Resident but Not Ordinarily Resident

Indian income tax recognises three residential statuses, not two: resident and ordinarily resident, resident but not ordinarily resident, and non-resident.

The middle one exists because of a simple fairness problem. Somebody who has lived and earned abroad for a decade and then moves back to India should not, in the first year home, have a lifetime of foreign assets dragged into the Indian tax net. RNOR is the landing strip: the person is legally resident, files as a resident, and yet is taxed broadly like a non-resident on genuinely foreign income.

It is a status, not a concession one applies for. It is determined afresh for every financial year by counting days.

The test runs in two steps, in order.

Step 1 — is the person resident at all? Broadly, 182 days or more in India during the year; or 60 days in the year together with 365 days or more in the four preceding years. For an Indian citizen or person of Indian origin visiting India the 60-day test is relaxed — to 182 days where Indian income is up to Rs 15 lakh, and to 120 days where Indian income exceeds Rs 15 lakh and the 365-day condition is met.

Step 2 — if resident, is he not ordinarily resident? A resident individual is treated as Not Ordinarily Resident if he satisfies any one of:

1. he has been a non-resident in India in at least 9 out of the 10 immediately preceding years; or
2. he has been in India for 729 days or less during the 7 immediately preceding years; or
3. he became resident only by virtue of the deemed resident clause.

Fail all three and he is Resident and Ordinarily Resident.

The deemed resident rule under section 6(1A) catches an Indian citizen whose Indian income exceeds Rs 15 lakh and who is not liable to tax in any other country by reason of domicile or residence. Such a person is a resident whatever his days of stay — and the workbook is explicit that a deemed resident is always treated as Resident but Not-Ordinarily Resident, never as ROR.

What the status buys. An RNOR is taxed on income received or deemed received in India, on income accruing or deemed to accrue in India, and on foreign income only where it is derived from a business controlled from India or a profession set up in India. Any other foreign income — a US brokerage account, a UK bond, rent on a flat in Dubai — is simply not taxable in India.

                         ROR        RNOR       Non-resident
Received / deemed
received in India       Taxable    Taxable      Taxable

Accrues / deemed to
accrue in India         Taxable    Taxable      Taxable

Foreign income from a
business controlled
from India or a
profession set up
in India                Taxable    Taxable      NOT taxable

Any other foreign
income                  Taxable    NOT taxable  NOT taxable

The workbook's own case. Mr C, an Indian citizen, worked in London for years and returned to India in FY 2024-25. His stay in India:

Step 1: 298 days in FY 2024-25, so more than 182 — he is resident.

Step 2: over the 7 preceding years (2023-24 back to 2017-18) he spent 578 days in India, which is 729 or less. He was also a non-resident in nine of the ten preceding years. He satisfies both conditions and needs only one. He is Resident but Not Ordinarily Resident for FY 2024-25.

What that is worth in rupees. Suppose in FY 2024-25 he has an Indian salary of Rs 42,00,000 and a US brokerage account throwing off Rs 18,00,000 of interest and dividends, with no connection to any Indian business.

As RNOR   : taxed on Rs 42,00,000 only
As ROR    : taxed on Rs 60,00,000 (worldwide income)
Difference: Rs 18,00,000 x 30%  =  Rs 5,40,000 of tax, plus cess

And it expires. Follow the workbook's Mr Vilayati: RNOR for FY 2024-25 and FY 2025-26, but by FY 2026-27 he has been resident for two years running, so he is no longer non-resident in 9 of 10 preceding years and has crossed 730 days in the preceding 7. He becomes Resident and Ordinarily Resident, and from that year his foreign bond interest is taxable in India. The RNOR window is typically two to three years — and it is the window in which foreign assets should be restructured, not the year after.

Chapter 7 (Concepts in Taxation), sections 7.4.1 and 7.4.2 build the residential status tests, and section 7.5 (Scope of Income) with Table 7.1 sets out exactly which income is taxable for each of the three statuses. The chapter carries four worked day-count examples, two of which are used above. This is among the most reliably examined topics in Module 9: expect a day-count problem ending in "determine his residential status", and a follow-up asking whether a named foreign income is taxable. Chapter 7 then hands straight over to the Double Taxation Avoidance Agreement, because the moment an RNOR becomes an ROR, treaty relief is what stops the foreign income being taxed twice.

• Any ONE of the two conditions makes a resident not-ordinarily resident. Requiring both is the single most common error, and the workbook flags it in the Mr Vilayati answer.
• 729 days or less, over 7 years — not 730, and not 10 years. The 9-out-of-10 count is the other condition and uses a different window.
• RNOR is a resident. It is not the same as NRI or non-resident, and an RNOR files as a resident. "Resident" in the name is not decoration.
• A deemed resident under section 6(1A) is always RNOR. He can never be ordinarily resident on that route, however the day counts fall.
• Not all foreign income escapes. Foreign income from a business controlled from India or a profession set up in India is taxable for an RNOR — the exemption covers only the rest.
• Status is recomputed every year, and it turns on days and income rather than citizenship. An Indian passport does not make a person resident, and a foreign passport does not prevent it; RNOR is a transitional position that usually lasts two or three years.