One thing that NRIs are mostly unaware of is what happens to their NRI Status after returning back to India. How is this status affected and accessed? What are the various criteria that affect their NRI Status? Worry not! We will help you understand in the simplest way possible.
To start with, there are a few terms and definitions we need to understand: Non Resident Indian (NRI), Resident Indian and the most important term here will be Resident but Not Ordinarily Resident (RNOR).
So what is the exact definition of these terms, let’s glance through:
Non Resident Indian (NRI): Indian Citizens who have gone out or are staying abroad for the purpose of employment, business or vocation (occupation for which an individual is trained) or for some other purpose with an intention to stay outside India for an uncertain period are also termed as NRIs. [definition as per Foreign Exchange Management Act (FEMA)]
An NRI or Non Resident Indian is an Indian Citizen living outside India for a minimum of 183 days in 1 financial year (definition as per Income Tax Act)
Resident Indian: A Resident Indian is an Indian Citizen living in India for a minimum of 182 days in 1 financial year
Resident But Not Ordinarily Resident (RNOR): A RNOR status is given to the Indian Residents. There are certain criteria that defines this status, which are:
- If the Individual has NOT been a resident in at least 2 out of the last 10 years
- If the Individual has been in India for a period of 729 days or less during the last 7 years
Now, we know the criteria of being an RNOR. But, if an NRI returns to India, for how long will he/she be able to hold the RNOR status?
Again, there are certain criteria to define that period, which are:
- If the NRI has been outside of India for 9 out of last 10 years, he/she can be an RNOR for 1 year
- If the NRI has been in India for 729 days or less in the last 7 financial years, he/she can be an RNOR for 3 years
We tried to understand the various definitions that helped us to associate with the question “How long can NRIs retain their NRI status after returning to India?”
Let us make this entire scenario of residential status clearer for you with the help of a flowchart:
With the help of the article, we hope it’s clear what are the basic definitions associated with the conditions when an NRI returns to India and for how long can they hold the RNOR status. Now, we know about RNOR status but is it similar to the NRI Status? Let’s Find Out:
Is RNOR the same as the NRI Status?
When we look at these terms from the perspective of taxation, then YES! Both NRI and RNOR are the same. Now, another doubt can arise in the minds of the RNORs, “What are the benefits of having this status?”. Well, the similarity in the statuses also bring similarity in terms of benefits. Let us understand how:
What are the benefits of RNOR?
The benefit associated with being an RNOR is gifted in terms of taxation. For RNORs, the income that is generated outside India is not taxable in India. Taxes are only paid on the income generated in India.
Along with that there are other benefits that can help RNORs save taxes in India, which are:
- They don’t have to pay taxes on the interest earned on Foreign Currency Non Resident (FCNR ) and Non Resident External (NRE) Deposits after converting them into Resident Foreign Currency (RFC) Accounts
- No taxes paid on withdrawals from offshore retirement accounts
- No taxes on rent and capital gains from abroad
- No taxes on interest on dividends received from investments done abroad
Once, the individual becomes a resident of India, all their incomes are taxable irrespective of whether it is generated in India or abroad. However, double taxes can be avoided if the DTAA (Double Tax Avoidance Agreement) is signed between India and the country from where the income is generated.
Moreover, while conducting transactions in India or applying for services, you must know the difference between residential statuses, such as PIO vs OCI Cardholders, NRIs, etc.
Therefore, it is suggested by SBNRI to calculate your residential status for the financial year before filing your taxes.
You can also get Tax Advisory at SBNRI from experts. Contact us using the button below.