Three months ago, a client named Priya called us from San Francisco and told us that her company is transferring her back to Gurgaon in October and she is confused about her taxes. Should she file as an NRI or resident this year?
What about her US income? And someone mentioned to her about RNOR status-what even is that?"
If you're returning to India, your tax situation in the return year is more complicated than any other year. Your status can change mid-year. You might qualify as three different tax residents in a single financial year. And getting this wrong means either overpaying taxes or facing notices.
Let us break down exactly what happens to your tax status when you move back-and how to use it to your advantage.
The Three Tax Identities You Need to Know
Under the Income Tax Act, there are three categories:
1. Non-Resident Indian (NRI)
- Only Indian income is taxable
- Foreign income is not taxable in India
- No need to report foreign assets
2. Resident but Not Ordinarily Resident (RNOR)
- Only Indian income is taxable (like NRI)
- Foreign income generally not taxable
- Tax-free interest on NRE/FCNR accounts continues
- Bridge status between NRI and full resident
3. Resident and Ordinarily Resident (ROR)
- Global income is taxable in India
- Must report all foreign assets
- Foreign income subject to Indian tax (minus DTAA relief)
Most returning NRIs don't realize they can be RNOR for 1-3 years after return. This status can save lakhs in taxes.
Use our Residential Status Calculator to determine your exact status.
Also Read - Residential Status Under Section 6 Of Income Tax Act
Your Tax Status in the Return Year: Real Scenarios
Scenario 1: You return in May 2025
Let's say you worked in Dubai until April 30, 2025, then moved to India permanently.
For FY 2025-26:
- You'll spend 330+ days in India (May to March)
- You qualify as Resident for tax purposes
- But you also qualify as RNOR (because you were NRI for the previous 9 out of 10 years)
Tax treatment:
- Your Dubai salary (April 2025): Not taxable in India
- Your India salary (May-March): Fully taxable
- Interest on your NRE FD: Tax-free (RNOR benefit)
- US stock dividends: Not taxable in India (RNOR benefit)
ITR filing: You'll file as RNOR in July 2026 for FY 2025-26.
Scenario 2: You return in November 2025
You work in London until October 31, 2025, then relocate to Mumbai.
For FY 2025-26:
- You'll spend only 150 days in India (Nov-March)
- You remain NRI for the full year
Tax treatment:
- UK salary: Not taxable in India
- India rental income: Taxable with 30% TDS
- Interest on NRE FD: Tax-free
For FY 2026-27:
- You'll complete 182+ days from April 2026
- You become RNOR (if you qualify)
Scenario 3: You're moving back but status is unclear
You return to India in August 2025 but your company says you might go back to Singapore for a 6-month project in 2026.
For FY 2025-26:
- You spend 240 days in India (Aug-March)
- You're Resident for this year
- Check if you qualify as RNOR
Critical question: Is your stay in India temporary or permanent?
FEMA looks at intent, not just days. If you've resigned from your overseas job and moved your family back, you're a resident-even if you've completed only 100 days.
But for Income Tax, only physical days matter.
Read our guide on NRI status and residential status rules.
RNOR Status: The Golden Window
RNOR is the most valuable tax status for returning NRIs. Think of it as a "soft landing" for your finances.
How to qualify as RNOR:
You must first be a resident (182+ days in India). Then you qualify as RNOR if either of these is true:
Test 1: The 9-out-of-10 rule You were NRI in at least 9 of the past 10 financial years.
Example: If you left India in 2015 and return in 2025, you were NRI for 10 years. You automatically qualify as RNOR.
Test 2: The 729-day rule You were in India for 729 days or less in the 7 financial years before this year.
Example: You were studying/working abroad but came to India for vacations. If your total India days across FY 2018-19 to FY 2024-25 are less than 730, you qualify.
How long does RNOR last?
Not fixed. It depends on how long you were abroad.
Your NRI period | Approximate RNOR duration |
|---|---|
5 years abroad | 0-1 year RNOR |
10 years abroad | 1-2 years RNOR |
15+ years abroad | 2-3 years RNOR |
Once you fail both qualifying tests, you become ROR and global income becomes taxable.
Learn more about NRI meaning and tax implications.
Also Read - NRI vs RNOR Status - Which Is More Advantageous for Tax Savings?
What's Taxable During RNOR vs ROR
This is where RNOR saves you serious money.
Income Source | NRI Status | RNOR Status | ROR Status |
|---|---|---|---|
India salary | Taxable | Taxable | Taxable |
Foreign salary earned while abroad | Not taxable | Not taxable | Taxable |
NRE FD interest | Tax-free | Tax-free | Tax-free |
NRO FD interest | Taxable | Taxable | Taxable |
US stock dividends | Not taxable | Not taxable | Taxable |
UK rental income | Not taxable | Not taxable | Taxable |
Foreign pension | Not taxable | Not taxable | Taxable |
Capital gains on overseas property | Not taxable | Not taxable | Taxable |
👉 Tip: If you have large foreign income sources, time your return to maximize RNOR years. Returning at financial year-end (Feb-March) gives you almost two full RNOR years.
For detailed tax rules, read our NRI taxation guide.
Filing Your Tax Return in the Return Year
This confuses everyone. Let us simplify.
Which ITR form to use:
NRIs cannot use ITR-1 (Sahaj), even if income is simple.
- ITR-2: If you have salary, house property, capital gains, or other income (no business)
- ITR-3: If you have business or professional income in India
Most returning NRIs use ITR-2.
