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What is the difference between resident and ordinarily resident (ROR), and resident but not ordinarily resident (NOR)?

 — Name withheld on request

Under the Income tax (I-T) law, there are three types of residential status in India: Non-Resident India (NRI),  ROR, and NOR. The difference between the last two types is based on the taxability of income in India.

An individual qualifying as ROR is taxable on his worldwide income in India which includes:  income accruing or arising in India; income deemed to accrue or arise in India;   income received or deemed to be received in India; income accruing or arising outside India.

An ROR is required to report all foreign assets in the Income-tax Return (ITR). Also, the income earned from such foreign assets during the relevant year along with the nature of income and head of income under which such income has been offered to tax in the ITR needs to be reported in relation to each foreign asset.

An individual qualifying as NRI or NOR is taxable on the following incomes (India sourced incomes): income accruing or arising in India;  income deemed to accrue or arise in India; and income received or deemed to be received in India. Additionally, in case of NOR, income accruing or arising outside India derived from business controlled in or profession set up in India is taxable in India.

So, RORs are taxed on worldwide income in India and are required to report foreign assets in the ITR. For NORs,  tax is only on India-sourced income in the country. The residential status is based on the physical presence of an individual in India during a financial year, including work days and non-work days, and the preceding 10 financial years. Residential status is dynamic and needs fresh determination for each financial year.

Sonu Iyer is tax partner and people advisory services leader, EY India.

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