10th Year Celebration - 'Let's Make A Plan' Offer for NRIs

All you want to know about RNOR Status

RNOR (Resident But Not Ordinarily Resident) is not very well know even in NRI circles. A few days back when I wrote a post about status of NRE FD after return to India – I got few emails & comments that they have not heard about this.

Surprisingly even bankers don’t provide this information to NRI returning to India after the long stay. This increase tax liability of NRIs which he would have saved legally.

So I thought to cover this in detail including RNOR India tax & also added a calculator.

rnor status

What is RNOR?

RNOR stands for Resident But Not Ordinarily Resident. It is a residential status given to certain people. Here are the conditions of determining whether a person is RNOR or not –

If the person is a resident Indian, he/she will be given the RNOR status if –

A resident Indian can be given an RNOR status if

  • He/She has NOT been a resident in at least 2 out of the last 10 years.

OR

  • He/She has been in India for a period of 729 days or less during the last 7 financial years

If the person is an NRI who has just returned to India, he/she will be given the RNOR status if –

  • If the NRI has been outside of India for 9 out of the last 10 years, he can be an RNOR for 1 year.
  • If the NRI has been in India for a period of 729 days or less during the last 7 financial years, he can be an RNOR for 3 years.

Let us make this simple with an example. Ms. Shweta left for the United States in 2001. She returned to India in June 30th, 2017. She will be considered as an RNOR for the financial year April 2017-March 2018.

What about 2018-2019?

She has been in India from June 30th, 2017 to March 31st 2019. That is a total of 639 days which is less than 729. Therefore she will be treated as an RNOR in the financial year 2018-19.

By March 31st, 2020, she would have been in India for 1005 days and therefore she will be treated as a resident Indian for the financial year 2019-2020.

This flowchart can help you to understand RNOR Status

rnor tax benefits

RNOR Calculator

I don’t think after this explanation any calculator is required but if you still want you can download this simple calculator.

RNOR Tax Benefits

The government gives certain benefits to returning NRIs by making them as RNOR for some time. From a taxation perspective, an RNOR will have a similar status as that of an NRI.

So the person who is an RNOR will have to pay tax only on income received or accrued in India. The income earned abroad will not be taxed. So not ordinarily resident Indian income tax can be sustantially lower

not ordinarily resident indian income tax

Read – NRI returning to India 

Why do NRIs get the RNOR Status?

This helps the NRIs to bring back their financial gains abroad without tax liability. The person with RNOR status does not have to pay tax on –

  • Interest on FCNR deposits and NRE deposits till their maturity. You cannot renew them.
  • Withdrawals from offshore retirement accounts
  • Rent received abroad
  • Capital gains made abroad
  • Interest or dividend received from investments in deposits and securities abroad

Once the NRI becomes a Resident Indian from an RNOR, all income whether earned in India or abroad is taxable unless concessions and exemptions granted under the Double Taxation Avoidance Agreement, if any, between India and the previously residing country, are applicable.

Check your residency status every year so that you are aware of it and pay tax and file returns appropriately

If your status gets converted to Resident Indian, inform the bank so that your bank accounts (NRE and NRO) are designated as resident bank accounts. Your investment accounts should also be converted to resident accounts. The deposit accounts in NRE and FCNR accounts can be continued till maturity, transferred to Resident Foreign currency accounts or closed down.

Any income received overseas becomes taxable based on Once your status changes to Resident, all your overseas income becomes taxable.

wiseNRI

Also, you have to intimate your bank about the changed residency status and convert the existing NRI specific accounts to resident rupee accounts.

How change in residential status impact investments

Common Questions asked on RNOR Status

Q.1 I was an NRI for the last 8 years and returned to India for good in October 2018. I have invested in a residential property in Hong Kong where I was residing earlier. I have rented it out and get rental income on it. Should I pay tax for it in India?

Ans. Since you have returned only in October 2018, you have stayed for less than two months in India which means you are an RNOR. The rental income will not be taxable in India for now.

Q.2 Anish went to United States to work in January 2018. For the financial year 2017-18, what status should he use to file the income tax returns?

Ans. Since Anish has stayed less than 182 days in US for the financial year – 2017-18, he should file the income tax returns as a Resident Indian for the financial year 2017-18.

Q.3 Do I have Indian citizenship when I have the status – not ordinarily resident Indian?

Ans. Yes, a person with RNOR status has an Indian passport and therefore is an Indian citizen.

Q.4 Can I get an RNOR status more than once?

Ans. You can get an RNOR status more than once provided you fulfill the conditions that give a person the RNOR status.

What is an RFC account?

An RFC account or Resident Foreign Currency account can be opened by a person who has the status – RNOR. Foreign funds can be brought to India in any currency you wish to and can be deposited in this account. NRE/NRO/FCNR savings accounts and fixed deposits can be converted to RFC accounts and RFC fixed deposits. Any interest that you earn in the RFC account while you have the RNOR status is tax-free in India.

It is useful as you need not to bear the effort and cost of currency conversion. It is easy to transfer these funds abroad if you move to a foreign location again.

