RNOR Advisory — Returning NRI Tax Planning

Resident but Not Ordinarily Resident under Section 6(6) of the Income Tax Act: a resident who (a) was non-resident in 9 out of the 10 preceding years, or (b) was in India for ≤729 days in the preceding 7 years. RNOR status is critical for returning NRIs — foreign income earned before return is not taxable in India during the RNOR period (typically 2–3 years).

RNOR: taxable only on (a) income received or accruing in India; and (b) business income controlled from India. Foreign income — salary paid abroad, foreign dividends, foreign capital gains — is not taxable in India during RNOR years. Full resident (ROR): worldwide income taxable in India. The RNOR window is the planning opportunity — optimal to recognise foreign income and gains during this period.

FEMA residency is separate from income tax residency. Under FEMA, a person becomes resident in India on return and must convert NRE/FCNR accounts to RFC (Resident Foreign Currency) or NRO accounts within a reasonable time. The RBI circular does not specify a hard deadline but the account type mismatch creates regulatory risk. RFC accounts allow holding foreign currency balances even after becoming FEMA-resident.

Resident individuals (including RNOR) with foreign assets must file Schedule FA in ITR. Even though foreign income may be exempt during RNOR years, the assets themselves must be disclosed: foreign bank accounts, foreign securities, immovable property abroad, beneficial interest in foreign trusts and entities. Failure to disclose triggers the Black Money (Undisclosed Foreign Income and Assets) Act 2015 — penalty of three times the tax plus ₹10 lakh per year.

Foreign capital gains are exempt in RNOR years — selling foreign securities or property while still RNOR avoids Indian capital gains tax entirely. Once the person becomes ROR, the same gains would be fully taxable. The RNOR period is typically 2–3 years post-return — a narrow window. The CA should map the person's past presence to determine the exact date of ROR transition and plan asset disposals accordingly.