Rahul spent 14 years in the US. When he returned to India, his 401(k) sat untouched because he didn't know the rules. He ended up paying tax in both countries on the same money.
I've seen this story repeat dozens of times. NRIs work hard abroad, build savings in foreign retirement accounts, and then lose a chunk to avoidable taxation when they come back home.
If you're returning from the US or UK with ongoing foreign income, this guide will help you keep more of what you earned.
The RNOR Advantage: Your Tax Shield for 2-3 Years
When you return to India after years abroad, you don't immediately become a full tax resident. You transition through a special status called RNOR-Resident but Not Ordinarily Resident.
Under RNOR status, your foreign income stays tax-free in India. Only money earned or received in India gets taxed.
You qualify for RNOR if you meet either condition: you were an NRI for at least 9 out of the last 10 financial years, OR you stayed in India for 729 days or less during the past 7 years.
For someone returning after 10+ years abroad, this typically gives you 2-3 years of tax protection on foreign income.
👉 Tip: Time your return strategically. Coming back in April (start of financial year) maximizes your RNOR window. Use our Residential Status Calculator to project your status year by year.
Managing US Income After Return
Your 401(k): The Critical Decisions
Your 401(k) is probably your biggest question. Here's what actually happens:
During RNOR years: Any 401(k) withdrawals remain tax-free in India because they're "foreign income." The US will withhold 30% tax as you're no longer a US tax resident. You can't avoid this withholding, but you won't pay Indian tax on top.
After becoming ROR (full resident): This is where it gets tricky. India normally taxes on an "accrual" basis-meaning the annual growth in your 401(k) would be taxable even if you don't withdraw.
The solution: File Form 10-EE under Section 89A in your first year as ROR. This aligns Indian taxation with US rules, so you pay tax only when you actually withdraw-not on notional growth.
I've seen clients save ₹8-10 lakhs by timing 401(k) withdrawals during their RNOR period. It's one of the most powerful tax planning opportunities for returned NRIs.
US Social Security Benefits
Good news here. Under the India-US DTAA, Social Security payments are taxable only in the US, not in India-regardless of your residential status.
Your payments continue normally. Just ensure you've submitted Form W-8BEN to avoid unnecessary complications.
US Rental Income and Dividends
If you still own property or hold US stocks:
During RNOR: This income is tax-free in India. Keep it in US bank accounts rather than remitting to India.
After RNOR expires: You'll need to declare worldwide income. The DTAA prevents double taxation-claim Foreign Tax Credit for any US taxes paid.
👉 Tip: Liquidate US equity positions during your RNOR window if you planned to anyway. Capital gains from foreign stocks are exempt during this period.
Managing UK Income After Return
UK-returned NRIs face different rules. The India-UK DTAA has specific provisions that work in your favour.
UK Pensions
Private UK pensions often receive favourable treatment. Under the DTAA, pensions are typically taxed only in the country of residence.
Practical example: Meera, a financial consultant, returned from London with a UK pension. Using DTAA provisions combined with RNOR status optimization, her UK pension remained taxed only in the UK-saving ₹3.2 lakhs annually.
For workplace pensions like NHS schemes, your pension continues regardless of where you live. Apply for an NT (No Tax) code from HMRC to prevent UK tax deductions if you're covered by the DTAA.
UK State Pension
You can receive UK State Pension in India. You need 10 qualifying years of National Insurance contributions. Many UK NRIs pay voluntary Class 3 contributions (£923 annually in 2025/26) to protect their entitlement.
Transferring UK Pensions via QROPS
QROPS (Qualifying Recognised Overseas Pension Scheme) lets you transfer UK pension funds to India without triggering unauthorized tax charges.
This makes sense if you've permanently left the UK and want to manage retirement in INR. The process takes 5-8 weeks and requires HMRC approval.
Key eligibility: You must have been non-UK tax resident for typically 5 years, and have no pension withdrawals in the past 5 years.
