Tax Residency Status in India: Difference between Resident but Ordinary Resident (ROR) and Not Ordinary Resident (NOR) as per income tax act –
Under the Indian Income Tax Act, determining an individual’s tax residency status is crucial as it defines the extent of their taxable income in India. In this article, we will explore the terms “resident but ordinary resident” (ROR) and “not ordinary resident” (NOR) and know how they impact the taxation of individuals in India.
Resident but Ordinary Resident (ROR):
1. Meeting the residency conditions: To qualify as an ROR, an individual must meet either of the following conditions: a. Residency in two out of ten preceding financial years: If an individual has been a resident of India in at least two out of the ten preceding financial years, they are considered a resident for tax purposes. b. 730 days of residence: If an individual has resided in India for a minimum of 730 days during the seven preceding financial years, they also qualify as an ROR.
2. Classification as an ordinary resident: If an individual fulfills the residency criteria mentioned above, they are further classified as an ordinary resident. Being an ordinary resident means that their global income, including income earned both within and outside India, is subject to taxation in India.
Not Ordinary Resident (NOR):
1. Non-fulfillment of ROR conditions: Individuals who do not meet the ROR conditions are categorized as not ordinary residents (NOR).
2. Criteria for NOR classification: a. Residency in one out of ten preceding financial years: If an individual has been a resident of India in at least one out of the preceding ten financial years, they are considered a not ordinary resident. b. 120 days of residence and 365 days in the preceding four financial years: Individuals who have resided in India for at least 120 days during the financial year in question and have been in India for at least 365 days during the preceding four financial years are also classified as NOR.
Conclusion: Understanding the tax residency status of individuals in India is essential for determining the taxation of their income. Being a resident but ordinary resident (ROR) subjects an individual’s global income to taxation in India, while being a not ordinary resident (NOR) results in the taxation of income earned or received in India, or income arising from a business or profession set up in India. By comprehending these classifications, individuals can effectively navigate the Indian income tax system and ensure compliance with the applicable tax regulations.
Author Bio
