Q1: What determines whether your global income is taxable in India?
A: The residential status under the Income Tax Act, 1961 is the primary determinant. There are two key classifications:
Resident and Ordinarily Resident (ROR):
Stayed in India for 2 out of 10 previous years, AND
Spent 730+ days in India during the past 7 years.
From FY 2020-21: Indian citizens/PIOs with income > ₹15 lakhs (excluding foreign income) and not liable to tax elsewhere are deemed ROR.Resident but Not Ordinarily Resident (RNOR):
If resident in India but fails to meet either of the above ROR conditions.
Or, Indian citizen/PIO with ₹15L+ Indian income, in India for 120–181 days, and not liable to tax elsewhere.
Insight: Your residential status changes the way India taxes your income. A timely understanding helps you plan global earnings more effectively.
Q2: What are the tax benefits of RNOR status for returning NRIs?
A: RNOR status is like a tax cushion for NRIs returning to India:
Tax-free Global Income: Only Indian income and foreign income received in India is taxed.
No Need to Declare Foreign Assets: You skip Schedule FA in your ITR.
NRE/FCNR Interest is Tax-Free: Unlike RORs, RNORs continue to enjoy exemption.
Transition Period: Ideal time to restructure global investments without triggering Indian tax.
Example: Rajiv returned from the US in April 2024. For 2–3 years, he is RNOR. His U.S. rental income and pension remain untaxed in India if not remitted here.
Tip: Use this window to liquidate, repatriate or restructure foreign assets smartly.
Q3: How can DTAAs and investment strategy help returning NRIs save tax?
A: Double Taxation Avoidance Agreements (DTAAs) ensure you don’t pay tax twice on the same income.
Claim foreign tax credit via Form 67.
Plan investment exits: Sell foreign stocks/property during RNOR years.
Retirement Planning: Delay withdrawals from foreign retirement accounts until RNOR or ROR, based on DTAA treatment.
Example: An NRI receiving UK pension can avoid dual taxation if the UK-India DTAA is used correctly.
Q4: What FEMA compliances must NRIs fulfill after returning to India?
A: As per FEMA, your status becomes Resident if you intend to stay permanently in India and spend 182+ days in a year. Key action points:
Convert NRE/FCNR to RFC accounts.
Convert NRO to Resident Rupee Account.
Inform banks, brokers, MFs about the status change for KYC/FATCA/CRS.
Route new foreign earnings via RFC/Resident account only.
Reminder: Delays in account reclassification can lead to FEMA violations.
Q5: What is an RFC account and why is it useful?
A: An RFC (Resident Foreign Currency) account helps retain foreign currency legally in India. It’s especially valuable for RNORs:
Holds USD, GBP, EUR, etc.
Tax-free interest during RNOR period.
Funds are freely repatriable.
Ideal for reinvestment abroad or for future relocation.
Pro Tip: Transfer NRE/FCNR balances to RFC post-return. Don’t keep them as-is.
Q6: How does LRS (Liberalized Remittance Scheme) impact foreign investing post-return?
A: Once FEMA status becomes Resident:
Foreign investments must follow LRS rules.
Annual limit: USD 250,000 per financial year.
TCS (Tax Collected at Source) applicable beyond ₹10L (from April 1, 2025).
Q7: Are foreign gifts/inheritances taxable in India?
A: Gifts from relatives abroad are tax-exempt in India under Section 56(2). But:
Document with a gift deed.
Comply with FEMA limits.
Clarify source of funds to avoid scrutiny.
Example: Monika receives ₹12 lakhs from her brother in Canada. With a proper gift deed, there is no tax liability.
Q8: What happens if foreign assets aren’t disclosed once RNOR turns ROR?
A: On becoming ROR:
Mandatory disclosure in Schedule FA & FSI of ITR.
Non-disclosure invites penalties under the Black Money Act, 2015.
Warning: Undisclosed foreign assets can lead to up to 120% tax, ₹10 lakh+ fine, or even prosecution.
✅ Conclusion
Returning to India comes with a financial homecoming too. By understanding RNOR benefits, FEMA compliance, DTAAs, and using RFC accounts, NRIs can make their transition smooth and tax-efficient.
👉 Need help? Get personalized consultation on NRI tax planning, asset repatriation, and compliance.
📞 Reach out to CA Bhavesh Panpaliya – NRI Tax Expert, Pune. 88887 55557
📌 FAQs on NRI Tax Planning in India
1. How long can an NRI maintain RNOR status?
Typically 2–3 years, depending on past stay history.
2. Is NRE FD interest taxable for returning NRIs?
Yes, once you become ROR. But during RNOR period, it remains tax-free.
3. Do I need to inform the Income Tax Department about my return?
Not directly, but residential status must be updated while filing your ITR.
4. Where can I learn more about tax rules?
Refer to the Income Tax Department official website.