What Happens to NRI Investments If Residency Status Changes

"I'm planning to move back to India next year. What happens to all my NRI investments?"

We hear this question almost every week on our WhatsApp community. And it's followed by a dozen smaller worries.

Will my NRE FD interest become taxable? Do I need to close my Demat account? Can I keep my GIFT City deposits? What about my SIPs?

The anxiety is real.

You've spent years building a portfolio as an NRI, using accounts and tax rules designed for non-residents.

Now the rules are about to change, and nobody gives you a clear, product-by-product answer.

At Belong, we've helped thousands of NRIs plan this transition. Some are returning to India. Others are worried about accidentally triggering a status change during a long family visit.

A few are going the other direction, leaving India and becoming NRI for the first time.

This guide covers every scenario. Every investment type. Every tax change. And the RNOR window that most NRIs don't use properly.

How Does Residency Status Actually Change?

Before we get to investments, you need to understand the three statuses under Indian tax law, and how you move between them.

Non-Resident Indian (NRI): You've spent fewer than 182 days in India during the financial year (April 1 to March 31).

You're taxed only on income earned or received in India. Most NRIs living in the UAE, UK, or US fall here (Source: Income Tax Act, Section 6).

Resident but Not Ordinarily Resident (RNOR): A transition status. You qualify if you were NRI for 9 out of the 10 preceding financial years, OR stayed in India for 729 days or fewer during the 7 preceding years.

Like NRIs, RNORs are taxed only on Indian income. Foreign income stays exempt.

Resident and Ordinarily Resident (ROR): You're fully resident. Your worldwide income is taxable in India.

This includes foreign salary, overseas rental income, interest from foreign bank accounts, and capital gains from selling assets abroad.

The typical returning NRI journey: NRI → RNOR (1-3 years) → ROR.

Use Belong's residential status calculator to check exactly where you stand. The difference between NRI and RNOR can mean lakhs in tax savings.

👉 Tip: Your status is determined for the entire financial year, not month by month. Even if you move back in January, your status for the full April-to-March year depends on total days spent in India during that year. Time your return carefully. Read our detailed guide on RNOR status.

What Happens to NRE Accounts and FDs?

This is the single biggest change most returning NRIs face. And the one with the tightest deadline.

NRE Savings Account: Must be redesignated to a resident savings account or RFC (Resident Foreign Currency) account once you become a resident.

You cannot continue operating an NRE account as a resident. RBI requires banks to redesignate NRE accounts upon change of residential status (Source: RBI Master Direction on Deposits, 2016).

NRE Fixed Deposits: This is where it gets painful. NRE FD interest is tax-free for NRIs. The moment you become a resident (including RNOR), that tax-free status ends on new deposits.

However, existing NRE FDs can continue until maturity at the contracted rate. The interest earned after your status change becomes taxable in the year of receipt.

Here's a practical example. You have an NRE FD of ₹50 lakh at 7.25% with HDFC Bank, maturing in March 2028.

You return to India in June 2026 and become a resident for FY 2026-27.

The FD continues until March 2028. No premature closure needed. But interest earned from April 2026 onwards (when you became resident) is taxable at your slab rate.

If you're in the 30% bracket, that 7.25% return effectively becomes ~5% after tax.

What you should do before returning:

Lock in the longest NRE FD tenure you're comfortable with while still NRI. The higher rate stays locked. Only the tax treatment changes.

Break shorter-tenure FDs and reinvest at longer tenures before your status changes. Consider whether a GIFT City USD FD makes more sense if you want to keep money in dollars during the transition.

Read our detailed guide: What happens to NRE FDs when you return to India.

What Happens to NRO Accounts?

Less dramatic changes here, but still important.

NRO Savings Account: Converts to a regular resident savings account.

The account stays open. Your funds stay intact. Interest was already taxable as an NRI at 30% TDS, and it continues to be taxable as a resident at your slab rate.

NRO Fixed Deposits: Continue until maturity. No forced closure. Interest was taxable before, remains taxable after.

