What is the tax liability for RNOR citizens in India?

— Name withheld upon request.

There are three types of resident status in India: resident and ordinary resident (ROR), resident but not ordinary resident (RNOR) and non-resident (NR).

Residence status in India is determined based on total physical presence in India in the current fiscal year (FY) and previous fiscal 10 years, and the level of income received from India in the current fiscal year. Residence status requires a new definition in each fiscal year.

An individual holding ROR status is subject to global income tax in India and is required to report foreign income and assets located outside of India on a tax return. A person who qualifies as ‘NR’ or ‘RNOR’ is not subject to Indian taxation on their overseas income (unless it is earned in India).

Since you are a US citizen and returned to India in July, you may qualify for India’s RNOR for Fiscal Year 2022-2023 if your stay in India is 729 days or less between April 1, 2015 and March 31, 2022, or you meet the Indian NR criteria in 9 out of the previous 10 fiscal years. As an RNOR, you are taxed on the following income in India:

– Income derived or deemed to be derived in India;

-Income that accumulates or arises in India;

– Income deemed to be accrued or arising in India;

– Income earned or earned outside of India from a business or profession established in India

Salary income for services rendered in India is considered to be “accrued or originated in India”. Thus, wages earned by you while working in India since August will be taxable in India, even if paid to a US account. As an RNOR, wages earned in the US prior to July 2022 will not be taxed in India. Because wages are earned in the US, they may also be subject to US tax. In such a case, you can claim the relevant benefit (either tax exemption or foreign tax credit) under the India-US Double Taxation Avoidance Agreement (DTAA) in that country to avoid double taxation.

Sonu Iyer is a tax partner and head of EY advisory services in India.

First article