A Complete Guide On RNOR - Taxability Of Income & Key Rules

RNOR is a transitional tax status. Also known as an intermediate category, RNOR (Resident Non-Ordinary Resident) is especially relevant for expatriates and returning NRIs returning to India.

In a nutshell, this residential status acts as a tax bridge between being an NRI and becoming a tax resident of India.

In this blog, we will discuss the key aspects of RNOR status, including its meaning, eligibility criteria, duration, tax obligations, and key compliance requirements.

What is an RNOR (Resident But Not Ordinarily Resident)

The resident but not ordinarily Resident status is a transitional category under the Indian tax law.

This residential status is especially for individuals returning from abroad to India, offering them a partial tax exemption on their foreign income till they become tax residents of India.

Under this hybrid residential status, your foreign income is not entirely taxable in India.

Eligibility Criteria For RNOR Status

To attain the Resident but not ordinarily resident (RNOR) status in a financial year, an NRI must meet any one of the following criteria:

• If an individual has been an NRI for a minimum of 9 out of the 10 financial years preceding the current financial year. Or;
• If an individual has been in India for a total of 729 days or less during the seven financial years preceding the current one.

In many cases, most expatriates or returning NRIs qualify for RNOR status after 1-2 years of returning to India.

RNOR vs NRI vs Resident - A Comparison

To better understand the taxation of Indian and foreign income for RNOR, NRI, and resident residents, here is a table for clarity.

Hence, RNOR provides the best of both the other residential statuses, namely NRI and a resident of India. Meaning you are a resident of India, so that you can invest freely in India. However, you are still enjoying most of the tax exemptions available to non-resident Indians (NRIs).

Taxation Rules For RNORs

Below is a table that provides a clear understanding of which income for RNOR is taxable in India and which is not. 

To summarize, for RNOR, all income sources, such as salary received in India for services provided in India, rental income from a property in India, professional or business income earned in India, interest from an NRO account, and so on, are taxable in India. 

Now, what is not taxable is income earned outside India, unless it is received directly in India or arises from a profession or business controlled or set up in India. 

What Is The Duration Of RNOR Status?

The benefits of resident but not ordinary resident (RNOR) stays last for two to three financial years after your return to India. However, it also depends on how long you have stayed abroad before that. 

Hence, the duration of the RNOR period is not fixed for everyone. The longer you were an NRI, the longer you are eligible to receive the benefits of being an RNOR. 

Once you meet the eligibility requirements to be an ordinary resident, your foreign income becomes taxable in India. This two- to three-year transitional window helps non-resident Indians adjust their financial affairs before becoming Indian residents for tax purposes. 

An Example

Let us say you were an NRI for 15 years and returned to India in the financial year 2025-26. In this case, you can continue as an RNOR until FY 2027-28. Post this, you will be eligible to become a full resident. 

Benefits of RNOR Status

RNOR residential status comes with an array of tax advantages for individuals who are earning income from abroad or have any foreign assets. 

Here is a list of some of the major benefits. 

1: Foreign Income Tax Exemption 

As aforementioned, an RNOR individual is not taxed on their foreign income in India unless it is received in India. Income such as interest from foreign bank accounts, dividends or capital gains earned from investments abroad, rental income from foreign properties, retirement or pension income, and more. 

During the RNOR time period, income received or deemed received in India is taxable. 

2: Zero Tax On Foreign Assets. 

Any income earned from foreign assets is also exempt from Indian taxation while you are an RNOR. 

3: Tax-Free Interest on FCNR/NRE Accounts

Interest earned on FCNR (foreign currency non-resident) and NRE (Non-resident External) accounts is tax-free while you're on your RNOR periods. 

4: No Foreign Assets Reporting

Individuals on their RNOR status are not required to disclose their foreign assets in Schedule FA, unlike ordinary tax residents of India. 

This exemption lets you avoid complex foreign asset reporting. 

5: No Tax On Global Income

Individuals with RNOR status find this one of the biggest benefits: their global income is not taxed in India. 

