Fernandes discussed his taxes with tax and investment advisors well in advance, so he had a clear idea of how things would play out on his return.
Here, we explore the key tax strategies non-resident Indians (NRIs) should know about to ensure a smooth financial transition when moving back to India.
RNOR benefits
When you move back, the first thing to get right is your residential status under Indian tax law. “This isn’t about your visa or citizenship status; it’s simply a question of days spent in India. Cross the 182-day mark in a financial year and you are treated as a resident for tax purposes,” said Raj Ahuja, co-founder of Turtle Finance, a financial planning platform.
Residential status depends on the number of days spent in India in the relevant financial years. A person qualifies as resident (ROR or RNOR) if they are in India for at least 182 days in a financial year, or 60 days in the current financial year and 365 days in the preceding four.
Also, if an individual has been a resident in at least two of the preceding 10 financial years, or has stayed in India for 730 days or more in the preceding seven financial years, they will be treated as ROR; otherwise, they will be classified as RNOR.
“One does not have to opt for RNOR status—it is determined automatically under the Income Tax Act. While filing the return, the correct residential status (RNOR) must simply be selected,” said Priyal Goel Jain, partner and NRI desk head – Dinesh Aarjav & Associates, Chartered Accountants.
Bridge period
Under resident & ordinarily resident (ROR) status, your global income – interest from overseas bank accounts, rental income, pension withdrawals, and even capital gains from stocks – will be taxed in India. But there’s a bridge period that many miss, forgoing RNOR status.
For the two to three years that your RNOR status lasts, you get a breather: most foreign income remains non-taxable in India, unless you run a business abroad that’s controlled from India. “It’s a golden window to clean up, restructure, or even gradually repatriate funds before your full ROR status kicks in” said Ahuja.
Reporting foreign income and assets
The Income Tax Act requires residents to disclose their foreign assets and income in their tax returns. “Specifically, Schedule FA (Foreign Assets) in the ITR form is meant for reporting foreign assets, and Schedule FSI (Foreign Source Income) is for reporting income from foreign sources. Failure to disclose foreign assets and income can attract a penalty of ₹10 lakh a year and even result in imprisonment for up to seven years under the Black Money Act,” said Ankur Choudhary, co-founder and CEO of Belong, an NRI-focused fintech startup.
The mere repatriation of foreign assets to India does not, in itself, attract tax. Taxability is contingent on residential status. During the RNOR phase (generally up to three years), global income is not taxable and foreign assets don’t need to be disclosed.
“Once ROR status is acquired, however, foreign income such as interest, dividends, capital gains, and rental income becomes taxable in India, and all foreign assets must be reported in Schedule FA of the income-tax return,” said Ankit Jain, partner at Ved Jain and Associates, a chartered accountancy firm.
Using DTAAs to reduce tax
“If tax has already been paid in another country, the taxpayer can avail benefits under the relevant double taxation avoidance agreement (DTAA). Taxes paid abroad can be claimed as a credit and offset against their Indian tax liability, thereby preventing double taxation,” says Jain of Ved Jain and Associates.
Here it is important to understand the concept of foreign tax credit. “Taxes already paid abroad can be adjusted against your Indian tax liability. For example, if the US withholds tax on your dividends, you can claim that as a credit in India instead of paying twice,” said Ahuja.
For example, Ambika Bharadwaj, who returned from New York in 2023, continued receiving dividends from her US brokerage. The US withheld 25% as tax, but under the India-US DTAA she could claim this as a credit in India.
Tax planning for foreign retirement funds
Managing foreign retirement accounts such as 401(k)s, individual retirement account (IRAs), or foreign pension funds is a big financial challenge for NRIs planning to move back to India because these products were designed for the tax laws of their country, not India’s.
When you move back, the same account can feel like a tax trap if not managed well because any withdrawals from overseas retirement accounts become taxable in India once you attain ROR status.
“NRIs relocating permanently must carefully consider whether to retain such accounts or withdraw funds prior to the change in status. The decision depends on several factors including liquidity requirements, long-term financial objectives, currency risk, potential estate tax exposure, the desire for geographical diversification, and age,” said Jain of Dinesh Aarjav and Associates.
The right decision depends on tax treaties, RNOR status, timing, and personal plans, and engaging a cross-border tax advisor can help you navigate this complex landscape.
For example, Rajesh Singh, a 52-year-old engineer, had built up $600,000 in his 401(k) before moving back from Texas in 2024. Unsure what to do, he worked with a cross-border tax advisor, who advised phased withdrawals during his RNOR years. This way, part of his withdrawals were taxed only in the US.
FEMA compliance: what you need to know
India’s Foreign Exchange Management Act (FEMA) governs the legality of holding and repatriating foreign assets, while the Income Tax Act determines the taxability of income from these assets. Under FEMA, a returning NRI is permitted to retain foreign assets indefinitely, while the Income Tax Act requires disclosure of such assets in Schedule FA once ROR status is attained.
“Funds lawfully earned abroad can generally be repatriated to India without restriction, provided the source is legitimate and compliant with FEMA regulations. From a tax perspective the principal repatriated is not taxable, although the income generated from such funds—whether interest, dividends, or capital gains—becomes taxable in India once the person is ROR,” said Jain of Dinesh Aarjav & Associates.
Holding off-shore accounts is therefore not a problem, and can even be beneficial as the money remains freely repatriable around the world and is protected from rupee depreciation.
A returning NRI can get the same benefits by opening an onshore RFC (resident foreign currency) account with an Indian bank in India as well. “These accounts are available in USD and other foreign currencies and can be used to hold foreign currency sent to India by a returning NRI. Interest earned in these accounts will be tax-free during the RNOR phase and taxable once the NRI becomes fully resident,” said Choudhary.
