“A well-informed return is the first step towards a prosperous future.”
Understanding Your Tax Residency Status
Your tax residency status under the Indian Income-tax Act, 1961, determines your tax obligations in India. For NRIs returning in FY 2024–25, transitioning from Non-Resident (NR) to Resident and Ordinarily Resident (ROR) can have significant implications:
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Global income becomes taxable in India.
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Mandatory disclosure of foreign assets in the Income Tax Return (ITR).
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Potential exposure to penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
Identifying if you qualify as a Resident but Not Ordinarily Resident (RNOR) can provide a transitional tax shield, allowing for a phased integration into India's tax regime.
Tax Residency Criteria for AY 2025–26
Per Section 6 of the Income-tax Act, your residency status is determined based on your physical presence in India:
Resident Individual if:
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Stayed in India for ≥182 days during the FY, or
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Stayed in India for ≥60 days during the FY and ≥365 days during the preceding four FYs.
Exceptions:
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For Indian citizens or Persons of Indian Origin (PIO) visiting India, the 60-day threshold is extended to 120 days if their Indian income exceeds ₹15 lakh.
RNOR Status if:
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NRI in 9 out of 10 preceding years, or
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Stayed in India for ≤729 days during the preceding 7 years, or
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Indian income > ₹15 lakh, stayed in India for 120–182 days, and not liable to tax in any other country.
Note: RNORs are taxed only on Indian-sourced income and are not required to disclose foreign assets in the ITR.
Key Updates for AY 2025–26
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Form 67: Must be filed before the due date to claim Foreign Tax Credit (FTC) under Double Taxation Avoidance Agreements (DTAA).
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Schedule FA: Mandatory only for RORs; RNORs are exempt.
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Black Money Act: Non-disclosure of foreign assets can attract penalties exceeding ₹10 lakh.
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Foreign Pension Schemes: Withdrawals may become taxable upon attaining ROR status.
Case Studies: Tax Implications for Returning NRIs
🇬🇧 Case Study 1: Returning from the UK
Profile:
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Name: Mr. Rajiv Kapoor
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Country of Stay: United Kingdom (since 2010)
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Return to India: 15 August 2024
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Days in India (FY 2024–25): 230
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Indian Income: ₹18 lakh
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Global Income: ₹40 lakh (UK salary, rental income)
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Tax Residency in the UK: Ceased upon return
Analysis:
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Residency Status: Resident (stayed >182 days)
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RNOR Eligibility: Yes (NRI in 9 out of 10 preceding years)
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Tax Implications:
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Indian income taxable in India.
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Global income not taxable in India during RNOR period.
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No requirement to disclose foreign assets in ITR.
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Strategic Insight: Utilize the RNOR window to restructure foreign investments and plan for eventual ROR status, where global income becomes taxable.
🇺🇸 Case Study 2: Returning from the US
Profile:
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Name: Ms. Asha Menon
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Country of Stay: United States (since 2015)
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Return to India: 1 October 2024
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Days in India (FY 2024–25): 182
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Indian Income: ₹12 lakh
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Global Income: ₹50 lakh (US salary, 401(k) withdrawals)
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Tax Residency in the US: Ceased upon return
Analysis:
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Residency Status: Resident (stayed ≥182 days)
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RNOR Eligibility: Yes (NRI in 9 out of 10 preceding years)
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Tax Implications:
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Indian income taxable in India.
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Global income not taxable in India during RNOR period.
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No requirement to disclose foreign assets in ITR.
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Strategic Insight: Plan withdrawals from foreign retirement accounts during the RNOR period to minimize tax liabilities upon transitioning to ROR status.
🇸🇬 Case Study 3: Returning from Singapore
Profile:
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Name: Mr. Suresh Iyer
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Country of Stay: Singapore (since 2012)
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Return to India: 1 July 2024
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Days in India (FY 2024–25): 275
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Indian Income: ₹20 lakh
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Global Income: ₹35 lakh (Singapore salary, CPF withdrawals)
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Tax Residency in Singapore: Ceased upon return
Analysis:
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Residency Status: Resident (stayed >182 days)
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RNOR Eligibility: Yes (NRI in 9 out of 10 preceding years)
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Tax Implications:
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Indian income taxable in India.
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Global income not taxable in India during RNOR period.
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No requirement to disclose foreign assets in ITR.
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Strategic Insight: Consider transferring funds from Singapore to India during the RNOR period to avoid taxation upon becoming ROR.
RNOR Status: A Strategic Tax Shield
Benefits of RNOR Status:
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Taxation: Only Indian-sourced income is taxable; global income remains exempt.
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Compliance: No requirement to disclose foreign assets in ITR.
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Duration: RNOR status typically applies for up to 2–3 years, depending on individual circumstances.
Planning Considerations:
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Monitor the duration of stay in India to maintain RNOR status.
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Plan the timing of asset repatriation and income realization from foreign sources.
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Prepare for eventual transition to ROR status, where global income becomes taxable.
RNOR Tax Planning Checklist for FY 2024–25
| Action Item | Recommendation |
|---|---|
| Track Days in India | Ensure accurate record-keeping to determine residency status. |
| Update Bank Accounts | Convert NRE/NRO accounts to resident accounts upon change in residency status. |
| Review Investment Portfolios | Assess foreign investments and plan for repatriation during RNOR period. |
| File Appropriate ITR | Use ITR-2 or relevant form, indicating RNOR status and reporting Indian income. |
| Plan Foreign Income Withdrawals | Schedule withdrawals from foreign retirement accounts during RNOR period. |
| Stay Informed on Tax Laws | Keep abreast of changes in tax regulations affecting NRIs and RNORs. |
Conclusion: Strategic Financial Repatriation
Returning to India involves more than just relocation; it requires meticulous financial planning to navigate the complexities of tax residency and compliance. Leveraging the RNOR status provides a valuable window to restructure global finances, ensuring a smooth transition into India's tax system.
For personalized advice tailored to your specific circumstances, consider consulting a tax professional experienced in NRI and RNOR matters.
