When an NRI returns to India permanently, tax residency does not change immediately upon arrival. Instead, the change generally occurs after crossing the 182-day threshold in a financial year, or earlier under the 60-days-plus-365-days rule.
However, residential status alone does not determine the extent of taxation. The RNOR category — Resident but Not Ordinarily Resident — plays a crucial role in deciding whether foreign income becomes taxable in India during the transition phase.
Eligibility for RNOR Status
Most returning are eligible for RNOR status for nearly two to three financial years, depending on their earlier duration of stay in India. Failing to claim this status properly can result in foreign income being unnecessarily subjected to Indian taxation.
Step 1 — Determining Whether You Qualify as a Resident
The first step is to apply the day-count test:
• If you stay in India for 182 days or more during the financial year, you become a Resident.
• If you stay in India for at least 60 days in the current financial year and 365 days or more during the preceding four financial years, you may also qualify as a Resident.
• If neither condition is met, you remain a Non-Resident.
Both the arrival date and departure date are counted as days spent in India. Immigration records and passport stamps are generally treated as primary proof.
Step 2 — Determining RNOR or ROR Status
If you qualify as a Resident, the next step is to determine whether you are RNOR or ROR (Resident and Ordinarily Resident).
You will qualify as RNOR if either of the following conditions is satisfied:
• You were a Non-Resident in 9 out of the previous 10 financial years, OR
• Your total stay in India during the preceding 7 financial years was 729 days or less.
Most NRIs returning after spending more than five years abroad typically qualify as RNOR during the initial years after returning.
Step 3 — Benefits Available Under RNOR Status
During the RNOR period, several categories of remain outside the Indian tax net. These generally include:
• Foreign salary and employment bonuses
• Interest and dividend income earned abroad
• Capital gains from overseas shares or mutual funds
• Payments received from foreign retirement accounts such as 401(k) plans or UK pension schemes, subject to DTAA provisions and taxability rules
Foreign income earned and received outside India usually remains exempt during the RNOR phase unless it arises from a business controlled from India or a profession established in India.
One important exception is that income derived from a business controlled in India or a profession set up in India remains taxable even for RNOR taxpayers.
Step 4 — What Remains Taxable Despite RNOR Protection
RNOR status does not exempt all forms of income. The following continue to remain taxable in India:
• Income originating in India
• Interest earned on NRO accounts, where TDS is also applicable
• Interest from NRE and FCNR accounts once FEMA non-resident status is lost. The exemption is linked to FEMA residency and not solely to income-tax residency
Step 5 — Understanding the FEMA and Income-tax Residency Difference
A common area of confusion for returning NRIs is that FEMA and Income-tax laws follow separate residency rules.
• FEMA residency is based on intent. A person generally becomes FEMA-resident when returning to India with the intention of staying for an uncertain duration.
• Income-tax residency is determined using the prescribed day-count rules.
As a result, an individual may simultaneously qualify as FEMA-Resident but remain Non-Resident under Income-tax provisions during the year of return. Bank accounts should therefore be redesignated based on FEMA rules, while tax filing should follow Income-tax rules.
Step 6 — Redesignation of Bank Accounts After Returning
After becoming FEMA-resident, certain banking changes become necessary:
• NRE accounts should be redesignated as Resident Savings accounts or transferred into RFC accounts to retain foreign currency holdings.
• NRO accounts should be converted into Resident accounts.
• FCNR deposits may continue until maturity, after which they should be shifted to RFC accounts or converted into Indian rupees.
Delays in redesignation could potentially be treated as FEMA non-compliance.
Step 7 — Schedule FA and the Transition to ROR
One of the most overlooked aspects for returning NRIs is the Schedule FA disclosure requirement.
Schedule FA is generally not required while an individual retains RNOR status. Current guidance indicates that Non-Residents and RNOR taxpayers are exempt from filing Schedule FA disclosures. The obligation begins only after the taxpayer becomes Resident and Ordinarily Resident (ROR).
This distinction becomes important because:
• During the RNOR period, most overseas income remains outside Indian taxation.
• Once ROR status begins, complete disclosure of foreign assets becomes mandatory. This includes overseas bank accounts, shares, retirement funds, foreign property, trusts, and insurance-related cash values.
• Failure to disclose foreign assets after becoming ROR can attract action under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015, where penalties can be significantly more severe than the tax liability itself.
Step 8 — Leaving India Again During the Same Financial Year
Returning NRIs who continue travelling abroad for work should also monitor upcoming regulatory changes. From April 1, 2026, departures may come under the proposed Section 420 framework of the Income-tax Act, 2025.
Depending on the final CBDT notifications, certain travellers may be required to furnish a declaration, likely through Form 156, or obtain an Assessing Officer certificate, likely through Form 157, before departure. Travellers should therefore verify the latest regulatory requirements before each overseas trip.