Arjun spent twelve years in Toronto and is moving back to Pune with his family. He has a Canadian pension plan, a brokerage account, an NRE deposit, an FCNR deposit and an NRO account that collects rent. The flight is booked, but the paperwork is the part that trips up most people. A returning NRI has to deal with two sets of rules at once: the Income-tax Act, which decides what India taxes, and FEMA, which decides what your bank accounts and foreign assets must look like.
The good news is that the law gives you breathing space. Most people who return after many years abroad are taxed as “resident but not ordinarily resident” for a while, and you can keep assets you built abroad. This guide walks through the tax status, the bank accounts, the Resident Foreign Currency account, foreign asset disclosure and foreign retirement money.
Your tax status in the year you return
From tax year 2026-27, section 6 of the Income-tax Act, 2025 decides residence. You are resident in a tax year (April to March) if you spend 182 days or more in India, or 60 days or more in the year plus 365 days or more in the four years before it.
If you land early in the year, the 182-day test settles it: you are resident. If you land late, say in January, you may still be a non-resident that year, depending on how many days you spent in India during visits in the four earlier years. Whether the relaxations meant for Indians “visiting” India apply to someone who has come back for good is a fine legal point, so take advice if your arrival date is close to the line.
Being resident is only the first step. The next question is whether you are ordinarily resident.
RNOR status: the returning NRI’s breathing space
Under section 6(13), a resident individual is “not ordinarily resident” (RNOR or NOR) in a tax year if either:
- he was a non-resident in nine out of the ten tax years before that year; or
- he was in India for 729 days or less in total during the seven tax years before that year.
The department’s FAQ confirms these tests are unchanged from the 1961 Act and that the look-back can include years governed by the old Act. As an RNOR, you pay Indian tax on Indian income and on anything received in India, but income that arises and is received outside India stays out of Indian tax, unless it comes from a business controlled in India or a profession set up in India.
How long it lasts: an illustration
Say Arjun was a non-resident every year from 2014-15 and lands on 1 June 2026, giving him 304 days in India in tax year 2026-27.
- 2026-27: resident (304 days), and non-resident in all ten earlier years, so RNOR.
- 2027-28: non-resident in nine of the ten earlier years, so RNOR again.
- 2028-29: non-resident in only eight of ten years, so the first test fails. His days in India in the seven earlier years are 304 plus 366 (2027-28 includes 29 February 2028) plus whatever he spent on visits. If those visits total 59 days or less, he stays within 729 days and is RNOR a third year; otherwise he becomes ordinarily resident.
So a returning NRI typically gets two, and sometimes three, tax years before worldwide income becomes taxable in India. Use that window to tidy up foreign holdings.
What happens to NRE, FCNR and NRO accounts
For a returning NRI, bank accounts follow FEMA, not the Income-tax Act. FEMA looks at why you are in India: coming back to take up a job, or in circumstances showing you intend to stay for an uncertain period, changes your status. RBI’s rules for the accounts are:
- NRE accounts should be redesignated as resident accounts, or the money moved to an RFC account at your option, immediately on your return to take up a job or on a change in residential status.
- FCNR(B) deposits may continue till maturity at the contracted rate if you wish. On maturity the bank converts them into a resident rupee deposit or an RFC account (if you are eligible).
- NRO accounts may be redesignated as resident accounts when you return with the intention of staying for an uncertain period.
RBI’s interest rate directions remove two penalties. No penalty is charged for breaking an NRE term deposit early to move it into an RFC account, and none for premature conversion of FCNR(B) balances into RFC accounts by NRIs returning to India, though interest on an FCNR(B) deposit converted before its minimum period is capped at the RFC savings rate. If an NRE term deposit is moved to RFC before it has run one year, interest is capped at the RFC savings rate; otherwise the contracted rate is paid.
Tax follows too. The NRE interest exemption, now in Schedule IV of the new Act, applies only to people who are non-residents under FEMA, so interest earned after you become resident under FEMA is taxable. The FD calculator helps you plan the resident deposits that replace them.
The Resident Foreign Currency (RFC) account
An RFC account lets a resident keep money in foreign currency in India. Under RBI’s foreign currency account regulations (FEMA 10(R)), a resident can open one with an authorised bank out of foreign exchange:
- received as pension, superannuation or other monetary benefits from an employer outside India;
- realised on converting assets referred to in section 6(4) of FEMA and brought into India;
- received as a gift or inheritance from a person referred to in section 6(4);
- received as proceeds of a life insurance claim, maturity or surrender value paid in foreign currency by an Indian insurer.
