What is the difference between Resident and Ordinary Resident (ROR), and Resident but not Ordinary Resident (NOR)?
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Under the Income Tax (IT) law, there are three types of residential status in India: Non-resident India (NRI), ROR, and NOR. The difference between the last two types is based on the taxability of the income in India.
A person who qualifies as ROR is taxable in India on his worldwide income which includes: income earned or arising in India; income deemed to accrue or arise in India; income received or deemed to be received in India; Income earned or arising outside India.
An ROR is required to report all foreign assets in the Income Tax Return (ITR). Also, income earned from such foreign asset during the relevant year, needs to be reported in respect of each foreign asset, along with the nature of income and the head of income under which such income is offered to be taxed in the ITR .
A person who qualifies as an NRI or NOR is taxable on the following income (income derived from India): income earned or arising in India; income deemed to accrue or arise in India; and income received or deemed to be received in India. Further, in the case of NOR, income derived from or arising out of India from a business controlled in India or a profession established in India is taxable in India.
Therefore, RoR is taxed on worldwide income in India and foreign assets are required to be reported in the ITR. For NOR, only the income received from India is taxed in the country. Residential status is based on a person’s physical presence in India during a financial year, which includes working days and non-working days, and the last 10 financial years. The housing situation is dynamic and requires fresh assessment for each financial year.
Sonu Iyer is EY India’s Tax Partner and People Advisory Services Leader.