Residence in India - Are you an Non Resident Indian (NRI)?
Residence in India - Are you an Non Resident Indian (NRI)?
Residence in India - Are you an Non Resident Indian (NRI)?
For income tax purposes in India, an Individual can be a 'Resident Indian' or a 'Non Resident Indian.' Or the individual can also be a 'Resident but not Ordinary Resident (RNOR).' In this article, we take a look at who an RNOR is and why this special status is accorded.
It stands to reason that tax is levied on total income of assessee.
Under the provisions of Income-tax Act, 1961 the total income of each person is based upon his residential status. Section 6 of the act divides assessable persons in three different categories
- Ordinary Resident;
- Resident but Not Ordinarily Resident; and
- Non-Resident.
Residence in India - Resident But Not Ordinarily Resident
Resident But Not Ordinarily Resident is a status accorded to Indivuduals who have returned to India after spending a lot of time overseas
The RNOR is a special status accorded in order to provide some benefits to returning NRIs.
These exemptions will allow NRIs to bring back their foreign assets into India without the burden of heavy taxes. Once the person becomes a Resident Indian from the RNOR, all his foreign income will be taxable in India.
Residence In India - Are you a resident but not Ordinarily Resident?
If you have returned o India after a long period and are a resident in the current Previous year (stayed 182 days), you can check the following conditions to see if you belong to the class of RNOR
- You have to be a resident in only 1 out of 10 years before (not counting) the previous year in order to be a RNOR. AND
- You have been in India for less than 730 days during the 7 years before (not counting) the previous year.
If you satisfy these conditions, you can be a resident in India, yet be taxed like a Non resident, and enjoying the benefits available to Non residents. Let's discuss the benefits available to RNORs as against Resident Individuals.
Who are non Residents?
Non residents are those persons, whether or not Indian citizens, who don't fall under the classes of Resident Individuals and RNORs.
They are taxed in India only if they have earned any money in India. They are not taxed on the Income they have earned abroad.
In summary, RNORs and NRIs share some benefits as compared to Resident Individuals, lets discuss the tax treatment of these classes in brief.
Tax Treatment of RNOR and NRIS:
For Indian income tax purposes, an RNOR is treated at par with NRIs.
That means, like a non-resident, an RNOR needs to pay tax in India only on his Indian income. Any income from abroad will not be taxed in India. These include:
- Any interest or dividends from foreign securities
- Any capital gains from the sale of foreign assets including property
- Any withdrawals made from foreign retirement funds such as 401K plans for US based NRIs
- Interest on Foreign Currency Non Resident (FCNR) bank account held in India (until maturity)
- Interest on Resident Foreign Currency (RFC) account
These exemptions will allow NRIs to bring back their foreign assets into India without the burden of heavy taxes. Once the person becomes a Resident Indian from the RNOR, all his foreign income will be taxable in India.
(Note: There is one exception here. Income received and accrued (earned) outside India from a business controlled or set up in India is taxable in India, even for an RNOR)
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