RBI’s FAQ adds that NRE and FCNR(B) balances can be credited on a change in residential status. The account can be current, savings or term deposit, interest is set by the bank, and the funds are free of restrictions on use, including investment outside India. You may add a resident relative as joint holder on a former or survivor basis, though the relative cannot operate it during your lifetime.
An RFC account is useful if you expect to spend in foreign currency later, for example on children’s education abroad, and do not want to convert twice.
Foreign assets you can keep
As a returning NRI, you do not have to sell your foreign home or close your foreign bank account. RBI’s FAQ says a resident may keep a foreign currency account outside India that he opened while he was resident outside India. RBI’s circular on section 6(4) of FEMA says this covers foreign accounts opened while non-resident, income from employment, business or investments taken up while non-resident, and gifts or inheritance received then.
You may also use these eligible assets, their income and sale proceeds freely for payments or fresh investments abroad, without RBI approval, as long as the cost is met only from those assets and the transaction does not breach other FEMA rules. Buying new foreign assets with money earned in India after your return falls under the general FEMA rules for residents instead.
Disclosing foreign assets: Schedule FA
Once you are resident and ordinarily resident, disclosure becomes strict. Section 263 of the new Act (as numbered in the Act text as published) requires a resident, other than a not ordinarily resident person, to file a return by the due date, whatever his income, if at any time in the year he holds any asset located outside India (including a financial interest in an entity), has signing authority in a foreign account, or is a beneficiary of a foreign asset.
The return forms carry Schedule FA for full details of foreign assets, Schedule FSI for foreign income and Schedule TR for tax relief on that income. Leaving foreign assets out of your return can attract heavy penalties under the Black Money Act, 2015, even when the asset was bought with money already taxed. During RNOR years this specific filing trigger does not apply, though you may still need to file for other reasons, such as Indian income above the basic exemption limit.
Foreign pension, provident fund and gratuity
Retirement money earned abroad is where most confusion lies. The general rules are:
- While RNOR: pension or retirement payouts that arise and are received outside India are not taxed in India. But money received in India is taxable whatever your status, so a foreign pension credited straight into an Indian account can be taxed even in RNOR years.
- Once ordinarily resident: your worldwide income, including a foreign pension, withdrawals from foreign retirement plans and foreign gratuity or end-of-service payments, is taxable in India. If the other country also taxes it, claim credit under the DTAA or under section 160 where there is no treaty.
- Retirement accounts in notified countries: section 158 (according to the Act text as published) deals with retirement accounts opened abroad while you were non-resident and resident in that country, where that country taxes the income only on withdrawal. Income in such an account is taxed in the manner and year prescribed, which helps match Indian tax with the foreign tax.
If you hold foreign exchange assets under the special NRI investment rules, section 217 lets you keep the concessional treatment after becoming resident by filing a declaration with your return, until you transfer or convert the asset.
The returning NRI checklist
| Item | What to do | When |
|---|---|---|
| NRE savings and deposits | Redesignate as resident or move to RFC; no penalty on early NRE to RFC move | Immediately on return |
| FCNR(B) deposits | Keep till maturity, or convert to RFC without penalty | On return or at maturity |
| NRO accounts | Redesignate as resident accounts | On return |
| Foreign bank and brokerage accounts | May be retained under section 6(4) of FEMA; track income | Ongoing |
| Tax status | Count days; work out RNOR years | Each tax year |
| Schedule FA and FSI | Disclose foreign assets and income | From the first ordinarily resident year |
Before you fly, collect pension statements, foreign tax returns and account statements; you will need them to claim treaty credit later. Use the currency converter to value foreign balances in rupees.
Key takeaways
- A returning NRI is usually resident but not ordinarily resident for two or three tax years, so foreign income earned and received abroad stays out of Indian tax for that time.
- NRE accounts must be redesignated or moved to RFC immediately on return; FCNR(B) deposits can run to maturity; NRO accounts become resident accounts.
- An RFC account can hold foreign pension, proceeds of foreign assets and NRE or FCNR balances, with no restriction on use.
- Foreign assets acquired while non-resident can be kept, but must be reported in Schedule FA once you are ordinarily resident.
- Foreign pension is taxable once you are ordinarily resident; claim treaty credit where the other country also taxes it.
This is general information, not personal advice. The rules on foreign retirement accounts are detailed, so a chartered accountant who handles returning NRI cases is worth consulting before your first Indian return.
