How NRIs should navigate changes in tax status when returning to India

As their status changes from NRI to RNOR and then to ROR, both their tax and disclosure obligations change

The number of non-resident Indian (NRI) technology professionals returning to India is rising amid changes in H-1B visa rules and sluggish spending on information technology (IT) by companies. According to data from Xpheno, the number of returnees rose from 9,800 in 2024 to 15,100 in 2025. Another 7,300 have returned year-to-date in 2026. Returning NRIs need to understand how their tax status changes once they move back.

 

Tax status in the first year

 

The mere act of relocation does not trigger a change in tax status. The Income-tax Act determines the status for each financial year based on the number of days of physical presence in India.

 

“An individual becomes resident if they spend at least 182 days in India in a financial year. They may also become resident if they spend at least 60 days in India in that year and 365 days in the preceding four years,” says Suresh Surana, a Mumbai-based chartered accountant.

 

A returning NRI who has spent the past few years abroad may not meet the 365-day criterion for the past four years. “In such cases, their residential status in the year of return may depend mainly on the 182-day stay condition,” says Sanjoli Maheshwari, executive director, Nangia & Co LLP.

 

Taxation in the first year depends on the individual’s residential status. “If classified as non-resident, the NRI is taxed only on India-sourced income,” says Maheshwari. That may include salary earned in India, rent from Indian property, or capital gains from Indian mutual funds and shares. “Foreign salary and foreign investments are not taxable in India for that year,” says Maheshwari.

 

Initial status is RNOR

 

A returning NRI is treated as resident but not ordinarily resident (RNOR) in the initial years.

 

“A resident individual may qualify as RNOR if they have been non-resident in India in nine out of the 10 tax years preceding the relevant year. They may also qualify if their stay in India does not exceed 729 days in the seven tax years preceding the relevant year,” says Maheshwari.

 

An Indian citizen or person of Indian origin with taxable Indian income above Rs 15 lakh and a stay of 120 days or more but less than 182 days would also qualify as RNOR.

 

For many returning NRIs, RNOR status may continue for one to three years.

 

How RNOR income is taxed

 

If an individual is treated as RNOR, Indian-sourced income is fully taxable in India under the standard income-tax slabs. Such income may include salary for work performed in India, rent from Indian property, and gains from Indian investments or assets.

 

“Foreign income is taxable for an RNOR only if it arises from a business controlled in India or a profession set up in India,” says Surana. Other foreign income earned outside India remains exempt.

 

RNOR status serves as a transitional tax regime. It ensures that returning NRIs are not immediately taxed in India on their worldwide income. “It gives them time to reorganise overseas investments, bank accounts and other financial arrangements before they become ROR,” says Maheshwari.

 

Tax filing rules for RNORs

 

RNORs should state their residential status carefully in the ITR, because it determines the scope of taxation, and declare India-sourced income.

 

“Advance-tax planning before and immediately after relocation will help them avoid unintended tax exposure,” says Maheshwari.

 

RNORs cannot file the simplified form ITR-1. “They should file ITR-2 if they have salary, capital gains and house property income. They should file ITR-3 if they have income from business or profession,” says Maheshwari. RNORs are exempt from reporting foreign assets and foreign bank accounts in Schedule FA.

 

From RNOR to ROR

 

The shift from RNOR to ROR depends on long-term residency history and cumulative days of stay in India. The transition occurs when the individual meets the basic residency criteria and the additional long-term presence conditions.

 

The basic residency criteria include spending 182 days or more in India in a tax year or satisfying the 60-day-plus-365-day rule. “The additional long-term conditions include being tax resident in at least two out of the preceding 10 tax years and staying in India for 729 days or more during the preceding seven tax years,” says Amarpal Chadha, tax partner, EY India.

 

How ROR income is taxed

 

Once the status changes from RNOR to ROR, the scope of taxation expands significantly. “Their worldwide income becomes fully taxable in India, regardless of where it is earned or received,” says Ritu Shaktawat, partner, Khaitan & Co.