The only change: as a resident, you can claim the basic exemption limit and deductions that NRIs couldn't claim on NRO income.

If you had rental income flowing into your NRO account, that income becomes part of your total resident income and is taxed at slab rates.

TDS may no longer apply in the same way. Read about NRE vs NRO account differences to understand the full picture.

👉 Tip: Once you become a resident, you can open an RFC (Resident Foreign Currency) account to hold your foreign currency savings without converting to rupees. This is useful if you have outstanding overseas commitments or want to wait for a better exchange rate.

What Happens to FCNR Deposits?

FCNR deposits are term deposits in foreign currency (USD, GBP, EUR) held with Indian banks. Here's what changes:

During RNOR period: Existing FCNR deposits continue. Interest remains tax-free in India during RNOR status because it qualifies as foreign-source income.

This is one of the key advantages of RNOR.

After becoming ROR: Interest on FCNR deposits becomes taxable at your slab rate.

The deposit itself continues until maturity. No premature closure required.

On maturity: The bank converts proceeds to INR (or you can transfer to an RFC account).

You can't renew an FCNR deposit as a resident. It's an NRI-only product.

Smart strategy: if you have multiple FCNR deposits, stagger their maturity dates so some mature during your RNOR window when interest is still tax-free.

Compare FCNR with other options in our NRE vs FCNR comparison.

What Happens to Mutual Fund Investments?

This is one area where the transition is relatively smooth, with one critical tax change.

Your mutual fund units stay as-is. No forced redemption. No account closure. No redesignation needed.

Whether you hold equity funds, debt funds, or hybrid funds, the investments continue.

SIPs continue running. If your SIP is linked to an NRE account, you'll need to update the bank mandate to your new resident account.

Contact your AMC to update your KYC status from NRI to resident.

Tax treatment changes:

As an NRI, capital gains TDS was deducted by the AMC at the time of redemption. As a resident, you pay tax via self-assessment and ITR filing.

The rates themselves don't change much for equity funds. Equity LTCG (held >1 year) is still taxed at 12.5% above ₹1.25 lakh exemption.

Equity STCG is 20%. Debt fund gains are taxed at your slab rate (Source: Income Tax Act, as amended by Finance Act 2024).

The key difference: as a resident, your worldwide mutual fund holdings become relevant.

If you hold foreign mutual funds (US ETFs, UK funds), those gains become taxable in India once you're ROR. During RNOR, foreign fund gains stay exempt.

Read our complete mutual fund taxation guide for NRIs and what to do with mutual funds when returning to India.

👉 Tip: Don't redeem your mutual funds just because your status is changing. The investments themselves aren't affected. Only the tax reporting mechanism changes. Unnecessary redemption triggers capital gains tax you could have deferred.

What Happens to Stock Market Investments?

If you hold Indian stocks through a PIS (Portfolio Investment Scheme) account linked to your NRE account, here's what changes:

PIS account closes. Once you become a resident, you must close the PIS account.

Your shares transfer to a regular resident Demat account. Inform your bank and broker about the status change.

Non-PIS Demat (linked to NRO): Continues as a resident Demat account. No forced sale.

Tax treatment: Capital gains tax rates remain the same (LTCG 12.5% on equity above ₹1.25L, STCG 20%). But TDS treatment changes.

As a resident, brokers don't deduct TDS on equity gains. You self-assess and pay through advance tax or ITR.

New rules from Budget 2026: The individual investment limit for NRIs in listed Indian companies has been doubled to 10% per company, with the collective cap raised to 24% (Source: Khaleej Times, Feb 2026).

If you were NRI and held close to the old 5% cap, the new rules give you more room. But once you become resident, the NRI caps no longer apply.

Resident Indians face no individual cap (only SEBI insider trading and takeover rules).

What Happens to GIFT City Investments?

This is where the picture gets nuanced, and most guides miss it entirely.

GIFT City USD FDs: Continue until maturity even after you become resident. The deposit doesn't get cancelled or redesignated.

