Moving Abroad Mid-Year: Income Tax Rules for the Year You Leave India (AY 2026-27)

Almost nobody leaves India on 1 April. You get the offer in July, serve notice through August, land in Dubai or Berlin or Toronto in September, and spend the next six months setting up a life. Tax is the last thing on the list.

Then July arrives and you discover that the financial year you split between two countries is the single most confusing return you will ever file. Your Form 16 shows five months of salary. Your foreign employer has already withheld tax abroad. Your bank has started asking about your residency. And somewhere in the middle sits the question that decides everything: were you a resident of India for that year or not?

This guide walks through the departure year specifically, not general NRI filing. If you are moving in the other direction, see our guide on tax rules for returning NRIs.

Everything Turns on One Number: Your Day Count

For the year you leave, your residential status is decided by how many days you physically spent in India during FY 2025-26 (1 April 2025 to 31 March 2026).

There is a specific relaxation for people leaving for work. If you are an Indian citizen or a Person of Indian Origin who leaves India during the year for the purpose of employment outside India, the usual 60-day secondary test is replaced by 182 days. In practice that means only one question matters for you: were you in India for 182 days or more?

• In India for 182 days or more → Resident. Your worldwide income for the full year is taxable in India, including the salary you earned abroad after departure.
• In India for fewer than 182 days → Non-Resident. Only your India-sourced income is taxable.

Count the day of arrival and the day of departure as days in India. Use your passport stamps, not your memory.

The Date That Decides Your Tax Bill

Because the FY ends on 31 March, departures cluster into two very different outcomes.

Arjun leaves for Amsterdam on 5 September 2025. He was in India for 158 days, so he is a Non-Resident for AY 2026-27. His Dutch salary from September to March never enters his Indian return.

Kavya leaves for the same company on 20 November 2025. She was in India for 234 days, so she is Resident for AY 2026-27 even though she spent the last four months of the year in the Netherlands. Her Dutch salary is taxable in India, and she has to claim credit for the Dutch tax she already paid.

Two colleagues, same employer, same relocation package, completely different returns. If your departure date is still flexible and falls near the end of September, work out the day count before you book the flight.

If You Are a Non-Resident for the Departure Year

Only income with an Indian source is taxable. For a typical departing employee that means:

• Salary for work performed in India - taxable, regardless of where it was paid. Section 9(1)(ii) sources salary to where the service was rendered, so the five months of Indian salary stay in the Indian net even if the last payout hit a foreign account.
• Rent from Indian property - taxable.
• Interest on Indian bank deposits and bonds - taxable (NRE interest is a separate case, below).
• Capital gains on Indian shares, mutual funds and property - taxable.
• Your foreign salary, foreign bank interest, foreign investments - not taxable in India at all.

Three things people assume carry over, and do not:

You lose the Section 87A rebate. The rebate of up to ₹60,000 under the new regime is available only to an individual who is resident in India. A non-resident with ₹11 lakh of Indian income pays full tax on it, while a resident with the same income pays nothing. This single line item catches a lot of first-year NRIs off guard.

You lose the basic exemption adjustment against capital gains. A resident with only ₹3 lakh of capital gains and no other income can set those gains against the basic exemption limit. A non-resident cannot do this for gains on listed securities.

You cannot file ITR-1. ITR-1 is closed to non-residents and to RNORs. Your departure-year return will almost always be ITR-2, and you will need to fill the residential status schedule with your actual day count, your jurisdiction of residence abroad and your Taxpayer Identification Number there. Our guide on which ITR form to file covers the boundaries in detail.

If You Are Still Resident for the Departure Year

This is the harder case, and the one most people get wrong by simply ignoring the foreign half of the year.

As a resident, you must report your foreign salary, any foreign bank interest, and any foreign assets you acquired. Specifically:

1. Add the foreign salary to your Indian salary income, converted at the SBI telegraphic transfer buying rate on the last day of the month immediately preceding the month in which the income was received.
2. Claim foreign tax credit for the tax withheld abroad, under the relevant DTAA article, in Schedule TR and Schedule FSI.
3. File Form 67 before you file your return. No Form 67, no credit. It is a separate online submission on the e-filing portal, and forgetting it is the most common reason foreign tax credit gets denied at processing.
4. Disclose foreign assets in Schedule FA - the foreign bank account your salary lands in, any employer stock, any pension account. Schedule FA applies to residents only, but in the departure year you are a resident, so the account you opened in October has to be reported. The penalty regime here is severe, and a foreign bank account with a small balance is not worth the risk of omission.

If the other country also treats you as a tax resident for part of the year, you are dual-resident, and the DTAA tie-breaker rules (permanent home, then centre of vital interests, then habitual abode, then nationality) decide which country gets primary taxing rights. Most people in this position end up taxed in both and relieved through credit rather than exemption.

Tell Your Indian Employer Before You Leave

Your employer deducts TDS under Section 192 on an estimate of your full-year salary. If you resign in August and say nothing about the reason, payroll may keep projecting twelve months of income and over-deduct on the final settlement.

Before your last working day:

• Confirm they will issue Form 16 for the part-year, covering only the months of Indian service.
• Ask how they are treating leave encashment and any notice-pay recovery in the final settlement.
• Submit proof of any deductions you do want to claim, so the TDS is not computed on a bare figure. 49Tax's AI reads your Form 16 and matches it against your Form 26AS automatically, which is useful when a part-year Form 16 and a full-year AIS do not obviously agree.

If TDS was over-deducted anyway, you are not stuck - it becomes a refund when you file, and interest under Section 244A runs on it.

The Banking and Compliance Cleanup

Under FEMA, you become a person resident outside India from the day you leave with the intention of staying abroad indefinitely. Your resident accounts stop being valid on that date, not at the end of the financial year. This is a separate law from income tax with its own timeline, which is why the two sets of rules feel contradictory.

Do You Need a Tax Clearance Certificate?

Almost certainly not, despite what you may have read.

Section 230 requires an Income Tax Clearance Certificate only from a person domiciled in India where the department has specific reason to believe there are tax arrears or other direct tax liabilities. The Finance (No. 2) Act 2024 added Black Money Act liabilities to that list from 1 October 2024, which triggered a wave of headlines suggesting every emigrant now needs clearance. CBDT clarified that the requirement applies in a narrow set of cases - serious financial irregularities, or an outstanding demand above ₹10 lakh that has not been stayed - and needs prior approval from senior officers. An ordinary salaried employee with a clean record does not need one.

The Actual Takeaway

Count your days in India before 31 March, not in July. That one number tells you whether your foreign salary belongs in your Indian return, whether you can claim the Section 87A rebate, and whether Schedule FA applies to you - and all three of those are decided the moment the financial year closes, when nothing can be changed.

If the count puts you over 182 days, start gathering foreign payslips and withholding statements now, and diarise Form 67 as a task that happens before you hit submit. If it puts you under, your return is simpler than you feared, but check that your employer's part-year Form 16 and your NRO account's new TDS rate are both reflected correctly before you file.