 

Interest on foreign bank accounts, rental income from overseas property, capital gains on foreign assets, dividends from foreign companies, and overseas employment income become taxable in India. “Individuals should plan and pay tax on foreign income through advance tax to avoid interest exposure,” says Chadha.

 

“Overseas income earned in earlier years, when the NRI was not ROR, and later repatriated to India, should generally not be taxable in India. Interest earned in India on repatriated funds remains taxable,” says Shaktawat.

 

Return filing rules for RORs

 

RORs should disclose all foreign assets held at any time during the year in Schedule FA. They should also disclose all income earned or received outside India in the tax return.

 

Foreign asset disclosure includes foreign bank accounts, interests in foreign trusts, overseas immovable property, foreign equity and debt interests. Foreign-source income disclosure includes interest on foreign bank accounts, rental income from overseas property, capital gains on foreign assets, dividends from foreign companies, and other foreign-source income.

 

“Foreign assets must be disclosed even if they have not generated income during the year,” says Shaktawat.

 

Use treaty relief

 

Individuals should explore relief from double taxation under applicable double taxation avoidance agreements (DTAAs). They can claim foreign tax credit (FTC) for taxes paid abroad on income that is also taxable in India. “FTC is generally available to the extent of the lower of the foreign tax paid and the Indian tax liability on that income,” says Shaktawat.

 

There is no fixed time limit for availing of DTAA benefits after returning to India. “DTAA benefits remain relevant as long as the individual has cross-border income taxable in more than one country. Their importance increases once the individual becomes resident in India and foreign income enters the Indian tax framework,” says Chadha.

 

To claim DTAA benefits, the taxpayer must obtain a TRC issued by the jurisdiction of tax residence. The taxpayer must also quote their Permanent Account Number (PAN) and provide a declaration in Form 41, erstwhile Form 10F, relating to residency. A chartered accountant must verify it when the FTC exceeds ₹1 lakh.

 

Fix bank account status

 

Non-Resident External (NRE) and non-resident ordinary (NRO) accounts must be re-designated as resident savings accounts when the individual returns to India permanently. Foreign Currency Non-Resident (FCNR) deposits may be allowed to run to maturity. Gains on FCNR deposits remain non-taxable only until the RNOR status period. “The individual may also convert FCNR deposits into a Resident Foreign Currency (RFC) account, which allows residents to legally hold foreign-currency assets,” says Raj Ahuja, co-founder, Turtle Finance, which assists NRIs with the financial aspects of the transition to India.

 

FEMA does not provide an explicit grace period for re-designation. Re-designation is expected to happen promptly after return. “NRIs should not delay re-designation by more than a quarter from the date of return,” says Ahuja.

 

Delay in re-designation creates a compliance risk. “Foreign Exchange Management Act (Fema) does not permit residents to hold NRE or NRO accounts. Penalties for delay can be steep,” says Ahuja.

 

NRI accounts attract tax deducted at source (TDS) at 30 per cent plus cess on fixed-deposit interest. Resident fixed deposits attract TDS at 10 per cent. If a returned NRI continues to operate an NRE or NRO account without re-designation, the bank deducts TDS at NRI rates even though the person may owe tax at resident rates. Continuing with unrevised account status can create a mismatch between banking records and tax filings. “Such a mismatch can attract scrutiny,” says Ahuja.

 

Mistakes NRIs should avoid

• Returning NRIs should track their transition from NRI to RNOR to ROR carefully
• Failure to track this transition can result in material non-compliance
• Late filing of Form 44 can lead to loss of FTC even on legitimately paid foreign tax
• They should convert foreign income and foreign tax into Indian rupees using prescribed foreign-exchange conversion rates
• They should report foreign assets and foreign-sourced income after becoming ROR
• Non-compliance can trigger substantial penalties under the Income-tax Act and the Black Money Act