When to file:
Deadline: July 31 of the assessment year (extended to Sept 15 for FY 2024-25)
Example: For FY 2025-26, file by July 31, 2026.
If you miss the deadline, you can file belated return until December 31 (with penalties).
What to report:
As RNOR:
- All India income (salary, rent, interest, capital gains)
- Foreign assets reporting: Generally not required
- Foreign income: Not required if it's not received in India
As ROR:
- All India income
- All foreign income (even if not remitted)
- Schedule FA: Must report all foreign assets (bank accounts, investments, property)
For step-by-step filing guidance, see NRI tax filing tips.
Smart Tax Planning for Your Return Year
Strategy 1: Time your return strategically
If you return in April-June, you get minimal RNOR benefit in Year 1 because you're already resident from Day 1.
If you return in Jan-March, you remain NRI for that year and get RNOR in Year 2.
Strategy 2: Withdraw foreign retirement funds during RNOR
US 401(k), UK pension, Singapore CPF-these are taxable when you're ROR. Withdraw during RNOR years when they're not taxable in India.
Strategy 3: Realize foreign capital gains during RNOR
Sold your apartment in Dubai? Did it during RNOR years. The gains won't be taxed in India.
Strategy 4: Keep RFC accounts for foreign currency
Don't convert all foreign currency to INR immediately. Open RFC (Resident Foreign Currency) accounts to keep funds in USD/GBP/EUR.
Benefits:
- Protects against rupee depreciation
- No LRS restrictions during RNOR
- Interest remains tax-free during RNOR
Read our guide on RFC accounts for returning NRIs and converting NRE/NRO to resident accounts.
Strategy 5: Leverage DTAA if you become ROR
If foreign income becomes taxable in India after RNOR expires, use Double Taxation Avoidance Agreements to avoid paying tax twice.
File Form 10F and claim foreign tax credit.
Learn about India-UAE DTAA and India-USA DTAA.
Common Mistakes That Cost Money
Mistake 1: Not claiming RNOR status
Banks don't tell you about RNOR. Many returning NRIs file as regular residents and pay unnecessary tax on foreign income.
Always declare RNOR status explicitly in your ITR if you qualify.
Mistake 2: Converting all NRE FDs immediately
NRE FD interest is tax-free during RNOR. If you convert to resident FDs too early, interest becomes taxable.
Let NRE FDs mature naturally or convert to RFC FDs.
Also Read - Which bank is best for fixed deposit in india
Mistake 3: Not tracking days carefully
Your residential status depends on exact days in India. Keep passport stamps, flight tickets, and a simple spreadsheet.
One client thought he was NRI but actually spent 185 days in India. The Income Tax Department treated him as resident and taxed his global income.
Mistake 4: Missing the ITR filing deadline
Even if your income is below the taxable limit, file ITR to:
- Claim TDS refunds
- Create tax compliance record
- Avoid notices about unexplained income
Mistake 5: Not planning for transition to ROR
RNOR eventually expires. Plan ahead:
- Reduce foreign income sources
- Restructure investments
- Consider moving assets into tax-efficient structures
For comprehensive planning, read about ways to avoid NRI tax payment penalties.
What About Your Investments?
NRI mutual funds:
Once you become resident, inform AMCs immediately. Update KYC from NRI to resident.
Tax treatment changes:
- LTCG on equity funds: Still 12.5% (same for NRI and resident)
- STCG on equity funds: Still 20% (same)
NRI stocks in demat:
Can continue holding. No need to sell. But inform your broker and convert demat account to resident status.
Foreign stocks and mutual funds:
During RNOR: Gains and dividends not taxable in India
After RNOR: Taxable in India (claim DTAA relief)
For investment planning, explore best investment options and GIFT City investments.
Your Action Plan
3 months before return:
- Calculate expected residential status using our calculator
- Review all foreign income sources
- Consult CA about RNOR eligibility
- Plan foreign asset withdrawals
Month of return:
- Track exact dates of travel
- Inform banks about status change (but don't rush conversions)
- Update address with all financial institutions
First ITR filing after return:
- Determine if you're NRI, RNOR, or ROR
- File ITR-2 or ITR-3 as applicable
- Claim RNOR benefits if eligible
- Report only India income (if RNOR)
During RNOR years:
- Withdraw foreign retirement funds if needed
- Realize foreign capital gains
- Keep detailed records of foreign income
- Plan for transition to ROR
When RNOR expires:
- Restructure foreign investments
- File Form 67 for foreign tax credit
- Report all foreign assets in Schedule FA
- Consider old vs new tax regime
Building Your India Financial Future
Your tax status will stabilize eventually. But while you're navigating the NRI-to-resident transition, don't forget to build your India portfolio.
At Belong, we help returning Indians maintain USD exposure through GIFT City fixed deposits. Even after you become a resident, these deposits offer:
- Tax-efficient returns in dollars
- Protection from INR depreciation
- Full flexibility for future plans
- No LRS restrictions
👉 Download the Belong App to explore how GIFT City can complement your resident investment strategy.
Have specific questions about your return year tax situation? Join our WhatsApp Community where returning NRIs share tax planning strategies and get advice from peers and experts.
Sources:
Income Tax Act, 1961 - Section 6 (Residential Status)
Income Tax Bill 2025 - RNOR Provisions
ClearTax - NRI Income Tax Guide 2025
