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Taxability Income for RNOR Citizens in India: Rules and Benefits
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If you are new to the RNOR status and just came back to India from a foreign country, then it is important to understand the RNOR income tax in India. The RNOR status can be maintained for up to 3 years in India. The Taxable income for RNOR citizens will be determined as per the status. Their foreign income is not taxable in India until they maintain their RNOR status. There are some other benefits also provided to them.
In this blog, we have comprehensively talked about the RNORs and their taxable income in India. We have also mentioned the benefits they can get. You will also learn about the income tax rules of RNORs. Knowing about the taxation as per your residential status is very important to reduce your overall tax liability.
Key Takeaways
- RNOR status can be maintained for up to 3 years after returning to India.
- The income earned by RNOR from foreign sources is not taxable in India.
- RNOR can get tax benefits from various income heads, such as rent from abroad, foreign capital gains, etc.
- Avail the DTAA benefits in case you have been taxed twice on the same income.
Understanding Resident But Not Ordinarily Resident
You need to follow at least one of the following criteria to be considered as a Resident but Not Ordinarily Resident in the given year:
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- If you have been an NRI (Non-Resident Indian) for a minimum of 9 years out of the 10 financial years preceding the present year, or
- If, during the 7 financial years just before the current year, you have stayed in India for a total duration of 729 days or less.
The tax implications on the RNORs are different from those of the residents of India, and they are also provided with some of the benefits or exemptions on the foreign income.
Tax Benefits of RNOR
If your status is RNOR and if your income comes from the sources given in this section, then you will be exempt from paying the RNOR income tax in India. Here are the income heads:
- Capital gains from abroad: Capital gains include the profits that are earned from the sale of assets, such as real estate, stocks, or any other investments. This applies only if you sell assets in foreign countries and make a profit on that.
- Rent from outside India: This includes the income coming from renting out in a foreign country. In short, it is the rental income that arises from renting an apartment/house abroad.
- Withdrawals made from offshore retirement accounts: If you are saving money for your retirement in an offshore account, then when you try to access those funds and make the withdrawals, they will be considered tax-free in India.
- Interest or Dividend earned from investing in securities and deposits: It includes the earnings that come from investments or from dividends, or interest payments as returns on the investments.
- Interest on FCNR deposits or NRE deposits, if converted into RFC: The deposits in the NRE accounts are denominated in Indian currency and the deposits in FCNR accounts are held in foreign currencies. If you convert your FCNR deposits into the RFC accounts, then you can still earn tax-free interest on all those deposits.
Also Want to Know About How to File ITR as an OCI on Indian Income? Check Now!Taxation Income of RNORs and NRIs
To understand the taxability of income for RNOR, we need to understand the difference between the taxation for individuals with NRI status and RNOR status in India. For NRIs, the taxes are applied to the income earned within India. If they earn income outside India, then it is not taxable in India.
For all the non-resident individuals who are working in a foreign country and providing services outside India, and their salary is credited in their NRE account with an Indian bank, then it will not be considered as a part of their taxable income. It does not matter that their salary is credited to their Indian bank account.
For all the RNORs who have returned to India recently, they can maintain their NOR status for up to 3 years after coming back to India. This can benefit them because their taxation will be similar to that of the NRIs. Similar to NRIs, any income that an RNOR earns from outside India will not be taxable in India:
- Income earned in India is considered taxable in India.
- Income earned outside India is considered non-taxable in India.
You can enjoy these benefits for 3 years after being an RNOR, because after being a resident Indian, both your income, Indian and foreign, will be taxable in India. However, you can avail the benefits under the Double Taxation Avoidance Agreement (DTAA). It can save you from getting taxed twice on the same income.
Also Want to Know About NRO Account Tax Implications in India Check Now!Income Tax Rules for RNOR
Below is the table that represents the RNOR Income Tax Rules:
| Particulars of Income | RNOR Taxability |
|---|---|
| Any income that is earned in India or in a foreign country but received or considered to be received in India. | Taxable |
| Any income that arises, accrues, or is considered to be acure/arise in India during the previous year, whether it is received in India or anywhere. | Taxable |
| Income coming from a business that is controlled by India, which arises/accrues outside India, and is also received outside India. | Taxable |
| Any other income coming from an overseas source that accrues/arises outside India and is also received in a foreign country during the previous year. | Non-Taxable |
| Any income that arises/accrues outside India and is received outside India in the years just before the current year, and is remitted to India during the previous year. | Non-Taxable |
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If you have returned to India after living for a long period in a foreign country, then you will be considered a Resident but Not Ordinarily Resident (RNOR). The taxation rules are also different for residents and RNORs, so it is important to understand them in detail. You need to have the NRI accounts in India to manage your income in India. You can have a better understanding of taxation with the help of experts.
The Visament experts can help you get the best advice on taxation and how to reduce your liability. They can also help you in opening your NRE and NRO bank accounts to manage the finances. We offer the best quality services on our platform at very affordable prices. Our agents are available 24/7 on the platform to help you with your queries. Get clarity on your residential status and stay updated with all the taxation rules with our experts.
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Frequently Asked Questions
No, RNORs do not have to declare their assets in Schedule FA of the Income Tax Returns same as resident Indians.
Once you have returned to India, you can maintain your RNOR status for up to 3 years, and you can avail the tax benefits on your foreign income or income earned/incurred outside India. This should be done in the years before the current year, and also, the income should have been remitted to India during the same year.
According to Section 9 of the Income Tax Act, any income that comes from the royalties received for the usage of the intellectual property rights in India is completely taxable for the RNOR.
The best benefit of having an RNOR status is the scope of the taxable income because it matches the taxability of Non-Residents. RNOR is given many exemptions on their foreign income, which is not similar to the RORs, as they are taxed on their global income in India.
The main difference between ROR and RNOR lies in the scope of their taxable income. For RORs, the foreign income is taxable in India, while for the RNORs, there are many exemptions on their foreign income.
Any revenue received from the transfer of an asset located in India is subject to taxation in the hands of an RNOR, according to Section 9 of the revenue Tax Act. Income from the sale of stocks, real estate, or any other capital asset situated in India may fall under this category.
