Many NRIs who have spent considerable time working abroad, are very keen to shift to India to spend the later part of their life. When you are coming back to India, you need to understand the financial framework & tax laws, investment rules & regulations, governing bodies & many financial institutions. To smoothen the transition process, an intermediate tax status called RNOR Or Resident Non Ordinary Resident is applicable on all returning NRIs.
RNOR (Resident Not Ordinarily Resident) Status
An individual basis check of Resident (ROR) or Non-Resident (NR) or Resident But Not Ordinarily Resident (RNOR) is as follows:
- Cumulative stay in India is more than 182 days during a financial year.
- Cumulative stay in India is more than 60 days during a financial year and 365 days minimum during the previous 4 years.
Further, once an individual satisfies any of the basic conditions and is treated as Resident, is necessary to determine whether he is a “Resident and Ordinary Resident (‘ROR’)” or “ Resident but Not Ordinarily Resident (RNOR) ” in India .For this purpose, he is required to check if he satisfies any one of the additional conditions listed below:
- He has been a non-resident in India in 9 out of last 10 preceding previous years.
- He has been in India for a period of not more than 729 days in 7 preceding previous years.
- An Indian Citizen or a person of Indian origin whose total income (other than income from foreign sources) exceeds Rs. 1.5 million during the previous year and who has been in India for a period of 120 days or more but less than 182 days; (amended vide the Finance Act, 2020 and applicable from 1 April 2020)
- An Indian Citizen who is deemed to be resident in India as per new Section 6(1A) (discussed above) (amended vide the Finance Act, 2020 and applicable from 1 April 2020).
If he fulfills any of the above conditions, he will be considered to be RNOR. If he fails to satisfy all the above conditions, then he will be treated as ROR. Any individual returning to India can keep their RNOR status for a maximum of up to 3 years.
Whom does RNOR status apply
RNOR is an automatic transitional status, given to NRIs when they return to India. On return to India, he/she automatically came under it & they need not apply for it. This unique transitional status allows you to enjoy the tax benefits applicable to NRIs until you qualify for the resident individual status. But now the question arises here is that, does every NRI qualify as RNOR?
Its clear answer is ‘NO’. The condition implies that one should have spent 7 years abroad to comply with RNOR status on return. The law related to RNOR status suggests that NRI who have spent 7 years abroad, will get to be in this transitional status for at least 3 assessment years. It gives a handful of time to move your offshore assets to India without any handy tax burden.
Advantages of RNOR
An RNOR in India will continue to enjoy tax benefits like an NRI. They will be taxed only on income earned in India, unlike Indian residents who have to pay tax on global income. The following are among the global income that is non-taxable:
- Interest received on FCNR deposits.
- A capital gain from the sale of assets held abroad such as property.
- Income received from rented/mortgage properties abroad.
- Interest or dividends from foreign deposits and securities
- Any withdrawals from foreign retirement funds
However, it needs to be noted that income received and accrued outside India from a business controlled or set up in India is taxable in India even if you are an RNOR.
Broadly it shows that except for the salary, all other incomes are exempted from tax, and these exemptions will continue till the time he/she will qualify as Resident Individual. Under RNOR status an NRI not only maintains NRE/NRO/FCNR account but also maintains a very special account known as “RFC (Resident foreign currency account) account.”
RFC (Resident Foreign Currency Account) Account
RFC (Resident Foreign Currency) accounts can be opened by the RNORs. It is used to bring funds from abroad to India and hold it in any currency of one’s choice. It can be opened as a term or a savings deposit account and your existing NRE/NRO/FCNR accounts can also be converted to an RFC account.
Interest earned on an RFC account is not taxable as long as you enjoy the RNOR status. Also, any term deposit opened while you were an RNOR will continue to be tax-free till its maturity.
This status doesn’t limit itself to allow the benefit to NRIs only. Apart from NRIs, it is special for individuals who are in Merchant Navy & for Seafarers also.
RNOR Status For Merchant Navy
In case of a citizen of India and a member of the crew of a ship, the period or periods of stay in India shall, in respect of an eligible voyage shall be computed as follows:
- The number of days of stay in India for such a person shall not include the days – from the start date of the Continuous Discharge Certificate and ending on the end date of this document, as signed off on the Discharge certificate.
- Continuous Discharge Certificate must be as per the Merchant Shipping (Continuous Discharge Certificate-cum-seafarer’s Identity Document) Rules, 2001 made under the merchant shipping act, 1958
- This Continuous Discharge Certificate must be for a voyage, which originates from any port in India and has its destination at any port outside India OR which originates from any port outside India and has its destination at any port in India. [Notification No. 70/2015/ F.No.142 /12/2015-TPL].
The above rule is applicable from 1 April 2015. The rule is applicable for finding out the residential status of Indian citizens as crew on Indian ships starting from the financial year 2015-16.
Such crew is considered as Non-Resident Indian (NRI) for income tax purposes when they have spent less than 182 days in India. While calculating this stay of 182 days, the entire period mentioned in the Continuous Discharge Document shall be excluded even though the ship may have been on Indian coastal waters in its journey. Earlier, the number of days outside India was only calculated from the date the Indian ship left Indian coastal waters.
For sailing on foreign ships
Indian crew serving on foreign ships for 182 days or more are treated as non-resident in India, irrespective of where the ship trades (including Indian waters).
For sailing on Indian ships
A seafarer serving on Indian ships outside India for 182 days or more in a year is considered to be a non-resident. However, the time spent by a ship in Indian territorial waters is considered a period of service in India, according to tax rules framed in 1990. The number of days outside India of Indian crew working on such Indian ships gets counted only from the date when the Indian ship crosses the coastal boundaries of India.
Hope the article helps in understanding RNOR Status for returning NRIs.
Credit: The article is Researched by Kapil Kumar Shingari
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