How do you define the tax status of RORs?

What is the difference between resident and ordinarily resident (ROR) and resident but not ordinarily resident (NOR)?

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Under the Income Tax (IT) Act, there are three types of residency status in India: Non-Resident India (NRI), ROR and NOR. The difference between the latter two types is based on income taxation in India.

An ROR qualified person is taxable on their worldwide income in India, which includes: income earned or generated in India; income deemed to accrue or arise in India; income received or deemed to be received in India; income from or derived from outside India.

A ROR is required to report all foreign assets on the income tax return (ITR). In addition, the income derived from such foreign assets during the relevant year as well as the nature of the income and the head of income under which such income has been proposed for tax in the ITR must be declared for each foreign asset. .

A person qualifying as an NRI or NOR is taxable on the following income (income originating in India): income generated or generated in India; income deemed to accrue or arise in India; and income received or deemed to be received in India. Further, in case of NOR, income generated or derived from outside India from a controlled business or profession established in India is taxable in India.

Thus, RORs are taxed on worldwide income in India and are required to declare foreign assets in the ITR. For NORs, the tax only applies to income originating from India in the country. Residency status is based on an individual’s physical presence in India during a financial year, including working and non-working days, and the previous 10 financial years. Residential status is dynamic and requires a new determination for each fiscal year.

Sonu Iyer is Tax Partner and Head of People Advisory Services, EY India.

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