations and allow you get learn about more tax implications, income rules, and managing foreign assets in India. 

The RNOR don't have to pay any tax on their foreign income if it is not received in India and not arising from any business which is located in India, but Indian residents have to pay all the tax on the income they earn in India or accrued from outside India. 

You can get an RNOR status in India based on the days that you have spent in India after becoming a resident under section 6(6). First, it is through being a Non-resident Indian for 9 out of 10 last financial years, and second, it is through staying in India for 729 days or less in the last 7 financial years in India. 

In this blog, we will go to see everything you want to know about a Resident But Not Ordinarily Resident (RNOR), and help you understand all the tax benefits. 

What is an RNOR Status? 

An RNOR (Resident But Not Ordinarily Resident), which is like a bridge between the NRIs and resident status, is for helping the NRIs return to India. 

An RNOR is a tax category which is specified under the Income Tax Act, 1961. You will get this RNOR status for about 3-4 years after returning to India. It offers numerous advantages to individuals returning to India, providing a transitional period to facilitate adjustment after relocating from a foreign country. 

Difference Between an RNOR and a Resident status 

Here, we will examine the major differences between a resident not ordinarily resident and an Indian resident. 

The regular Indian residents have to pay taxes on their income, which they earn globally, but RNORs do not need to pay taxes on their foreign income. They only have to pay the tax on the income that they earn in India. 

As RNORs, they do not need to pay tax on the income they earn outside India, but if they have a business or company set up in India and which is generating a profitable income, then they need to pay tax on the income during the financial year. 

As an RNOR, the salary that you will get in your RNOR account will be exempt from Indian taxation, but once you get the Indian resident status, you will be taxed on your global income.

However, you can get the benefit of the Double Taxation Avoidance Agreement (DTAA), which can help you to prevent paying tax on the same income.

Also Want to Know About Taxation on Indian Rental Income for NRIs Check Now!

Eligibility Rules for RNOR

Here are some of the eligibility conditions given below for the RNOR qualification under the Income Tax Act. 

The 9 out of 10 years Rule 

If a non-resident Indian has lived in India for 9 out of the last 10 financial years before the assessment year, then they will be eligible for getting the RNOR status in India.

The 729 Days Rule 

If the number of days you have stayed in India is less than 729 days in the last 7 financial years, then you are eligible to get the RNOR status in India. 

Major Changes Made in the RNOR Criteria

 According to the recent Finance Act 2020, there are some major changes which were proposed that we are going to see below: 

• Your Indian source Income should be more the INR 15 lakh apart from all the foreign income sources. 
• The number of days in India should be not less than 120 days or more than 182 days in India during a financial year. 
• You must have spent more than 365 days in the last 4 financial years in India. 

An RNOR get the status for about 3-4 years after returning to India. In between these years, you can easily manage your finances in India, and you will get enough time to know all the tax implications and manage your foreign assets and investments in India.

However, your RNOR status duration is determined through your NRI tenure. If you have returned to India in just 5 years, then you will get the Indian resident instantly, and if you return to India after 15-20 years, then you will be an RNOR for about 3 financial years.

What You Should Do When Returning to India

If you are planning your return to India, then you need to manage your investments and get all the tax benefits of an RNOR status in India. However, in all this, your arrival timing is most crucial, which will help you to get the maximum benefits of the RNOR status. 

RNOR Transition Timeline 

If you return to India, your RNOR status duration will be determined by the return date. If you return to India before 31 December, then you will be qualified for the RNOR status only for 1 financial year. 

If you return to India after March 31, then you will get RNOR benefits for 2 years. 

The RNOR status timeline can have a major impact, providing you with the maximum benefits. 

What are the Required Documents for Getting RNOR Status

Here are some of the documents that you will need when you return to India and change your residency status: 

• You need to submit a formal declaration of status change. 
• A document for the proof of return to India. 
• The conversion of the NRI account to resident accounts. 

You need to inform your banks about your returns. If you fail to do so, then you can face a penalty for violating the Foreign Exchange Management Act (FEMA) regulations. 

After returning to India, you need to close your Portfolio Investment Services (PIS) and set up your regular demat account in Indian for the stock investments. Additionally, you also need to notify your bank about your residency changes, and you must follow all the rules and regulations of Indian laws while managing your foreign investments and assets. 

Remember that your FCNR deposit is exempt from tax during your RNOR period. This will help you manage your finances in India easily. 

Also Want to Know About Taxability Income for RNOR Citizens in India Check Now!

Managing Global Income as RNOR 

To manage your global income, you need to manage all your foreign investments and assets and banking arrangements in India. 

Here are some of the global income management which are essential for an RNOR. 

