25 September 2026 · 49Tax
Moving Back to India Permanently: Tax Rules for Returning NRIs in AY 2026-27
RNOR status, NRE and FCNR account conversion, when Schedule FA starts, Section 89A for 401(k) and the timing moves that save a returning NRI lakhs.
The Year You Move Back Is Unlike Any Other Tax Year
Most tax guidance for NRIs assumes you are staying abroad and filing in India for rental income or capital gains. The year you actually pack up and return is a different problem.
In that one financial year you can be a non-resident for part of it, become a resident by day count, still keep a protected status called RNOR, hold bank accounts that are about to become illegal in their current form, and own foreign assets whose reporting obligation switches on at a specific future date. Get the sequencing right and you get two to three years where your foreign income stays outside the Indian tax net. Get it wrong and you pay Indian tax on a salary you already paid tax on abroad, plus interest under Sections 234B and 234C.
This guide walks through the transition in the order it actually happens.
Step 1: Work Out Your Residential Status for the Year of Return
Everything else depends on this. You are a resident for FY 2025-26 (AY 2026-27) if either test is met:
- You were in India for 182 days or more during the financial year, or
- You were in India for 60 days or more during the year and 365 days or more in the four preceding financial years.
There is a well-known relaxation that replaces the 60-day threshold with 182 days for an Indian citizen or person of Indian origin who is outside India and comes on a visit to India. Returning NRIs routinely assume this protects them. It usually does not.
A permanent relocation is not a "visit". If you land in September with your household goods, your family and no return ticket, the conservative and widely accepted reading is that the 60-day test applies to you, and with 365 days abroad-adjusted history behind you, you become a resident for that very year. Plan on being a resident in the year of return unless you arrive very late in the financial year.
A separate 120-day version of the relaxation applies where total Indian-source income exceeds Rs 15 lakh, and the deemed-resident rule in Section 6(1A) catches Indian citizens with Indian income above Rs 15 lakh who are not liable to tax in any other country. Our complete residential status guide has the full decision tree with day-count examples.
Step 2: Confirm You Qualify as RNOR (This Is the Prize)
Becoming a resident does not mean you are immediately taxed on your worldwide income. Residents split into two classes, and the one you want is Resident but Not Ordinarily Resident (RNOR).
You are RNOR for a year if either condition is satisfied:
| Condition | Test |
|---|---|
| Condition A | You were a non-resident in 9 out of the 10 preceding financial years |
| Condition B | You were in India for 729 days or less in the 7 preceding financial years |
Most people who spent five or more continuous years abroad satisfy Condition B comfortably, because 729 days over seven years works out to roughly 104 days a year of India visits.
What RNOR actually gets you
| Income type | Non-Resident | RNOR | Resident and Ordinarily Resident |
|---|---|---|---|
| Indian salary, rent, Indian capital gains | Taxable | Taxable | Taxable |
| Foreign salary for work done abroad | Not taxable | Not taxable | Taxable |
| Interest and dividends on foreign bank and brokerage accounts | Not taxable | Not taxable | Taxable |
| Capital gains on foreign shares sold abroad | Not taxable | Not taxable | Taxable |
| Foreign income from a business controlled from India | Not taxable | Taxable | Taxable |
| Schedule FA foreign asset disclosure | Not required | Not required | Required |
The single exception to remember is the last income row. RNOR shelters foreign income except income from a business controlled in, or a profession set up in, India. If you return and start consulting for your old overseas employer from your Bengaluru flat, that fee is income from a profession set up in India and is fully taxable, even though the client and the currency are foreign.
How long RNOR lasts
For a typical returnee who was abroad for seven or more years, RNOR usually lasts two financial years and often three, depending on the month of return.
Someone who returns in October 2025 after nine years abroad would typically be:
- FY 2025-26: Resident but RNOR
- FY 2026-27: Resident but RNOR (Condition B still met, since the preceding seven years still contain mostly abroad time)
- FY 2027-28: Resident and Ordinarily Resident
Recheck the two conditions every single year. RNOR is not a status you are granted once, it is a test you pass annually until you stop passing it.
Step 3: Fix Your Bank Accounts Immediately
This is where returning NRIs most often break the rules without noticing, because the trigger is FEMA residency, not income tax residency, and FEMA changes status the moment you return to India with the intention of staying.
| Account | What must happen | Tax consequence |
|---|---|---|
| NRE savings or NRE FD | Redesignate as a resident rupee account promptly on return, or transfer to RFC | Interest exemption under Section 10(4)(ii) stops from the date you become a FEMA resident |
| NRO account | Redesignate as a resident account | Was always taxable, no change |
| FCNR(B) deposit | May be held until maturity at the contracted rate, then converted to RFC or a resident account | Interest exempt under Section 10(15)(iv)(fa) while you are RNOR |
| RFC (Resident Foreign Currency) account | Can be opened by a returning resident to park foreign currency | Interest exempt under Section 10(15)(iv)(fa) while you are RNOR, taxable once you turn ROR |
Two practical points fall out of this table.
First, NRE interest stops being tax free the day you become a FEMA resident, not at the end of the financial year and not when RNOR ends. Banks frequently keep paying and reporting NRE interest as exempt because nobody told them you moved back. That mismatch shows up in your AIS and is a common trigger for a notice. Split the year's NRE interest at the return date: exempt before, taxable after.
Second, do not prematurely break your FCNR deposits. You are allowed to run them to maturity, the interest stays exempt while you are RNOR, and the exchange rate risk stays hedged in the original currency. Moving the maturity proceeds into an RFC account keeps the foreign currency intact and keeps the exemption alive for the remainder of your RNOR window.
