RNOR Advisory — Returning NRI Tax Planning

Returning NRIs frequently ask whether their foreign income and foreign assets remain shielded from Indian tax in the years immediately after their return — the answer turns on the Resident but Not Ordinarily Resident (RNOR) status defined in Section 6(6) of the Income-tax Act, 1961.

An individual who is otherwise 'resident' in India for a financial year (under the day-count tests in Section 6(1)) qualifies as RNOR if either of two independent conditions is satisfied: the individual has been a non-resident in India in 9 out of the 10 financial years immediately preceding the relevant year, or the individual has been present in India for 729 days or less in aggregate during the 7 financial years immediately preceding the relevant year.

The practical effect of RNOR status is that the individual continues to be taxed largely like a non-resident: foreign income (income accruing or arising outside India) remains outside the scope of Indian tax unless it is derived from a business controlled from, or a profession set up in, India. Only India-sourced income and income received in India are taxable. This typically gives a returning NRI a window of one to three financial years, depending on their exact prior travel history, before their foreign income and assets come fully within the Indian tax net as an ordinarily resident.

Correctly computing the RNOR window requires a year-by-year reconstruction of the individual's physical presence in India across the preceding decade — errors here are common and consequential, since misclassifying a year as RNOR when it is not exposes undisclosed foreign income/assets to Black Money Act scrutiny.

Our engagement covers RNOR eligibility computation from travel history, return-to-India tax planning to maximise the RNOR window, and compliant filing through the transition to ordinarily resident status.

Resident but Not Ordinarily Resident (RNOR) advisory covers the special residency status under Section 6 of the Income-tax Act 1961 — the status that applies to the individual who has been a non-resident in nine of the ten previous years or has been in India for 729 days or less in the previous seven years, and which exempts the foreign income from the Indian taxation. The RNOR is the bridge status for the returning NRI: the individual is resident but not ordinarily resident, the Indian income is taxed and the foreign income is not, and the foreign assets are not reportable in the Schedule FA.

The RNOR status is the two-to-three year window the returning NRI gets before the full resident status applies, and its value is the freedom of the foreign income and the foreign assets from the Indian tax and the reporting. The status is decided by the tests of Section 6(1) and 6(6) — the days in India and the residency history — and it is lost automatically as the years pass. The planning is the use of the window while it lasts.

The cost of a mishandled RNOR is the foreign income and the assets pulled into the Indian tax: the status computed wrong and the foreign income taxed, the assets that should have been structured before the status changed, the years of the foreign income that the planning could have protected.

This service is for returning NRIs and the individuals with the RNOR status. We determine the status under Section 6, plan the foreign income and the asset positions for the RNOR window, structure the remittances and the investments, manage the returns and the Schedule FA positions, and plan the transition to the full residency as the status changes.