Foreign Income Rules for RNOR

Here are some of the foreign income rules for the Resident but Not Ordinarily Resident (RNOR), in which major of the foreign income sources are tax-free in India. 

However, if they have any business or company set up in India and are controlled from India, then the income you get will be taxable in India. 

Here are some of the tax benefits of foreign income rules were given below: 

• If you get any rental income from any foreign country. 
• You will get the tax benefit for the foreign dividends and interest payments. 
• If you withdraw from your foreign bank retirement accounts. 
• Capital gains from foreign assets. 
• On the interest that you get on your FCNR deposits and RFC account. 

Investments Management 

As an RNOR, you need to manage your foreign investments and assets while returning to India. Through the Reserve Bank of India, you can able to manage your foreign investments. The regular Indian residents have more restrictions compared to the RNORs on keeping foreign investments. 

Banking Management 

When you return to India and get the RNOR status, then you need to report your residency status change to your bank when you become a resident of Indian under the Foreign Exchange Management Act (FEMA) regulations. 

The salary that you will get in your NRE accounts is not taxable in Indian, and you will need to open a regular demat savings account to manage your Indian investments. 

In the place of an RFC account, you can use an FCNR account deposit, which allows you to get the tax benefits. 

Note: If you get the Indian resident status, then your global income becomes taxable in India. However, you can prevent paying tax on the same income in both countries through the help of the Double Taxation Avoidance Agreement (DTAA). 

RNOR Income Tax Benefits 

If an individual's NRI status changes to the RNOR status, then they will get some of the major benefits under the Income Tax Act that will help them manage their global finances. 

Tax-Free Foreign Income

As an RNOR, you don't have to pay the income tax on your foreign income sources. It means that the income you will earn outside India. It includes any rental income from your foreign property, dividends and interest from the foreign investments, capital gains from foreign assets, and withdrawals from your foreign retirement accounts, which also depends on the country, pension structure and DTAA provisions. 

You don't have to pay the tax on your foreign income sources, and you will get the tax exemption as long as you get income from foreign sources, even if the salary which is credited into your NRE accounts is also tax-exempt. 

Special Rules for Indian Income for RNORs

Here are some of the special rules for the Indian income which is earned by an RNOR. 

• If you are getting Indian income, then you have to file Income tax returns and pay the required taxes. 
• You need to pay tax on the interest from your NRO accounts, or the business or company which you have set up in India. 

The taxation rules are very different compared to the foreign income. If you are getting an Indian income the you need to be careful about your NRE account tax treatments, and when you get the Indian resident status, all your interest will be taxable in India. The FCNR deposits stay tax-free until maturity. 

RNOR Status Common Mistakes

If you are managing your RNOR status, then it needs proper calculations and documentation, as most of the Indians who are returning to India find it challenging and make some common mistakes, so we are going to see this below, so you should avoid doing it. 

Calculating Wrong Stay Period

One of the most common challenges for the returning NRIs is that they are unable to calculate their stay period in India, which is the most crucial step for knowing their residency status. 

If you miscount the number of days spent in India, then your status can be at risk. You need to make sure that your number of days spent in India is less than 729 days in the last 7 financial years, and you must be a non-resident Indian for 9 out of 10 years.

 Incorrect Documentation

To maintain your RNOR status properly, you need to submit all the required documents, which are given below. 

• Your travel records, which provide your physical appearance. 
• For the proof of Income sources, you need to provide your bank statements.
• NRE to RFC account conversion papers. 
• Tax residency certificates from foreign countries. 

Make sure you have submitted all the documents accordingly. If you failed to provide all the documents, then your RNOR status can be at risk, and you will face tax liabilities or penalties. 

Income Sources Misunderstanding

Most of the returning NRIs do not know the Income sources, which can create a lot of confusion. You need to know that as an RNOR, your foreign income is tax-free in India. IF you are generating an Income outside India, then you don't need to pay tax on the Income. 

However, if you have a business set-up in India, and it is controlled in India, then you have to pay the required tax on the income that you earn through your business. 

Final Thoughts 

As an ROR, you get the maximum tax benefits, which means you don't have to pay tax on your foreign income or the income that you get from your foreign investments and assets. You can enjoy these tax benefits for about 2-3 financial years. After that, you will get the Indian resident status, and all your income, including Indian income and global income, will be taxable in India. 

However, as an RNOR, you need to manage your finances and which can be challenging for you to do alone. So you can take help from the Visament website, which helps the returning Indians with all the tax planning and provides all the correct documents so that you can get the maximum RNOR tax benefits. 

For more information, you can visit the Visament website and talk to our expert agents who are available 24/7 to help you clear all your queries and doubts.