For Non-Resident Indians (NRIs) planning to move back home, the relocation is only half the journey. The other half is understanding how their tax liability in India will shift the moment their residential status changes. With the financial year ending soon, now is the time to plan.
Non-Resident Indians (NRIs) returning to India must carefully evaluate their residential status, as prolonged presence in the country may trigger taxation of worldwide income. The day-count in India during a financial year is the primary determinant of whether an individual is classified as a Non-Resident (NR), a Resident but Not Ordinarily Resident (RNOR), or a Resident and Ordinarily Resident (ROR). This classification directly affects if and when foreign income—such as overseas salary, investments, interest, and ESOPs—becomes taxable in India.
Failing to plan for this transition can lead to tax surprises, including interest under Sections 234B and 234C for non-payment of advance tax, and scrutiny under the Income-tax Act or the Black Money Act for improper disclosure of foreign assets.
The Three Statuses: NR, RNOR, and ROR
An individual qualifies as a resident in India if they are present for 182 days or more during the relevant financial year. Alternatively, they may also qualify as a resident if present for 60 days or more in the relevant year and 365 days or more in aggregate during the four preceding years.
However, relaxations apply to Indian citizens and Persons of Indian Origin (PIO) visiting India. For them, the 60-day threshold is extended to 120 days if their total income (excluding foreign sources) exceeds ₹15 lakh. Furthermore, an Indian citizen whose total income exceeds ₹15 lakh (other than foreign income) and who is not liable to tax in any other country is deemed to be a resident in India.
Once an individual qualifies as a resident, a further classification is required:
Resident and Ordinarily Resident (ROR): Taxable in India on global income.
Resident but Not Ordinarily Resident (RNOR): Taxable only on income that is received in India, accrues or arises in India, or is derived from a business controlled in India. Foreign income earned and received outside India generally remains outside the tax net.
The RNOR status is particularly relevant for returning NRIs, as it provides a transitional tax relief window. A citizen or PIO qualifies as RNOR if their total income (excluding foreign sources) exceeds ₹15 lakh and they have been in India cumulatively for 120 days or more but less than 182 days during the tax year.
"Returning NRIs should track their day-count carefully each financial year to anticipate when foreign income becomes taxable and plan compliance accordingly,"
Immediate Action Items Upon Return
Once residency is triggered, several compliance and regulatory actions become necessary:
1. Re-designation of Bank Accounts
Upon becoming a resident, NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts must be re-designated as resident accounts in accordance with FEMA regulations. Failing to do so can lead to compliance violations and loss of tax exemptions.
2. Review of Foreign Assets and Income Sources
Returning NRIs should conduct an early review of:
Foreign bank accounts
Investments (stocks, mutual funds, real estate)
ESOPs and deferred compensation
Retirement accounts (401(k), IRA, etc.)
Proper documentation of these assets is critical, as they may become reportable in Indian tax returns once resident status is triggered.
3. Advance Tax Planning
If foreign income becomes taxable in India, the taxpayer must estimate their total tax liability and pay advance tax in installments to avoid interest under Sections 234B and 234C. Aligning these payments with the information reported in the Annual Information Statement (AIS) and Statement of Financial Transactions (SFT) helps prevent mismatches and unnecessary scrutiny.
Filing Tax Returns and Claiming Foreign Tax Credit
Returning NRIs must select the correct Income Tax Return (ITR) form based on their residential status and the nature of income earned. Where foreign income is taxable in India, it must be converted into Indian currency in accordance with prescribed rules.
If tax has been paid abroad on the same income, the taxpayer can claim Foreign Tax Credit (FTC) . "Proper reporting, correct currency conversion, and timely FTC compliance are essential to avoid double taxation and processing delays." The claim is made under Section 90 (where a Double Taxation Avoidance Agreement exists) or Section 91 (where no treaty exists).
Key Takeaways for a Smooth Return
Track your day-count from the moment you arrive in India. Residency is determined financial year by financial year.
Plan for the RNOR window to keep certain foreign incomes outside the Indian tax net during the transition period.
Re-designate NRE/FCNR accounts promptly to stay FEMA-compliant.
Maintain records of foreign tax payments to support FTC claims.
Review global assets early and ensure proper disclosure in ITR forms to avoid penalties and scrutiny.
With careful planning and timely compliance, returning NRIs can ensure a smooth transition back home—without any tax surprises
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