Step 4: Use the RNOR Window Deliberately
RNOR is a two or three year gate that closes permanently. Anything foreign you were going to realise anyway is cheaper to realise while it is open.
Sell appreciated foreign shares before you become ROR
Capital gains on shares sold on a foreign exchange, with proceeds received abroad, are foreign-source income and are outside the Indian net while you are RNOR. Once you become ROR, the same sale is taxable in India at slab rates for short-term gains, or 12.5% without indexation for long-term gains on foreign shares held over 24 months, with foreign tax credit relief where a treaty applies. See our guide on tax on US and foreign stocks for Indian investors for how those gains are computed once you are ROR.
Example. Priya returns to Pune in November 2025 with a US brokerage account holding vested RSUs sitting on an unrealised gain of USD 80,000, roughly Rs 70 lakh. She is RNOR for FY 2025-26 and FY 2026-27, and ROR from FY 2027-28. If she sells in FY 2026-27, the gain is foreign-source income received abroad and India does not tax it, leaving only her US tax liability. If she waits until FY 2027-28, roughly Rs 70 lakh of long-term gain enters her Indian return at 12.5%, about Rs 8.75 lakh before any US foreign tax credit. The decision to sell 14 months earlier is worth several lakh rupees.
Wind down foreign structures before ROR
Dormant foreign bank accounts, an old employer's stock plan account and small foreign pension pots are all far simpler to close or consolidate while you are RNOR, because from the first ROR year each of them must be reported in Schedule FA with peak balances, opening dates and account numbers.
Step 5: Know Exactly When Schedule FA Switches On
Schedule FA applies only to a Resident and Ordinarily Resident. As an RNOR you do not file it.
From your first ROR year you must disclose every foreign bank account, custodial account, equity or debt interest, insurance contract with cash value, immovable property and any other capital asset held outside India. The reporting period for Schedule FA is the calendar year ending before the financial year, not the financial year itself, which catches a lot of first-time filers out.
The stakes here are not ordinary tax stakes. Non-disclosure of foreign assets falls under the Black Money (Undisclosed Foreign Income and Assets) Act, which carries a flat penalty of Rs 10 lakh per year of default for undisclosed foreign assets, independent of how much tax was actually due. A forgotten USD 3,000 checking account can cost Rs 10 lakh. Assemble the list during your last RNOR year, while you still have working logins and the account statements are easy to pull.
Step 6: Deal With Foreign Retirement Accounts Under Section 89A
A 401(k), an IRA, a UK pension or a Canadian RRSP creates a timing mismatch. Those countries tax the money on withdrawal. India, once you are ROR, taxes accrued income year by year, so you can be taxed in India on notional growth years before the foreign country taxes the withdrawal, which makes the foreign tax credit hard to match up.
Section 89A fixes this. It lets a specified person defer Indian taxation of income accrued in a retirement account maintained in a notified country until the year of withdrawal, so both countries tax the same money in the same year. Notified countries are the United States, United Kingdom and Canada.
The mechanics matter:
- The election is made in Form 10-EE, filed electronically on or before the due date for the return of the first year you would otherwise be taxed on that income.
- Once made, the election applies to all subsequent years and cannot be withdrawn, except where you become a non-resident again.
- Miss the Form 10-EE deadline and the deferral is simply not available for that account.
Diarise this for your first ROR year, because it is one of very few Indian tax reliefs with no belated route back in.
Step 7: Advance Tax, TDS and the Return Itself
While you were abroad, Indian TDS on your NRO interest and property income did most of the work. After you return, two things change at once.
Your Indian salary comes with employer TDS again, but any residual foreign income, rental income or capital gains that becomes taxable has no TDS against it. That makes you liable for advance tax in four instalments on 15 June, 15 September, 15 December and 15 March, and for interest under Sections 234B and 234C if you underpay. Returnees are especially prone to this in the first ROR year, when foreign dividend and interest income suddenly enters the Indian computation with nothing withheld against it.
On forms and reporting:
- ITR-2 is the right form for almost every returning NRI, since ITR-1 cannot be used by anyone holding foreign assets or reporting foreign income.
- The residential status schedule in ITR-2 requires your day counts, so keep a passport stamp log for the year of return.
- Where the same income is taxed abroad and in India, claim foreign tax credit by filing Form 67 before filing the return, as explained in our guide to foreign income and DTAA relief.
49Tax's day-count and residential status checks run on the dates you enter and flag when your RNOR window is about to close, which is the one deadline most returnees discover a year too late.
A Practical Timeline
| When | What to do |
|---|---|
| Before you fly | Realise large foreign gains if you are already close to the ROR line; note the cost basis and dates of everything you keep |
| Within days of landing | Redesignate NRE and NRO accounts, open an RFC account, leave FCNR deposits running to maturity |
| Year of return | Split NRE interest at the return date, count your days carefully, file ITR-2 with the correct RNOR status |
| Each RNOR year | Re-test both RNOR conditions, close dormant foreign accounts, realise foreign gains you intend to realise anyway |
| Last RNOR year | Build the Schedule FA inventory with account numbers, opening dates and peak balances |
| First ROR year | File Schedule FA, file Form 10-EE before the due date if you hold a US, UK or Canadian retirement account, start paying advance tax on foreign income |
The Takeaway
Your RNOR window is a two to three year exemption on foreign income that nobody will remind you about and that cannot be extended. Do three things in it: convert your bank accounts correctly on day one, realise the foreign gains you were going to realise anyway before the window shuts, and spend your final RNOR year building the foreign asset inventory that Schedule FA will demand the following year. The single most expensive mistake is passive, letting the window close while an appreciated foreign portfolio and a half-forgotten overseas account quietly roll into full Indian taxation and Black Money Act reporting.