But the tax treatment changes. As an NRI, interest is tax-free under Section 10(4B) of the Income Tax Act.

Once you become a resident (even RNOR), this specific exemption no longer applies. Interest becomes taxable at your slab rate.

However, GIFT City deposits still retain two advantages for returning NRIs.

Your money stays in USD, protecting you from rupee volatility during the transition. And repatriation remains seamless since GIFT City operates outside RBI's domestic framework.

GIFT City Mutual Funds: Your units continue. No forced redemption. But the tax-free treatment for NRIs changes once you become resident. Capital gains become taxable.

The DSP Global Equity Fund or Tata India Dynamic Equity Fund holdings you built as an NRI keep growing, but future gains are taxed when you redeem as a resident.

GIFT City AIFs: Similar treatment. Investments continue, but returns become taxable upon status change.

AIF tax is complex and depends on the category (I, II, or III). Consult a tax advisor for AIF-specific treatment.

The practical question: Should you keep GIFT City investments after returning?

Yes, if you want USD-denominated holdings as part of a diversified portfolio.

Many returning NRIs maintain GIFT City investments for currency diversification even though the tax advantage disappears. Read about keeping money in GIFT City after returning.

👉 Tip: If you know your return date is approaching, consider whether to redeem GIFT City investments while still NRI (tax-free) and reinvest as a resident in products with resident-friendly tax treatment. The decision depends on your overall allocation and whether you need USD exposure. Use the GIFT Nifty tracker to monitor your positions.

The RNOR Window: The Tax Advantage Most NRIs Waste

RNOR is the most valuable tax status in Indian tax law. And most returning NRIs either don't know about it or don't use it properly.

During RNOR (typically 1-3 years after returning), your foreign income stays exempt from Indian tax.

Only Indian-sourced income is taxable. This creates a window to:

Withdraw foreign retirement funds. US 401(k), UK pension pots, or UAE end-of-service gratuity can be received tax-free in India during RNOR (though the source country may tax it). Read about converting UAE gratuity to retirement corpus.

Sell foreign assets. Capital gains from selling UAE property, US stocks, or UK real estate are exempt from Indian tax during RNOR.

After becoming ROR, they become fully taxable. Timing the sale during RNOR can save lakhs. Read about tax rules on selling UAE property.

Receive foreign interest and dividends. Interest from your overseas bank accounts, dividends from foreign stocks, all exempt during RNOR. Once ROR, they're taxable.

FCNR deposit interest stays tax-free. Since FCNR interest is foreign-source income, it remains exempt during RNOR.

How long does RNOR last? It depends on how many years you were NRI. If you were NRI for 9 out of the preceding 10 years, you get RNOR for about 2-3 years after returning.

The exact duration depends on the "9 out of 10" and "729 days in 7 years" tests (Source: Income Tax Act, Section 6(6)).

Timing trick: Returning in January means you stay NRI for that financial year (fewer than 182 days in India from January to March).

Then RNOR starts the next April. This gives you maximum RNOR duration. Returning in April means RNOR starts immediately that year but you lose one potential year.

Read our comprehensive guide on RNOR status for returning NRIs and the RNOR to ROR tax impact.

The Income Tax Bill 2025: What Changes from April 2026?

The new Income Tax Bill, effective April 1, 2026, introduces changes that matter for NRIs (Source: India Briefing, Feb 2025).

120-day rule for high-income NRIs: If your Indian income exceeds ₹15 lakh (excluding foreign income) and you spend 120 days or more in India during a financial year, you may be classified as RNOR.

This replaces the earlier 60-day threshold, giving NRIs more flexibility for longer India visits without triggering status change.

Deemed residency for tax-haven NRIs: Indian citizens earning ₹15 lakh+ from Indian sources but not paying tax in any other country will be treated as full residents, even if they spend zero days in India.

This targets individuals in tax-free jurisdictions like the UAE, Monaco, or Bermuda.

For UAE-based NRIs, this is critical. If you earn substantial income from Indian sources (rental income, dividends, business income) exceeding ₹15 lakh, you could be classified as a deemed resident regardless of how long you've been in the UAE.

