Most returning NRIs are eligible for RNOR (Resident but Not Ordinarily Resident) status for nearly two to three financial years, depending on their earlier duration of stay in India. According to reports from Livemint, the RNOR category plays a crucial role in deciding whether foreign income becomes taxable during the transition phase. To qualify as RNOR, individuals must have been Non-Residents in 9 out of the previous 10 financial years or their total stay in India during the preceding 7 financial years was 729 days or less. Most NRIs returning after spending more than five years abroad typically qualify as RNOR during the initial years after returning.
During the RNOR period, several categories of foreign income remain outside the Indian tax net. As reported by Livemint, these generally include foreign salary and employment bonuses, interest and dividend income earned abroad, capital gains from overseas shares or mutual funds, and payments received from foreign retirement accounts such as 401(k) plans or UK pension schemes. Foreign income earned and received outside India usually remains exempt during the RNOR phase unless it arises from a business controlled from India or a profession established in India. However, income derived from a business controlled in India or a profession set up in India remains taxable even for RNOR taxpayers.
RNOR status does not exempt all forms of income. According to Livemint reports, the following continue to remain taxable in India: income originating in India, interest earned on NRO accounts where TDS is applicable, and interest from NRE and FCNR accounts once FEMA non-resident status is lost. The exemption is linked to FEMA residency and not solely to income-tax residency. Additionally, interest from NRE and FCNR accounts once FEMA non-resident status is lost becomes taxable. For most individual foreign investors, the IFSC tax regime is meaningfully cleaner than the standard India tax framework, both in absolute rates and in operational simplicity.
After becoming FEMA-resident, certain banking changes become necessary. As reported by Livemint, NRE accounts should be redesignated as Resident Savings accounts or transferred into RFC accounts to retain foreign currency holdings, NRO accounts should be converted into Resident accounts, and FCNR deposits may continue until maturity after which they should be shifted to RFC accounts or converted into Indian rupees. From April 1, 2026, departures may come under the proposed Section 420 framework of the Income-tax Act, 2025, with certain travellers potentially required to furnish declarations through Form 156 or obtain Assessing Officer certificates through Form 157 before departure.
One of the most overlooked aspects for returning NRIs is the Schedule FA disclosure requirement. According to Livemint, Schedule FA is generally not required while an individual retains RNOR status, with current guidance indicating that Non-Residents and RNOR taxpayers are exempt from filing Schedule FA disclosures. However, the obligation begins only after the taxpayer becomes Resident and Ordinarily Resident (ROR). During the RNOR period, most overseas income remains outside Indian taxation, but once ROR status begins, complete disclosure of foreign assets becomes mandatory, including overseas bank accounts, shares, retirement funds, foreign property, trusts, and insurance-related cash values.
