When it comes to classifying people of Indian origin, the two main categories of resident and non-resident Indians are generally used. While this categorization works fine for differentiating citizens living in India and those residing in foreign locations, it does not prove to be much helpful while determining their taxation liabilities. This is because the tax implications for individual assesses depend on their current residential status with respect to India. So, even though the broad classification of resident and non-resident Indians still stands, people belonging to the former category are further divided into two sub-categories of “ordinary residents” and “resident but not an ordinary resident”. Read more to understand the taxation difference between NRI, RNOR and Resident Indian
Contents
Understanding The Different Categories NRI, RNOR, Resident Indian
Having learned about the various categorizations for the people of Indian origin, it is equally important to gain a deeper understanding of each category and the basis on which an individual is placed within a specific category. In general, the duration of stay of an individual forms the primary basis for them being placed in a specific category. The other important aspects of each category and the role they play in differentiating each category of citizens from those of other categories are discussed as follows.
NRIs (Non-Resident Indians)
An individual of Indian origin is categorized as a non-resident Indian when he or she spends less than 182 days of a financial year within the country. Individuals, who have spent less than 60 days in India or less than 365 days in the country during the 4 years preceding the relevant financial year, are also categorized as non-resident Indians. This rule is, however, not applicable to individuals working abroad while they are still on the payroll of an Indian company, irrespective of the duration of their foreign stay. It also includes the crew members of Indian ships or other such professionals, who spend considerable time abroad due to work commitments.
Ordinary Residents
Ordinary residents or simply resident Indians are those individuals of Indian origin who do not fulfill any of the above criteria and have spent at least 2 out of the 10 years immediately preceding the relevant financial year in India. In addition, people, who lived in India for a duration of 730 days or more during the 7 years immediately preceding the relevant financial years are also categorized as ordinary residents.
Resident but not an ordinary resident (RNOR) Residents
RNOR is the acronym for the resident but not an ordinary resident and is applicable to people of Indian origin choosing to return to India after spending several years abroad. NRIs, who have spent 9 out of the 10 previous years immediately preceding the current year outside India, can be categorized as RNOR. In addition, NRIs who have spent 729 days or less in India during the seven years immediately preceding the current year, also qualify for RNOR status. This category has been created especially to provide some benefits to NRIs opting to return to India.
Differences In Taxation Liabilities For NRI, RNOR, Resident Indian
As mentioned before, the primary reason behind the categorization of people of Indian origin is to facilitate the calculation of their taxation liabilities. In this context, the three categories differ in the following ways.
NRI Taxation Liabilities
All NRIs are exempted from paying taxes in India unless they earn an income from any source within the country. This might include rental income from properties owned in any part of the country, any capital gains from the sale of the property, as well as interest or dividend earned on financial investments within India. In such cases, the taxes will be charged at the prevalent rates and according to the provisions of the IT Act only for this Indian income.
Ordinary Resident Taxation Liabilities
The ordinary residents of India will be charged the taxes on their gross annual income as per the provisions of the IT Act. They are also eligible to claim the various deductions provided to them within the specific tax rate slabs as per their total income.
RNOR Taxation Liabilities
For all intents and purposes, people belonging to the RNOR category are treated at par with NRIs for up to a maximum period of three years from their date of return to India. After this time, they are liable to be subjected to the same taxation rules as ordinary residents for any income earned in the country.
The above details can help individuals of Indian origin better understand their residential status and file their taxes to avoid legal action.
Read our article on: 5 use cases of property management services in India for NRIs
Read our article on: Checklist for NRIs to invest in Indian Property
