Income Tax: Resident but not ordinarily resident: Here is how your income will be taxed

Are you an Indian residing outside the country?

Do you qualify as Non- resident Indian (NRI) or Resident but Not Ordinarily Resident (RNOR)?

Why is this important?

One of the main sources of revenue for the government is income tax, which is then used to pay for public services, fulfill debt commitments, and offer products and services to citizens. And to calculate how much tax you have to pay, the foremost factor to identify is your residential status.

Today, our main focus rely on the taxes paid by the RNOR citizens. But before we move any further, it is essential to know who qualifies as an RNOR citizen?

Who is a resident but not ordinarily resident?

If a person stay in India for at least 365 days throughout the course of the four years prior to the current fiscal year and at least 60 days in that year, or stay in India for at least 182 days during the fiscal year, then the person is considered to be a resident.

If you meet one of the two requirements for a resident and also if you were an NRI in 9 out of the 10 financial years prior to the year OR if you were in India for a total of 729 days or less during the previous 7 financial years, you will be considered a resident but not ordinarily resident (RNOR) for the year.

How is the tax calculated?

RNOR citizens only have to pay taxes on the income they receive from India. On their international income, they are not required to pay any taxes in India. Also keep in mind that one may turn to the Double Taxation Avoidance Agreement (DTAA) that India would have joined into with the other country to prevent the prospect of paying taxes twice in a case of double taxation of income, when the same income is taxed in India and abroad.

For up to three financial years after returning to India, RONRs (Resident but Not Ordinary Residents) may maintain their RNOR status. All of your income, both inside and outside of India, will be subject to tax in India once you have attained the status of a resident, unless you are eligible for any exemptions under the DTAA between India and the nation where your overseas income originated.

Your ability to file your income tax in India will be aided by your RNOR Status (Resident but Not Ordinary Resident). It will be simple for someone to manage their international transactions in a tax-efficient manner if they meet the RNOR requirements. However, all income will be considered taxable if a person satisfies the qualifications to be considered an Indian resident.