I know RNOR is a complex topic – I have tried my best to simplify this. If you still have any questions on Resident but non ordinary resident Indian status – please add in the comment section. Please also share your experiences.

About the Author

Hemant Beniwal is a CERTIFIED FINANCIAL PLANNER and his Company Ark Primary Advisors Pvt Ltd is registered as an Investment Adviser with SEBI. Hemant is also a member of the Financial Planning Association, U.S.A and registered as a life planner with Kinder Institute of Life Planning, U.S.A. He started his Financial Planning Practice in 2009 & is among the first generation of financial planners in India. He also authored Bestseller book "Financial Life Planning".

  • RK says:

    I think the interest income on NRE deposits is taxable for a person claiming NROR status. It is only the FCNR interest which is tax free during the NROR status

    • Hemant Beniwal says:

      Hi RK,
      For an NRI, interest earned on NRE deposits is exempt from tax in India. So long as you continue to be an NRI or a resident but not ordinarily resident – the tax exemption will continue to apply for these deposits held by you. Interest income from FCNR is exempt for NRIs and RNOR
      Check this https://wisenri.com/nre-fd-after-return-to-india/

  • Shirish says:

    If a person returns back to India in Oct-18, he will be NRI in FY18-19 (less than 182 days stay in India). Does he have to inform the banks immediately or in April-19. If he informs the banks immediately, his NRE FDs will be converted to resident FDs and banks would start deducting TDS with immediate effect. Can he avoid TDS by banks in FY18-19?

    • Hemant Beniwal says:

      Hi Shirish,
      My understanding is if an NRI returns back to India permanently, he should inform the Bank “immediately upon return to India” and get the NRE FDs redesignated as resident FD. (there is no need to take premature withdrawal)
      RBI has not defined the term “immediately upon the return of the account holder to India” but it should be taken in its normal sense which can mean a few days or at the most a few weeks after returning to India.
      As far as taxability of the interest is concerned the tax exemption would continue only for the years that he was a “resident outside India” as per Foreign Exchange Management Act (Fema). For the FY 18-19, you are treated as NRI as your stay in India is for less than 182 days. Interest on NRE FDs would remain exempt for 18-19 financial year.
      Informing bank about your permanent return is not a criteria for your taxability, taxability arises according to your residential status.

  • Jagdish Kothari says:

    What about persons of Indian Origin having OCI card who have accepted foreign citizenship and desire to come and stay in India.

    • Hemant Beniwal says:

      Dear Jagdish,

      As an OCI when you return to India, you will automatically be RNOR. And you will not be liable to any taxes in India on your global income.

  • Yogesh Kanna says:

    HI Hemant,

    I can rate this a very good and rare article as no one else ever covered this topic. I have been in touch with my RMs from largest private banks of India, who are in regular touch with me for investments. I have queried them many a times about the same subject how our long time earnings from abroad and NRE deposits will be treated after I return to India. But never I received any info about RNOR or RFC. But above article is really self explanatory and will surely serve financial planning of those who return to India.

    I am regular reader of your articles since 2010, I suppose.

  • Arun says:

    Hi Hemant,

    Thank you for the insights. I claim RNOR status but my current foreign employer wants to retain me and continues to deposit salary during the period. I don’t resign but my employer gives the facility to work from India while the salary continues to be paid in foreign account.

    In this case, will this income be taxable ? Should I declare this ?

    Much appreciate your response.

    Regards,
    Arun

    • Hemant Beniwal says:

      Hi Arun,
      I will suggest you have a word with CA – DTAA.
      My understanding is if it’s not taxed in a foreign country – it will be taxed in India.

  • Roshan says:

    I am currently an NRE for past 20 years. Now I am planning to return to India permanently. Can I get RNOR status after my return to India?

  • Rao says:

    Hi Hemant,
    For some one who has been been in US from 2008 and planning to return June 2018, for year year April 2018 to March 2019 – RNOR, April 2019 to march 2020- RNOR and for April 2020 to March 2021 – Ordinary resident.
    But in the above section, it talks about one can be RNOR for 3 year. How is that possible

    • Anuj says:

      Hi Rao,

      If you see the RNOR flowchart above in the article, you will find after fulfilling basic conditions of resident if anyone unable to fulfill second condition then it will fall in RNOR. So if a NRI lives in india for 3 completed years, then second condition will get fulfilled and he becomes resident.
      In your case if you come in june 2018, then your 3yrs will complete in 2021-22 FY. You will remain RNOR till march 2021

  • Hari says:

    sir it’s about rnor status. bankers are asking the section number in the tax rules where it is mentioned about rnor status and its benefits.they are not ready to accept the fact instead they insist to convert accounts to resident and pay tax from that date even though you have rnor status. please help

    • anuj says:

      Hi Hari

      Section 6 of the Incometax Act deals with residential status and conditions of RNOR status fall in the same section.
      As per FEMA, if you permanently come to india, you are designated as resident from the first year and banks will redesignate your account.
      You can hold NRE and FCNR deposit till maturity but you can avail interest tax exemption on FCNR interest till you have RNOR status.

