NRI’s to regain RNOR status
(12/3/2005)
The United Progressive Alliance government is re-looking at the tax status of non-resident Indians who have returned to India for good. It is expected that the government will re-introduce the nine-year period in which a returning NRI is classified as ‘a resident but not ordinary resident’ (RNOR), said sources close to the development.
If the proposal is approved, returning NRI’s will not have to disclose or pay tax on their global income till the ninth year of permanent residency in the country.
`The government is looking at a proposal to offer a minimum of 5 year grace years to NRI’s and a maximum of 9 years,` one senior official has said.
The previous BJP-led government had (in the Union Budget for 2003-04) withdrawn the five-decade old benefit granted to RNOR’s when it reduced the cooling period from nine years to two years. As a result of the changed norms, NRI deposits have fallen significantly.
From April 1 this year, returning NRIs are liable to pay tax on their global income if their presence in the country qualifies them as residents for the previous two consecutive years. The rule also is applicable to expatriates who come here for more than a two-year term. They would now have to declare their global income and pay tax on it.
As an RNOR, the tax payer need only pay tax in India on income derived within the country; not on his overseas income unless it is derived from a business set up or controlled in India. Earlier an NRI could avail of RNOR status for nine years after having been declared an NRI for a period of two years.
While NRI’s in most high-tax jurisdictions receive relief under the double taxation avoidance agreement, NRI’s living in the Gulf region do not since they live in zero tax jurisdictions.
For those NRI’s looking to return to India in the future, Candour would normally recommend holding the assets in a Jersey Trust to ensure that the assets remain offshore and tax-free once you regain residency.
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