How to Maximise Your Tax Benefits as an RNOR?

So you've decided to return to India after years abroad? Welcome home! But before you fully settle in, there's a golden tax opportunity you shouldn't miss. Understanding your RNOR status is crucial for tax planning when returning to India, and it could save you lakhs in taxes if handled correctly.

Many returning NRIs lose out on valuable tax benefits simply because they are not aware of how RNOR status works. It’s complicated but a valuable perk available for NRIs during the transition back to India. In this guide, we have simplified everything that you need to know about the  RNOR status and how to use this limited-time window to your financial advantage.

Understanding RNOR: What, Why, and Who Qualifies

Who is an RNOR?

RNOR stands for Resident but Not Ordinarily Resident in India. Think of it as a tax "middle ground" created specifically for people like you – NRIs returning to India after living abroad. It's essentially a transitional status that bridges the gap between being a Non-Resident Indian (NRI) and becoming a full tax resident of India.

It’s a special tax status that allows you to enjoy some of the tax benefits you had as an NRI, while you live in India. It's the government's way of easing your transition back home.

Note: It’s a residency based tax status and also applicable to Overseas Citizens of India (OCI) and Person of Indian Origin (POI).

Why RNOR Status Matters for Returning NRIs

Why should you care about this status? Simple: money. The RNOR category offers significant tax advantages for returning NRIs, particularly regarding your foreign income.

Let me put it plainly: during your RNOR status, your foreign-sourced income remains exempt from Indian taxation. This includes your foreign salary, rental income from overseas properties, interest from foreign bank accounts, and international investment gains. For someone returning with substantial foreign assets or income streams, this can translate to significant tax savings.

Tip: This could also be the time period to move back your savings and assets without paying any taxes in India. Talk to a qualified cross-border tax advisor at Turtle to learn more about this.

RNOR vs NRI vs Ordinary Resident: Key Differences

To understand the value of RNOR status, let's compare the three residency categories:

Category	Foreign Income Taxability	Indian Income Taxability
NRI	Not taxable in India	Only Indian-sourced income taxable
RNOR	Not taxable in India	Only Indian-sourced income taxable
Ordinary Resident	All global income taxable in India	All Indian income taxable

As you can see, RNOR gives you the best of both worlds – you can live in India while maintaining the tax benefits of an NRI on your foreign income.

Who Qualifies for RNOR Status?

The RNOR tax rules specify two main criteria for qualification. You need to meet either one of these:

1. You've been an NRI for 9 out of the 10 previous financial years before returning to India.

2. Your physical presence in India has been less than 729 days (roughly 2 years) during the 7 years preceding your return.

For example, if you've been working in the US for the past decade and are now returning, you'll likely qualify under the first criterion. If you've been frequently visiting India but staying primarily abroad, the second criterion might apply to you.

Updated Criteria Post-Finance Act 2020

The Finance Act 2020 introduced some significant changes to the RNOR tax rules that you should be aware of:

1. A new income threshold of ₹15 lakhs for Indian-source income has been introduced.

2. For individuals with Indian income exceeding ₹15 lakhs, the stay duration to trigger residency has been modified to 120 days (instead of 182 days).

3. There are new deemed residency provisions that might affect high-income individuals.

These changes primarily impact those with substantial Indian income. If your Indian income is below ₹15 lakhs, the traditional rules still apply.

Duration and Timeline: How Long Can You Stay RNOR?

Your RNOR status typically lasts for 2 years but if planned well can be stretched to 3 years after returning to India, giving you a reasonable timeframe to reorganize your finances and plan for the eventual transition to full resident status. This is your tax-saving window, and timing it right is crucial.

Tax Benefits of RNOR: Income, Assets, and Investments

Exemptions Under RNOR: What's Not Taxed

The most significant advantage of RNOR status is the extensive exemptions on foreign-sourced income. Here's what remains tax-free during your RNOR period:

Foreign Salary, Capital Gains, Dividends, and Interest

If you're working remotely for an employer based out of India or receiving deferred income from your time abroad, that income remains tax-free in India during your RNOR period. The same applies to dividends from foreign stocks, interest from overseas accounts, and capital gains from foreign assets.

For example, if you sell shares of a US company while holding RNOR status, the capital gains would not be taxable in India (though they may still be taxable in the US).

Offshore Rental Income and Remittances

Own property outside India? Good news! Rental income from your foreign properties remains tax-exempt during your RNOR period.