  • Abrahm says:

    Why fcnr deposits different from nre fd in rupees. As per rule both are repatriable .fcnr in designated currency nre fd in rupees but backed by a foreign currency.that’s why it’s repatriable. Correct me if I am wrong.so when you consider tax exemption for FCNR deposits under rnor it should be applicable to nre fd also. Need an expert opinion

    • Anuj says:

      Hi Abrahm,

      Yes you are right,as mentioned above in article, interest on FCNR deposit and NRE deposit is tax free if you hold it till maturity and your status is RNOR.But in such status you can’t renew them. So there is parity between two in terms of taxation of interest in RNOR status.

  • Rakesh says:

    If NRI rturn to india before completion of 5 years what woudbe status of NRE accounts .

    • Anuj says:

      Hi Rakesh,

      You can easily check your status with the help of chart given above. If your status is RNOR, you can enjoy tax-free interest on NRE FD. Status of NRE account changes once you become resident.

  • Madhu says:

    Dear Mr. Hemanth,
    Very nice articles on RNOR and RFC. The banks were not aware of RNOR status.
    I returned back for good on 1/10/2018 after staying abroad for more than 15 years. I understand that I will be RNOR. I will be converting my NRE & NRO Savings account to Resident accounts this month. I have a few NRE FD’s maturing next month. If I transfer the proceeds to the converted resident account on maturity do I have to file and pay tax on the interest component as per my tax slab. Please advise. I feel the bank will deduct TDS before crediting proceeds.
    Other suggestion was to transfer the proceeds to RFC account which will be tax exempted. But then there will be exchange rate convertion loss due to buying and selling in usd since I need the funds in rupees.
    Please advise.
    Thanks
    Madhu

  • Mahender says:

    I was living in india till 1st march 2015 and left for employment to dubai on 1st march 2015 and worked for a year. After that i joined in 2016 another company in dubai and worked till june 2018 and left due to ill health and continued living with my son as dependent who works in dubai.. I was in india during fy 2018 19 less than 182 days. Our whole family is living in dubai. What is my residential status for income tax return filing.

    • anuj says:

      Hi Mahendra,

      I think your residential status in FY18-19 is NRI as you are not in india in previous year 18-19 for 182 days or more or
      365days or more in 4 years immediately preceding the previous year 18-19 and at least 60 days in previous year 18-19

  • sanjay says:

    Dear Hemant, it is clear that the FDs may not attract TDS during the RNOR status. However, if this person is employed in India during these 2or3 years as RNOR, will he be liable for taxes for the amount earned via salary from the employer only. Or while filing returns will he have to mention the interest earned on the FDs and pay tax for it. My question is applicable, only for during the RNOR period.

    • Sunil says:

      Hi Sanjay,

      Income received or accrued in india is taxable even if you have RNOR status. If you are receiving salary for services rendered in india, your salary is taxable You have to mention FD interest while filing return and if TDS is deducted on your FDs, you can claim it in your return.

  • SP says:

    Hello There,

    I am an Australian citizen and currently live in India. Would I need to pay taxes if I am generating no income? Is there a limit to the number of days I can stay in India if I am not drawing in a salary from an entity within India?

    Thanks so much!
    Sp

    • rahul says:

      Hi SP,

      As you are a foreign national and earning no income in india, there is no question of tax in india. Staying in india depends upon your visa permits.

  • R.S.Sastry says:

    Very educative .I returned aug 2018 , after 18 yrs in Gulf. How do I clame my RNOR status

  • R.S.Sastry says:

    What is the benefit as RNOR a/c and for how many years the benefit is availed if I have returned in Aug 2018 after 18 yrs in Gulf

    • Rahul says:

      Hi R.S.

      You can avail benefits of RNOR for maximum 3yrs. In FY18-19,19-20, 20-21

  • Vijay says:

    I was a NRI for the last 21years. I have some NRE FD s. Recently I mean returned back to india in ladt June. In RNOR status Interest earned on NRE FD s taxable during RNOR status

  • jaweed says:

    For a returning NRI , with RNOR status, you have mentioned that interest on NRE FD is free of tax till deposit maturity. Is it true as I had been informed through all other sources that interest earned on NRE a FD in Indian Rupees is taxable from the day I return back to India irrespective of RNOR status

  • R. K. Shah says:

    In case of PIO having regular business in USA starts a back office in India and stays for more than 182 days in India, then upto which period he will be R N O R?
    Will interest earned on his funds in NRE/FCNR account will become taxable in India? Since he has also set up business in India, his status immediately becomes resident under FEMA?

    • Rohit says:

      Hi R.K.,

      As a NRI, you are running a back office in india and earning in india from that backoffice. Your income from such office is taxable in india even if you hav RNOR status. You can avail RNOR status upto 3 yrs. Only interest from FCNR deposit is exempt from tax till you are holding RNOR status.

  • Ashutosh Dave says:

    How does one get/claim RNOR status ie. what online or paper form should i fill to claim this status and where can i find them?

    • Rahul says:

      Hi Ashutosh,

      This is a residential status for income tax purpose.You can hold this status only while filing your income tax return

  • >