As the Income Tax Return (ITR) filing season approaches, it is crucial for individuals, especially those returning from abroad, to correctly determine their residential status. This status plays a significant role in deciding the scope of taxable income in India. One such transitional category that often causes confusion is the RNOR status, Resident but Not Ordinarily Resident.
In this article, we will explain who qualifies as an RNOR, the conditions and exceptions provided under the Income Tax Act, and the key benefits of holding RNOR status in India.
What is RNOR Status in India?
RNOR stands for Resident but Not Ordinarily Resident. It is a special residential status provided under the Indian Income Tax Act to individuals who are in a transition phase, typically NRIs returning to India. This status offers certain tax exemptions, especially on foreign income, for a limited period after returning to India.
An RNOR is treated as a resident for some purposes but continues to enjoy the benefits of being a non-resident when it comes to taxation on global income.
When Does a Person Become RNOR?
An individual is classified as an RNOR if they meet one or more of the basic conditions under Section 6(1) of the Income Tax Act but do not satisfy both of the additional conditions mentioned in Section 6(6).
Basic Conditions under Section 6(1):
An individual is considered a resident in India if:
- They are in India for 182 days or more during the relevant financial year, OR
- They are in India for 60 days or more during the financial year and have stayed in India for 365 days or more in the preceding four years.
Additional Conditions under Section 6(6):
To be considered as ordinarily resident, a person must:
- Have been a resident in at least 2 out of the last 10 previous years, and
- Have stayed in India for at least 730 days in the last 7 years.
If the individual does not meet both of these additional conditions, they are treated as RNOR.
Additional Exceptions: RNOR Classification Based on Indian Citizenship and Income
Besides the standard rules, the Income Tax Act provides two key exceptions where an individual may be deemed an RNOR based on Indian citizenship, Indian income, and international tax liabilities.
Exception 1: Visiting Indian Citizens or PIOs
A person will be considered as an RNOR if:
- They are Indian citizens or Persons of Indian Origin (PIOs),
- Their total income in India exceeds ₹15 lakhs during the financial year (excluding foreign income),
- They have come to India for a visit,
- Their stay in India is more than 120 days but less than 182 days, and
- They were in India for 365 days or more during 4 years immediately preceding years.
Exception 2: Indian Citizens Not Liable to Tax Abroad
A person will also be considered as an RNOR if:
- They are an Indian citizen,
- Their total income (excluding foreign income) exceeds ₹15 lakhs in the financial year, and
- They are not liable to pay tax in any other country or territory due to reasons such as domicile or residence.
- They are not resident within the parameters of section 6(1).
These exceptions were introduced to bring high-income earners with close Indian connections under the tax net without categorizing them as full residents immediately.
Duration of RNOR Status
A returning NRI can retain RNOR status for up to three financial years after their return to India. The exact duration depends on:
- The period of stay abroad,
- The number of days spent in India in the current and preceding years, and
- The residential status in prior years.
This three-year transitional window helps individuals adjust their financial affairs before becoming fully resident and ordinarily resident in India.
Key Benefits of RNOR Status in India
RNOR status comes with significant tax advantages, especially for those who still earn income from abroad or hold foreign assets. Here are the major benefits:
1. Exemption on Foreign Income
An RNOR is not required to pay tax in India on foreign income, such as:
- Interest from foreign bank accounts
- Dividends and capital gains from foreign investments
- Rental income from overseas properties
- Pensions or retirement income from foreign sources
Only income received or deemed to be received in India is taxable during the RNOR period.
2. No Tax on Foreign Assets
Income accruing from foreign assets is exempt from Indian taxation while holding RNOR status. This provides flexibility in managing foreign investments.
3. Continued Tax-Free Interest on NRE/FCNR Accounts
Interest earned on NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) accounts remains tax-free during the RNOR period. These accounts may be maintained for the duration of RNOR status without attracting Indian tax.
4. Exemption from Reporting Foreign Assets
Unlike ordinary residents, RNORs are not required to disclose foreign assets in Schedule FA of their Indian income tax return. This reduces compliance burden and avoids complex foreign asset reporting.
5. No Global Taxation
One of the biggest benefits of RNOR status is that global income is not taxed in India. This is a major relief for individuals who are still drawing income from other countries or holding foreign businesses.
6. Suitable for Retirement or Gradual Relocation
For NRIs planning to return to India permanently or gradually transition, the RNOR status provides a tax-efficient cushion during the initial years of resettlement.
RNOR Status vs Ordinary Resident: A Quick Comparison
| Feature | RNOR | Ordinary Resident |
| Tax on Global Income | Not taxable | Fully taxable in India |
| NRE/FCNR Interest | Exempt | Taxable |
| Foreign Asset Disclosure | Not required | Mandatory in ITR (Schedule FA) |
| Duration of Status | Up to 3 years (if conditions met) | Ongoing unless NRI again |
Why RNOR Status Matters
Understanding RNOR status is crucial for returning NRIs and individuals with international income sources. Misclassification can lead to wrong tax filings, penalties, or unnecessary tax liability. With the Income Tax Department using automated systems to detect discrepancies, it’s more important than ever to file your returns accurately.
Final Words
The RNOR status in India acts as a bridge between non-residency and full residency, providing valuable tax relief to individuals during this transitional phase. If you are returning to India or spending extended time here after staying abroad, it’s essential to evaluate your residential status under Sections 6(1) and 6(6) of the Income Tax Act.
By properly leveraging RNOR status, you can minimize tax liabilities, avoid unnecessary compliance burdens, and plan your finances more efficiently.