Additionally, any money you transfer to India from your foreign accounts is not taxable as it's considered a remittance, not income. This allows you to bring your foreign savings to India without tax implications.

Tip: Consult a banking and compliance expert to understand the relevant declarations and disclosures that you need to make for your foreign assets after moving back to India.

What's Still Taxable in India

While foreign-sourced income is exempt, it's important to understand that as an RNOR, you're still liable for tax on all income earned or accrued in India:

• Salary from an Indian employer

• Rental income from Indian properties

• Interest from Indian bank accounts (including NRO accounts)

• Capital gains from Indian investments

• Business income earned in India

For example, while interest from an NRE account is taxable for ordinary residents, RNORs enjoy the same exemption as NRIs on this interest income.

RNOR vs Ordinary Resident: Illustrative Tax Comparison

To understand the financial impact, let's compare the tax liability for an RNOR versus an Ordinary Resident with the same income sources:

Income Source	Amount (₹)	RNOR Tax	Ordinary Resident Tax
Indian Salary	15,00,000	2,25,000	2,25,000
Foreign Rental Income	10,00,000	0	3,00,000
Foreign Investment Income	5,00,000	0	1,50,000
Total Tax Liability		2,25,000	6,75,000

As you can see, the RNOR in this example saves ₹4,50,000 in taxes annually – a significant amount that could be reinvested or used to establish your new life in India.

Use of DTAA During RNOR Period

Even during your RNOR period, you can leverage Double Tax Avoidance Agreements (DTAAs) that India has with various countries to optimize your tax position further.

For instance, if you have income that's taxable in both India and another country (like rental income from an Indian property while you were an NRI), the DTAA can prevent double taxation by allowing you to claim credit (during filing) for taxes paid in one country against the tax liability in the other.

Strategic Use of NRE, FCNR Deposits and Offshore Investments

During your RNOR period, you can continue to maintain and benefit from:

NRE and FCNR Deposits

Non-Resident External (NRE) and Foreign Currency Non-Resident (FCNR) accounts can be maintained during your RNOR period, and the interest earned remains tax-free in India. This is a significant advantage compared to ordinary residents, for whom interest from the NRE account is taxable.

Offshore Portfolio Income

Any income from your international investment portfolio remains outside the Indian tax net during your RNOR period. This gives you time to strategically restructure your investments if needed.

Repatriate Funds Tax-Free

Since foreign income you bring to India during your RNOR status isn't taxed here, it's a good time to move those funds without Indian tax implications.

Compliance Essentials: Documents and Disclosures

To fully benefit from RNOR status, a few key documents and disclosures are non-negotiable.

Key Documents:

• PAN: Mandatory for all financial and tax activity in India.

• TRC (Tax Residency Certificate): Needed to claim DTAA benefits.

• Form 10F: Use it if your TRC lacks required details.

Foreign Account Declarations:

• File FATCA/CRS if holding foreign bank or investment accounts.

• Disclosure is compulsory even if the income is tax-free during RNOR.

Reporting Indian Income Correctly in ITR

As an RNOR, you must file your Indian Income Tax Return (ITR) annually, reporting all your Indian-sourced income. The appropriate ITR form depends on your income sources:

• ITR-1 (Sahaj): For Indian salary income only

• ITR-2: If you have capital gains or foreign assets to report

• ITR-3: For business income

• ITR-4 (Sugam): For presumptive business income

Even though your foreign income isn't taxable, you may need to disclose foreign assets in the Schedule FA (Foreign Assets) of your ITR if you file ITR-2 or higher.

Special Considerations for OCI Cardholders

As an Overseas Citizen of India (OCI) cardholder returning to India, there are several unique considerations that differ from typical NRI circumstances:

Investment Rights and Restrictions

Unlike foreign nationals, OCIs have special investment privileges:

• Can purchase residential and commercial properties (but not agricultural land, plantations, or farmhouses)

• Can invest in Indian companies and start businesses with fewer restrictions than foreign nationals

• May hold certain government positions and practice professions (medicine, law, architecture, etc.) that are restricted for foreigners

Documentation Requirements

OCIs need additional documentation alongside standard RNOR paperwork:

• OCI Card must be presented as supporting identification for financial transactions

• Foreign passport information must be disclosed in banking and tax filings

• Both OCI card and foreign passport details must be linked to your PAN

Dual Tax Residency Challenges

OCIs frequently encounter complex dual tax residency situations:

• Must maintain compliance with tax requirements in both countries simultaneously

• May face conflicts between tax years (India: April-March vs. other countries often using calendar year)

• Need special attention to retirement accounts that may have different tax treatment in different jurisdictions

Note: For US OCIs in particular, remember that US citizenship-based taxation continues regardless of your RNOR status in India.