ISA Considerations
Unlike pensions, your UK ISA loses its tax-free status when you become an Indian tax resident. The UK-India DTAA doesn't exempt ISA income from Indian taxation.
Once you're ROR in India, ISA income becomes fully taxable as "foreign income."
Account Conversions You Can't Ignore
When you return to India, your NRI accounts must convert to resident accounts. But timing matters:
NRE/FCNR Accounts: Interest remains tax-free during your RNOR period. Don't rush to convert. Let existing FCNR deposits mature first.
RFC Accounts (Resident Foreign Currency): Open these before your NRE/FCNR accounts convert. They allow you to hold foreign currency even as a resident-useful for managing UK/US income streams.
NRO Accounts: Convert to regular savings accounts. Remember, NRO interest has always been taxable.
👉 Tip: Transfer funds from NRE to RFC before your status changes. Once in RFC, you maintain foreign currency flexibility without mandatory rupee conversion.
The Compliance Checklist
Returning NRIs face reporting requirements that catch many people off guard:
Schedule FA: Once you become ROR, you must disclose all foreign assets in your income tax return-bank accounts, retirement accounts, property, investments.
Form 67: File this to claim Foreign Tax Credit for taxes paid abroad. Miss this, and you lose the credit.
Black Money Act implications: Non-disclosure of foreign assets attracts severe penalties. The law assumes intent to evade unless you prove otherwise. This isn't something to take lightly.
Use our Compliance Compass to check you're following all necessary rules across banking, investments, and taxation.
Smart Strategies I've Seen Work
Based on clients we've helped at Belong:
Strategy 1: Staged withdrawal. Don't withdraw everything from 401(k) in year one. Spread withdrawals across tax years to stay in lower brackets.
Strategy 2: RNOR-period liquidation. Sell foreign investments during RNOR years. Capital gains from non-Indian assets are tax-free during this window.
Strategy 3: GIFT City bridge. Park some funds in GIFT City USD fixed deposits during your transition. Interest is tax-free in India, and you maintain dollar exposure while deciding on long-term plans.
Strategy 4: Pension timing. If possible, delay starting UK pension payments until your RNOR period begins. This maximizes the DTAA benefit.
Common Mistakes That Cost Money
I see these repeatedly:
Remitting foreign income to India during RNOR: The moment you transfer foreign earnings to an Indian account, arguments arise about whether it's "received in India." Keep foreign income abroad during RNOR.
Missing Form 10-EE deadline: To defer 401(k) taxation under Section 89A, you must file Form 10-EE before your ITR due date in your first ROR year. Miss this, and you lose the deferral benefit permanently.
Not claiming Foreign Tax Credit: If you've paid tax abroad on any income, claim FTC in India using Form 67. Many retirees leave lakhs on the table.
Ignoring Schedule FA: Every year as an ROR, you must disclose foreign assets-even if they generate no income. Penalties for non-disclosure are severe.
Your Action Plan
Before returning:
- Calculate your projected RNOR duration
- Decide which foreign assets to liquidate vs. retain
- Open RFC account for foreign currency holdings
Year of return:
- Time your arrival to maximize RNOR window
- Begin account conversions strategically
- Don't remit foreign income to India yet
First ROR year:
- File Form 10-EE for 401(k)/retirement account deferral
- Start disclosing foreign assets in Schedule FA
- Claim Foreign Tax Credit via Form 67
Ongoing:
- Review residential status annually
- Keep documentation for DTAA claims
- Consider professional advice for complex situations
Next Steps
Managing foreign income after returning requires planning-not just at the time of return, but for years afterward.
At Belong, our team-Savitri, Sai, and I-work with returned NRIs navigating exactly these challenges. We've built tools specifically for this transition.
Join our WhatsApp community where thousands of NRIs share their experiences with managing US/UK income in India.
Exploring tax-efficient investments for your returned funds? Download the Belong app to explore GIFT City options with tax-free returns.
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