RNOR (Resident but Not Ordinarily Resident)

Resident but Not Ordinarily Resident (RNOR) is a transitional tax residency status defined under Section 6(6) of the Income Tax Act 1961 that applies to NRIs who return to India and have been resident in India for fewer than 7 out of the preceding 10 financial years, or have not been present in India for 729 or more days in the preceding 7 financial years — typically covering the first 2–3 years after physical return.

Definition

Indian tax residency has three categories: Non-Resident (NR), Resident but Not Ordinarily Resident (RNOR), and Resident and Ordinarily Resident (ROR). While ROR individuals are taxed on their global income (Indian + foreign), RNOR individuals are taxed only on: (1) income accruing or arising in India; and (2) income received in India. Foreign income that accrues and is received outside India is not taxable in India during the RNOR window — provided it is not derived from a business or profession set up in India. This makes RNOR a valuable 2-year transition period for returning NRIs to reorganize their overseas financial affairs (close foreign accounts, restructure investments) without triggering Indian tax on those assets.

The RNOR test (Section 6(6)) requires meeting EITHER of: (a) non-resident in India for 9 or more of the preceding 10 financial years; OR (b) present in India for 729 days or less in the preceding 7 financial years. NRIs returning after a long overseas stay typically satisfy both conditions and qualify as RNOR for 2 consecutive years post-return, after which they become full ROR.

Why it matters for investors

During the RNOR window, overseas investment income (dividends, capital gains, interest from foreign bank accounts) received and retained outside India does not attract Indian income tax. This is structurally significant for NRIs who hold large overseas portfolios: they have a 2-year window to reorganise — redeem overseas equity positions, realise capital gains, or transfer assets to an Indian vehicle — without the proceeds attracting Indian tax if retained abroad. Once ROR status kicks in, global income taxation applies from the first day of the third year.

For Indian-sourced income (MF redemptions, rental income, dividends from Indian companies), RNOR individuals are taxed identically to ROR residents — no special rate or exemption. TDS on Indian income continues to apply as normal. NRIs converting their NRE/NRO accounts must do so at the bank within a reasonable time upon return; NRE accounts should be converted to resident accounts (or RFC accounts for retaining foreign currency) within the prescribed period to remain compliant.

Worked example

Scenario: Dinesh worked in the UAE for 12 years (FY 2012–2024) and returns to India on 1 April 2024. He held $200,000 in US equity ETFs through his UAE brokerage account, which has doubled in value from his original purchase.

RNOR eligibility:

• FY 2024-25: Dinesh qualifies as RNOR (was non-resident in 10 of preceding 10 years)
• FY 2025-26: Likely still RNOR (≤729 days in India in preceding 7 years)
• FY 2026-27: Becomes ROR — global income taxable in India from this year

Tax outcome: If Dinesh redeems his $200,000 US ETF portfolio in FY 2024-25, the capital gain (accrued and received in the UAE/US) is not taxable in India under RNOR status. If he waits until FY 2026-27 (ROR), the same gain becomes taxable in India at applicable rates.

Note: This example uses illustrative figures. Tax treatment depends on individual facts and DTAA application. Individual circumstances vary — consult a qualified tax professional for jurisdiction-specific guidance. Past performance is not indicative of future returns.

See also

• NRI (Non-Resident Indian) — RNOR is the transitional status between NRI and full resident
• DTAA — treaty may further affect tax treatment during RNOR window
• TDS — Indian-sourced income remains subject to TDS even during RNOR status
• Returning NRI Tax Guide
• NRE Account — must be converted to resident account within reasonable time after return

Primary source

Income Tax Act 1961, Section 6(6) — Definition of Resident but Not Ordinarily Resident: incometax.gov.in — Section 6 (Residence in India). FEMA RBI Circular on account conversion: rbi.org.in — FEMA Notifications.

Past performance is not indicative of future returns. Mutual fund investments are subject to market risks. Read all scheme-related documents carefully. ARN-314872. Content is informational and not investment advice.