Maintaining Proper Audit Trail for Foreign Income

Lastly, maintain a clear audit trail: preserve foreign bank statements, investment records, property documents, tax filings, and employment contracts. These will be vital if tax authorities question the source of funds or your RNOR timeline, especially when your status changes to Ordinary Resident.

Maximizing the RNOR Window: Tax Planning Tips

Defer Redemptions or Repatriation Till Post-RNOR

Myth: You must transfer or redeem all your foreign assets as soon as you return to India.

Reality: Not necessarily. During your RNOR phase, you’re still eligible for several tax exemptions. In fact, rushing to sell or repatriate foreign assets might trigger tax events abroad. In many cases, it’s smarter to defer redemptions or transfers until after the RNOR period.

For example, If you have $100,000 in a US bank account, consider moving it to an RFC account instead of converting it to rupees — the interest stays tax-free for up to 3 years during your RNOR period.

Tip: Do check the applicable estate taxes in your case if you plan to continue your investments outside India.

Use STP and SWP Strategies to Manage Taxes Later

Systematic Transfer Plans (STPs) and Systematic Withdrawal Plans (SWPs) can be effective tools for managing your investments and tax liability as you transition to ordinary resident status.

For example, during your RNOR period, you can set up an STP to gradually move money from foreign investments to Indian ones over time, rather than making a large one-time transfer that might have significant tax implications.

Gifting, Inheritance, and Real Estate Decisions During RNOR

The RNOR period is an excellent time to make strategic decisions about:

Gifting Assets

If you are considering gifting certain assets to family members, it makes tax sense to do it during the RNOR period. In many cases, gifts to close relatives are tax-exempt in India.

Inheritance Planning

Since income from foreign sources might still enjoy certain exemptions during your RNOR phase, this period offers a tax-efficient window to structure inheritance and plan asset transfer. However, discussing your cross-border estate plan with a qualified legal attorney is recommended.

Real Estate Decisions

If you're thinking of selling foreign property or investing in real estate in India, how and when you do it matters. During the RNOR period, some of the tax burdens may not apply, giving you more flexibility to make strategic decisions around repatriation, reinvestment, or ownership restructuring.

Avoiding Common Mistakes

Misreporting Global Income

Even though foreign income isn't taxable for RNORs, misreporting or failing to disclose foreign assets (when required) can lead to penalties. Be transparent while claiming your legitimate exemptions.

Miscalculating Your Stay

A few extra days in India each year can quietly disqualify you from RNOR — either by crossing the 729-day limit in 7 years or not meeting the 9-out-of-10-year NRI rule. It’s easy to get it wrong without tracking travel dates closely.

Not sure where you stand? We’ll walk you through timing scenarios to help you return smart.

Book a Karma Conversation 

Improper Asset Segregation

Failing to clearly segregate pre-return and post-return assets and income can create complications. Maintain clear records of when assets were acquired and when income was earned.

Frequently Asked Questions: RNOR Tax Benefits for Returning NRIs

1. I’m moving back to India this year. Will I qualify as an RNOR?

It depends. You’ll qualify if you’ve been an NRI for 9 out of the last 10 years or spent less than 729 days in India during the last 7 years. Your exact residency status is determined each financial year based on these rules.

2. What kinds of foreign income are tax-free while I’m an RNOR?

Foreign salary, interest from overseas bank accounts, rental income from foreign properties, and capital gains from international investments are all exempt from Indian tax during your RNOR period. But you must still report Indian income and file returns.

3. How long does RNOR status last — and can I extend it?

Typically, RNOR status is available for 2 to 3 financial years after your return, depending on your residency and income pattern. You can’t extend it, but smart timing of your return can give an extra window to prepare.

4. Do I need to file taxes in India if my foreign income is exempt?

Yes. You must file an Income Tax Return (ITR) if you have any Indian income. Foreign income may be exempt, but foreign assets and accounts still need to be disclosed if you file ITR-2 or above.

5. Can I keep my NRE or FCNR deposits while I’m an RNOR?

Yes. You can maintain both NRE and FCNR accounts during your RNOR period, and the interest earned continues to be tax-free in India. Once you become an Ordinary Resident, that interest becomes taxable.