RNOR: The middle ground between NRI and resident status

India’s tax residency rules make a key distinction between residents and non-residents. However, there is also an intermediate category: Resident but Not Ordinarily Resident (RNOR). This transitional tax status is especially relevant for returning NRIs or expatriates who are moving back to India after extended stays abroad.

Here’s what you need to know about the RNOR status—its eligibility, tax benefits, and key compliance considerations.

To be classified as RNOR in a financial year, an individual must first qualify as a resident under section 6 of the Income-tax Act, 1961. That means they must have spent at least 182 days in India during the relevant financial year, or at least 60 days in that year and 365 days over the preceding four years.

Once that threshold is met, the RNOR status applies if either of the following is true:

• The individual has been a non-resident in India for 9 out of the 10 preceding years; or
• The individual has spent 729 days or less in India in the last 7 years.

In practice, most returning NRIs and expatriates qualify for RNOR status for 1–2 years after moving back.

Unlike a full resident, an RNOR is not taxed on their global income. Only income that is:

• Earned or received in India; or
• Derived from a business controlled from India is taxable.

Foreign income that accrues and is received outside India is not taxed for RNORs. This distinguishes RNORs from residents, who are taxed on worldwide income, and NRIs, who are taxed only on income sourced from India. It is important to note that OCI (Overseas Citizen of India) is a citizenship category, not a tax status, and does not influence income tax classification.

RNOR status offers returning individuals a window of tax relief. Key benefits include:

• No tax on foreign income that is not received in India
• No requirement to report foreign assets or bank accounts (in most cases)
• Eligibility to claim tax relief under India’s Double Taxation Avoidance Agreements (DTAAs)
• Exemption from wealth disclosures under the Black Money Act, if global income is not taxable in India

Example: A returning NRI with investments in US stocks does not pay tax on capital gains from those assets during the RNOR period, unless those gains are remitted to India.

RNOR is a self-declared status determined while filing the income-tax return. The individual must compute their residential status as per the Act and select the appropriate classification.

Key documentation includes:

• Copies of passports for the last 10 years
• Detailed travel logs (if needed by tax authorities)
• Supporting documents in case of dual residency claims

If an RNOR earns a pension, rent or dividend income abroad and does not remit it to India, such income is generally not taxable. However, if that income is received in an Indian bank account, it becomes taxable in India.

DTAAs play a critical role here. RNORs can use Form 67 to claim foreign tax credits on income already taxed abroad, thereby avoiding double taxation.

While there is no separate return for RNORs, the correct residential status must be declared in the ITR. Depending on the sources of income, ITR-2 or ITR-3 may apply.
RNORs must:

• Accurately disclose their residency
• Report Indian income in full
• Use Form 67 to claim foreign tax relief, if applicable
• Determine whether Schedule FA (foreign assets) is applicable

In most cases, if the foreign income is not taxable in India, Schedule FA may not be required.

A software engineer returning from the UK after 12 years of employment continued to receive a UK pension and capital gains from equity investments abroad. During her RNOR window, she saved over ₹9 lakh in taxes, as her UK income was not taxed in India and she avoided additional compliance under the Black Money Act.

While RNOR status offers relief, misreporting can attract penalties. Common pitfalls include:

• Incorrect calculation of days of stay
• Failure to update residential status after the RNOR window ends
• Assuming foreign income is always exempt (remittances to India may change taxability)

The individual must re-evaluate their residential status each year.

RNOR status provides a limited but useful opportunity to restructure finances:

• Exit foreign investments tax-free in India
• Repatriate funds over time without immediate tax consequences
• Plan long-term moves while limiting Indian tax exposure on overseas income

There have been no major recent amendments affecting RNOR rules, but with greater global scrutiny on offshore assets, taxpayers should stay alert to future changes.

The Resident but Not Ordinarily Resident (RNOR) status offers valuable tax relief for returning NRIs and expatriates. It allows global income to remain outside the Indian tax net for a limited period—typically one to two years. But while the benefits are significant, so are the risks of misclassification or non-compliance. Many taxpayers lose out on benefits—or worse, attract penalties—due to avoidable errors.

Here are 10 common RNOR mistakes you should be careful to avoid:

1. Assuming RNOR status applies automatically

Just because you are returning from abroad doesn’t mean you’re RNOR by default. RNOR status must be evaluated and declared each financial year based on the precise residency conditions under Section 6 of the Income-tax Act.

2. Miscounting days of stay in India

A single miscalculation can change your status from RNOR to “resident and ordinarily resident” (ROR), leading to global taxation. Always maintain accurate travel logs and passport copies to determine the number of days spent in India in the relevant and preceding years.

3. Failing to re-evaluate status annually

RNOR is not a permanent category. You must re-assess your residential status each financial year. Continuing to treat yourself as RNOR after you no longer qualify can lead to tax notices and back-dated demands.

4. Receiving foreign income in Indian accounts

Even if income is earned abroad, if it is received directly into an Indian bank account, it becomes taxable in India—even during the RNOR period. Ensure such receipts remain abroad if you want to preserve tax exemption.

5. Ignoring DTAA filing requirements

If your foreign income is taxed abroad and also taxable in India (e.g., due to remittance), you must claim relief under the Double Taxation Avoidance Agreement (DTAA) using Form 67—filed before the due date of your tax return.

6. Skipping Schedule FA or Black Money Act disclosures

Although RNORs are often exempt from disclosing foreign assets, this depends on specific facts. In some cases, disclosure in Schedule FA or under the Black Money Act may still be required. Don’t assume exemption—get it evaluated.

7. Not informing your CA or tax preparer

If your CA assumes you’re a regular resident, they may file your ITR accordingly—taxing your global income and reporting foreign assets unnecessarily. Communicate clearly that you are RNOR and provide relevant proof.

8. Incorrectly classifying capital gains from foreign assets

Some RNORs sell foreign shares or real estate during this window but fail to understand how the place of receipt affects taxability. For example, if sale proceeds are credited to an Indian account, capital gains may become taxable.

9. Delaying tax return filings

If you plan to claim DTAA relief or foreign tax credits, the return must be filed within the original deadline (usually 31 July for individuals). Filing late can disqualify you from these benefits.

10. Poor financial planning during RNOR window

The RNOR period is a tax-planning opportunity—but many individuals fail to capitalise on it. Strategic sale of assets, staggered remittances, and restructuring of offshore holdings should be actively considered during this time.