RNOR Status: Tax Benefits and Financial Strategies for Returning NRIs
What is RNOR Status?
RNOR refers to a resident who is not a typical resident. It is a residential status granted to specific individuals. Here are the criteria for determining whether an individual is an RNOR or not:
If the individual is a recently-returned NRI, he or she will be granted RNOR status if –
If the NRI has been outside of India for 9 of the previous 10 years, he is eligible for RNOR status for one year.
OR
If the NRI has spent less than 729 days in India over the past 7 fiscal years, he can be an RNOR for 3 years.
Let’s clarify this with an example. In 2001, Ms. Yashasvi departed for the United States. On June 30, 2017, she returned to India. For the financial year April 2017-March 2018, she will be considered as an RNOR.
What about 2018–19?
From June 30th, 2017 until March 31st, 2019, she was in India. There were 639 total days, which is less than 729. As a result, she will be handled as an RNOR throughout the 2018–19 fiscal year.
She will have spent 1005 days in India by March 31st of 2020; as a result, she will be recognized as an Indian resident for the 2019–2020 fiscal year.
RNOR Tax Benefits
If you are a RESIDENT BUT NOT ORDINARILY RESIDENT (RNOR) and have just returned to India, you may maintain your RNOR status for up to three financial years after your return. It could be of great benefit to you because your taxation will closely resemble that of a Non-resident Indian, and therefore any income you earn outside of India (even after returning) will continue to be exempt from taxation in India. Therefore like an NRI –
- Any income ‘earned’ in India is subject to taxation in India
- Your income earned outside India is not subject to tax in India
And this status can be maintained for three years. However, once you have attained Resident status, all of your income within and outside India will be taxable in India, excluding any exemptions that may be available under the Double Taxation Avoidance Agreement (DTAA) between India and the country where your overseas income originated.
Why do NRIs receive the RNOR Status?
This allows Non-resident Indian to bring back their foreign financial gains tax-free. The individual with RNOR status is exempt from paying tax on –
- Interest accrued on FCNR and NRE deposits when converted to RFC.
- Withdrawals from offshore retirement accounts
- Rent remitted from abroad
- Capital profits earned abroad
- Interest or dividends earned on international investments in deposits and securities
Once the NRI becomes a Resident Indian from an RNOR, all income earned in India or abroad is taxable unless concessions and exemptions are granted under the Double Taxation Avoidance Agreement, if applicable, between India and the country in which the NRI previously resided.
Check your residency status annually so that you can appropriately pay taxes and file returns.
Inform the bank if your status changes to Resident Indian so that your bank accounts (NRE and NRO) are designated as resident bank accounts. You should also convert your investment accounts to resident accounts. The deposit accounts in NRE (but should be converted to resident) and FCNR can be maintained until maturity, converted to Resident Foreign Currency(RFC) accounts, or closed. In addition, you must inform your bank of your new residency status and convert any NRI-specific rupee accounts into resident rupee accounts.
What is an RFC account?
A person with the status of RNOR is eligible to establish an RFC account or Resident Foreign Currency account. You may bring foreign funds to India in any currency you choose and deposit them into this account.
NRE/NRO/FCNR fixed deposits and savings accounts can be converted to RFC accounts and RFC fixed deposits. Any interest you earn on your RFC account while you have RNOR status is exempt from taxation in India.
It is beneficial because it eliminates the effort and expense of currency conversion. If you relocate abroad again, it is uncomplicated to transmit these funds abroad.
