Direct Tax code- removal of RNOR status

[DILIPDE]

Hi all,

India is going to introduce direct tax code in 2025. One change is to removal of RNOR. Are they going to implement it in 2025? It means that a person returns to India have to pay tax as a resident immediately in the year of return and will not get one or two-year tax break as per RNOR status.

[nodegree]

Well that's a bummer if true. But I remember in the old forums, RNOR is very confusing to not just taxpayers but also even CAs and tax authorities. Maybe in the long run, it's for the better.

[DILIPDE]

DIRECT TAX CODE ALSO SAYS:

3. Residence-Based Taxation

A significant shift under the DTC is taxing Indian residents on their global income. This change aligns India’s tax framework with international practices, simplifying compliance for individuals with overseas earnings.

[1] Does it mean that the social security will be taxed in India after ROR, currently India does not tax SS.

Any comments?

[SAPPORO]

It's why one needs to protect their NRI status at all costs. Even if one can't afford retirement or healthcare in the west, they can go on months-long vacations around India for 6 months or so every year to retain the NRI status.

The scary part no one in India would care about an insignificant percentage of former NRIs affected by this worldwide income change and it would pass easily without anyone even noticing.

For instance, in the US a couple can make 120-125K USD annually via dividends and still not pay any taxes. Imagine paying taxes in India even on half of that and worst part is that you may not even need that amount of money to live but would be taxed on it anyways. It takes decades to understand the tax system in any country and one can't worry about what's taxed and what's not taxed in retirement in a country where you're a tax novice.

[Returning_Indian]

They are taxing the heck out of everything. Don't think they will leave rich NRIs alone.

[sark]

It's why one needs to protect their NRI status at all costs. Even if one can't afford retirement or healthcare in the west, they can go on months-long vacations around India for 6 months or so every year to retain the NRI status.

not sure about staying 6 months every year. According the rules,
https://taxsummaries.pwc.com/india/individual/residence
An individual is said to be a resident in the tax year if he/she is:

physically present in India for a period of 182 days or more in the tax year (182-day rule), or
physically present in India for a period of 60* days or more during the relevant tax year and 365 days or more in aggregate in four preceding tax years (60-day rule).

if your stay exceeds ~ 3 months every year for 4 years, then you will be expected to file as a resident on global income

[nodegree]

It's why one needs to protect their NRI status at all costs. Even if one can't afford retirement or healthcare in the west, they can go on months-long vacations around India for 6 months or so every year to retain the NRI status.

not sure about staying 6 months every year. According the rules,
https://taxsummaries.pwc.com/india/individual/residence
An individual is said to be a resident in the tax year if he/she is:

physically present in India for a period of 182 days or more in the tax year (182-day rule), or
physically present in India for a period of 60* days or more during the relevant tax year and 365 days or more in aggregate in four preceding tax years (60-day rule).

if your stay exceeds ~ 3 months every year for 4 years, then you will be expected to file as a resident on global income

This won't apply if you're an NRI/PIO with full time employment and residence abroad. In that case, the 182 day rule will only apply. From the horse's mouth

However, as a special concession for Indian citizens and foreign citizens of Indian origin, the period of 60 days referred to in Clause
(b) above, will be extended to 182 days in two cases: (i) where an Indian citizen leaves India in any year for employment outside India; and (ii) where an Indian citizen or a foreign citizen of Indian origin (NRI), who is outside India, comes on a visit to India.

Page 9 - https://www.mea.gov.in/images/pdf/OIFCP ... nforOI.pdf

Even in the url you posted https://taxsummaries.pwc.com/india/individual/residence if you scroll to the bottom it clearly states the NRI/PIO have an exemption from the 60 day rule.

[nodegree]

DIRECT TAX CODE ALSO SAYS:

3. Residence-Based Taxation

A significant shift under the DTC is taxing Indian residents on their global income. This change aligns India’s tax framework with international practices, simplifying compliance for individuals with overseas earnings.

[1] Does it mean that the social security will be taxed in India after ROR, currently India does not tax SS.

Any comments?

Anytime GoI says they're "simplifying" something - it's usually bad news. Last time I heard US and India are very close to reaching a totalization agreement, so only time will tell what's cooking.

[satish1961]

DIRECT TAX CODE ALSO SAYS:

3. Residence-Based Taxation

A significant shift under the DTC is taxing Indian residents on their global income. This change aligns India’s tax framework with international practices, simplifying compliance for individuals with overseas earnings.

[1] Does it mean that the social security will be taxed in India after ROR, currently India does not tax SS.

Any comments?

Global income was always taxable in India, except during RNOR period.

SSA income was already taxable in India for ROR:
https://www.livemint.com/money/personal ... 65433.html

[SAPPORO]

DIRECT TAX CODE ALSO SAYS:

3. Residence-Based Taxation

A significant shift under the DTC is taxing Indian residents on their global income. This change aligns India’s tax framework with international practices, simplifying compliance for individuals with overseas earnings.

[1] Does it mean that the social security will be taxed in India after ROR, currently India does not tax SS.

Any comments?

Global income was always taxable in India, except during RNOR period.

SSA income was already taxable in India for ROR:
https://www.livemint.com/money/personal ... 65433.html

If it's already there, I am not sure why it's listed as one of the "simplifications" to align with the international practices! Are they widening the net with this?

USCs are liable for taxations on global income in the strictest terms, no matter where they live and granted, they do get foreign earned income exclusion and DTAA tax credits. For example, H1B workers from India are not taxed by India and not sure if they are going to be taxed going forward with this change.