This is a great benefit for individuals who are still drawing income from other foreign countries or hold foreign assets there that generate income.

6: Suitable For Retirement Or Relocating Gradually. 

For non-residents in India planning to either gradually transition or return permanently, the RNOR residential status offers a tax-efficient status while you settle in India. 

How To Move Back To India By Using RNOR Smartly 

The following are a few key points to help you plan moving back to India using RNOR. 

• Strategically Plan Your Return: To maximize the benefits and timeframe of your RNOR status, you must plan your return date carefully. 
• Global Assets Reorganization: During your RNOR status, you can still freely engage in foreign property transactions, repatriate funds with minimal income taxation exposure, redeem your investments, or more. 
• Update Your Bank Status: As per FEMA guidelines, if you are returning to India permanently, then you must inform your bank about your residential status change and convert your NRE/NRO accounts to resident or RFC accounts. 
• DTAA Benefits: If you earn income abroad, please use expert guidance on the DTAA (Double Taxation Avoidance Agreement) to avoid double taxation. 
• Please Document Everything: This is mandatory and essential; keep copies of all documents, including important ones such as foreign tax returns, travel records, investment proofs, and more, for easy verification. 

5 common RNOR Mistakes To Avoid

Yes, the benefits of RNOR are significant, but so are the risks of non-compliance. Many individuals either miss out on RNOR benefits or incur penalties due to errors.

Here is a list of 5 common RNOR mistakes individuals make, which you must be mindful of so that you don't end up losing the benefits. 

1: RNOR Status Applies Automatically

No, just because you are returning from abroad does not mean you are RNOR by default. This residential status is evaluated and reduced each calendar year under Section 6 of the Income Tax Act. 

2: Counting The Days Wrong

Absolutely avoidable, yet many still make it. Even a single-day miscalculation can change your status from RNOR to ROR (resident and ordinary), triggering global taxation. 

Hence, always keep copies of your passport or travel logs to evaluate the days you have spent in India in the current and preceding years. 

3: Getting Foreign Income In Indian Accounts

Even if you have earned the income abroad and it is received directly into your Indian bank account, it is immediately taxable in India, even though you are in the RNOR case. Many individuals think that since it's a labor-intensive process, it won't be taxable, but it is taxable in India if the income is deposited in an Indian account.

Hence, to avoid this unnecessary tax implication, ensure that such income remains abroad only. 

4: Ignoring The DTAA Fling 

In a case where your foreign income is taxed abroad and is also taxable in India—for example, because of remittances—then to avoid double taxation and claim a relief under the Double Taxation Avoidance Agreement. You must file Form 67 before you file your income tax return. 

5: Poor Tax Planning During RNOR Phase

The RNOR phase is best used when individuals do effective tax planning for their resident indian statuses. However, many individuals still fail to capitalize on it. Tax planning can be strategic, focusing on how well you can restructure your offshore holdings, remittances, Indian tax implications, and more. 

How To File an Income Tax Return As An RNOR?

There is no separate income tax return for RNORs; only the correct residential status must be disclosed when filing an Income tax return. Depending on your source of income, ITR-2 or ITR-3 may apply.

RNORs must:

• Rightly declare their residency in the ITR. 
• Report the full Indian income. 
• To claim foreign tax relief, use Form 67. 
• Evaluate whether or not Schedule FA applies to you. 
• In the majority of cases, if the foreign income is not taxable in India, Schedule FA is not needed. 

The Bottom Line

The resident but not ordinarily resident RNOR residential status in India acts as a bridge between non-to full residency. So, if you are moving back to India or spending an extended time here after staying abroad, you need to assess your residential status under Section 6 (1) and Section 6 (6) of the Income Tax Act. 

At Savetaxs, we help NRIs across the UK, US, UAE, Australia, Singapore, and more navigate this transitional phase easily. Our experts ensure you get expert-backed tax planning, FEMA compliance, and cross-border structuring. 

If you are planning to move back to India and are on an extended stay, connect with Savetaxs — we serve clients 24/7 across all time zones.