Shyamal Banerjee/Mint
Shyamal Banerjee/Mint

You may not be an NRI but may be an RNOR

For anyone returning to India, one can file taxes as a RNOR for a maximum of three years

Arjun came back to India on 15 September after spending at least 10 years in the US. He had gone to pursue his master of science (MS) and then stayed on to work on an H1 visa. Last year, when his father had to undergo a bypass surgery, he decided it was time for him to come back and take care of his parents.

While the decision to return to India may be an emotional one, it is important to keep in mind the financial implications of such a decision. Apart from lifestyle, it is the tax status which could impact earnings. In this case, what will be Arjun’s status for filing taxes in the year ending March 2013 or assessment year 2013-14? Will he need to file taxes as an ordinary resident, an non-resident Indian (NRI) or as something else all together?

He could file taxes as a resident if he satisfies at least one of two conditions and both additional conditions.

* He is in India during the financial year for a period of 182 days or more. Arjun has been here for 197 days.

* He is in India for a period of 60 days or more during the year and 365 days or more during four years immediately preceding the year in question. Arjun has been in India only for short periods of 10-15 days in some of the years since he left for the US. So he doesn’t satisfy this condition.

Once it is determined that the assessee is a resident, we need to determine whether he is “ordinarily resident" or “not ordinarily resident". For this, there are two additional conditions: the Act defines an individual who is “not ordinarily resident". A person is said to be “not ordinarily resident" in India in any previous year if such person is an individual who has been a non-resident in India in nine out of the 10 previous years preceding that year; or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, 729 days or less.

In our example, since Arjun has been a non-resident in all the 10 previous years and has not exceeded 729 days in the past seven years, he satisfies the condition of being resident but not ordinarily resident, or RNOR.

This is a status accorded to most returning NRIs. As an RNOR, Arjun needs to pay tax only on his Indian income. His global income like interest income or dividend income on investments or capital gains on assets outside India will not be taxed in India. The exclusions cover interest on foreign currency non-resident (FCNR) bank account held in India (until maturity) and interest on resident foreign currency (RFC) account.

The rationale behind this special status is to make the process of returning smoother for NRIs as they can bring back their foreign assets into India without the burden of heavy income tax or wealth tax on their foreign assets in India.

So how long can Arjun be a RNOR? He can file taxes as a RNOR till he satisfies both the additional conditions stated above. In the first two years—FY13 and FY14—Arjun will remain a non-resident in at least nine out of the past 10 previous years.

In 2014-15, Arjun would not be a non-resident for nine out of 10 previous years, and hence we need to check the second condition. Arjun has been in India for the entire FY14—365 days in FY14 and 197 days in FY13—making a total of 562 days. Since this is less than 729 days. he can continue to file taxes as an RNOR.

For FY16, he has been in India for the whole of 2013-14 and 2014-15, that is, 365x2 = 730 days; plus the 197 days in 2012-13 or a total of 927 days. He now has exceeded 729 days in the past seven years and has not been a non-resident in nine out of 10 previous years. Since both conditions are not satisfied to file taxes as RNOR, he has to file taxes as a resident and ordinarily resident or R&OR.

For anyone returning to India, one can file taxes as a RNOR for a maximum of three years. The date when you reach India will be critical to determine the first year that you are a resident.

Once you become R&OR, all your foreign (global) income will also be taxable in India subject to concessions and exemptions granted under the Double Taxation Avoidance Agreement, if any, between India and the country of your original residence.

What the smarter returning Indians do is to ensure that any transaction subject to income-tax in India on foreign assets and earnings is completed in the time before they become R&OR in India.

Lovaii Navlakhi is founder and CEO, International Money Matters Pvt. Ltd

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