The India-UAE DTAA becomes important here since having a UAE Tax Residency Certificate may help demonstrate you're taxable in the UAE, even though the rate is 0%.

This is evolving law. Consult a cross-border tax advisor before the new rules take effect. Track updates through Belong's community.

Going the Other Direction: Resident to NRI

Not everyone is coming back. Many Indians are leaving India for the first time and becoming NRI.

The investment changes work in reverse.

Resident savings account: Must be converted to NRO within a reasonable time after becoming NRI.

You can't continue using a resident savings account (Source: FEMA guidelines).

Existing FDs: Resident FDs can continue until maturity. But you should inform your bank about the status change so TDS is deducted at the correct NRI rate.

PPF account: Can't make new contributions. Existing account runs until the original 15-year maturity.

No extensions allowed for NRIs. Interest continues to be credited but new deposits aren't accepted (Source: PPF Act, 1968).

Mutual funds: Continue as-is. Update your KYC status to NRI with the AMC. Change the linked bank account to NRE or NRO.

Some AMCs have restrictions for US/Canada NRIs due to FATCA, and may force redemption. Check with each AMC individually.

New NRI opportunity: You can now open NRE accounts, start GIFT City USD FDs, invest in GIFT City mutual funds, and enjoy tax-free interest benefits that weren't available as a resident.

Read our guides on NRI account setup and investing in India from the UAE.

The Mistakes That Cost Returning NRIs the Most

Over 12 years of advising NRIs, we've seen these errors repeatedly:

Not informing banks about status change. Banks don't automatically know you've returned.

If you don't update your status, NRE accounts continue operating as NRE. This is a FEMA violation. The bank may freeze your account if discovered during audit. Inform every bank where you hold accounts.

Breaking NRE FDs prematurely. Panic-closing NRE FDs before returning costs you early withdrawal penalties (0.15-0.50% depending on bank) and you lose the locked-in rate.

NRE FDs can continue until maturity. Don't break them.

Not using the RNOR window. Many NRIs don't realise they can sell foreign assets tax-free in India during RNOR.

By the time they learn about it, the window has closed and they're paying double taxation on overseas income.

Ignoring updated KYC with AMCs and brokers. If your mutual fund house or broker still has you registered as NRI after you've become resident, transaction processing gets messy.

TDS gets deducted at wrong rates. Update KYC within 30 days of status change.

Not opening an RFC account. Resident Foreign Currency accounts let you hold your overseas savings in foreign currency after returning.

Without one, you're forced to convert everything to rupees immediately, possibly at an unfavourable rate. Read our financial checklist for returning NRIs.

👉 Tip: Create a "status change checklist" six months before your planned return. List every bank, AMC, broker, and insurance company where you have NRI accounts. Update each one systematically. Our returning NRI community members share their checklists. Join them.

A Quick-Reference Table: Investment Impact by Status

This table shows why RNOR is so valuable. It gives you the tax treatment of an NRI on foreign income while you're physically living in India.

Plan the Transition Before You Make the Move

Your NRI investments don't disappear when your status changes.

They continue.

What changes is how they're taxed, which accounts stay open, and which opportunities close.

The smart approach: plan 6-12 months before your return. Lock NRE FDs at the best rates.

Sell foreign assets during RNOR. Open RFC accounts. Update every financial institution. Use the RNOR window to its fullest.

Thousands of NRIs in our WhatsApp community have navigated this exact transition. They share timelines, checklists, bank experiences, and tax-saving strategies. Join them before you start your move.

The Belong app helps you manage both sides of the transition. Compare FD rates while you're still NRI.

Explore GIFT City mutual funds that work both before and after returning. Track GIFT Nifty. Use Belong's tools to build a portfolio that survives any status change.

Disclaimer: For informational purposes only. Not financial, tax or legal advice. Tax laws discussed reflect provisions as of February 2026 and are subject to change. Consult qualified tax advisors for your specific situation.