Work out residence before planning a sale or remittance
Indian income-tax residence is tested for each year. Use the Income-tax Act, 1961 for FY 2025–26 and earlier and the Income-tax Act, 2025 from tax year 2026–27. The ordinary tests are at least 182 days in India in the current year, or at least 60 current-year days and 365 days in the four preceding years. Specific exceptions apply, including for qualifying Indian citizens leaving India and for Indian citizens or persons of Indian origin who come on a visit. A permanent move should not automatically be treated as a visit. Check deemed residence separately where relevant.
Once resident, an individual is resident but not ordinarily resident (RNOR) if non-resident in at least nine of the ten preceding years or present in India for 729 days or fewer in the seven preceding years. Certain visitors who qualify under the 120-day rule and deemed residents are also RNOR. Otherwise the individual is ordinarily resident (ROR). Check the two lookbacks independently; there is no fixed two- or three-year window. A partial first year is not automatically non-resident. Tax residence, treaty residence and FEMA residence are different tests.
Identify source, first receipt and reporting
| Item | RNOR | ROR |
|---|---|---|
| Indian-source, deemed Indian-source or Indian-received income | Generally in scope | Generally in scope |
| Foreign salary, dividends, interest, rent, gains or pension that accrue and are first received outside India, with no Indian deeming rule | Generally outside scope, subject to the business and profession rule and treaty analysis | Generally in scope, subject to the applicable treaty, rates and relief |
| Income accruing abroad from a business controlled in India or a profession set up in India | Generally in scope | Generally in scope |
| Schedule FA in the applicable older ITR | Not required under the form instructions; other reporting may apply | Complete when the form’s foreign asset, interest or income criteria apply |
Later remittance of money already received abroad is different from first receipt in India. For salary, check where the services were performed. For foreign pensions, distinguish private pensions, government pensions and social-security payments, and apply the actual treaty as well as the domestic rule. For current-year returns check the form and schedule applicable under the 2025 Act.
Overseas assets, retirement accounts and bank accounts
Selling and repurchasing foreign assets
Moving to India does not automatically reset the purchase price of an overseas asset. A genuine sale followed by a genuine new purchase can create a new cost and holding period for the new asset. Determine whether the initial gain is outside Indian scope on the actual facts; consider foreign tax, treaty residence, anti-avoidance rules, transaction costs, currency conversion and market exposure. Check the rules in both jurisdictions before trading. A later gain is not necessarily long-term just because the original holding was long-term.
Foreign retirement benefit elections
For older years, Section 89A and Rule 21AAA provide an option for a qualifying resident with a specified account opened while non-resident in India and resident in a notified country, where the account meets the foreign tax-timing test. Elect electronically in Form 10-EE by the applicable Section 139(1) return due date. The corresponding provisions are Section 158, Rule 74 and Form 40 under the new Act and rules, with the relevant Section 263(1) deadline. Check current notifications and transition guidance for an earlier election and whether the particular 401(k), IRA, pension or other arrangement meets the definition.
The election generally aligns taxation of qualifying account income with the year it is taxed upon withdrawal or redemption in the notified country. Check the exclusions for amounts already taxed in India or previously outside its tax base, and consequences of subsequently becoming non-resident. Do not assume all withdrawals are fully taxable or fully relieved in both countries, or that the entire foreign withholding is creditable.
NRE, NRO and RFC
Inform the bank when FEMA status changes. RBI guidance calls for immediate NRE redesignation as a resident account or transfer of eligible funds to a resident foreign currency (RFC) account on the relevant return or status change. The bank can redesignate NRO accounts when the holder returns intending to stay for an uncertain period. Do not confuse the special maturity rules for an FCNR(B) deposit or the applicable bank interest terms with a continuation of the NRE income-tax exemption. Review withholding under the new account status rather than using a blanket percentage.
Eligible foreign currency assets or specified proceeds may be credited to an RFC account subject to RBI and bank requirements. For years under the 1961 Act, Section 10(15)(iv)(fa) exempts interest paid by a scheduled bank to a non-resident or RNOR on a foreign currency deposit whose acceptance the RBI approves. Verify account eligibility and residence in the year of the interest; Section 11 read with Schedule IV, table item 14, of the 2025 Act preserves the exemption subject to the same conditions. FEMA treatment of RFC funds does not itself determine Indian tax, withholding or remittance paperwork for every payment.
Four worked illustrations
1. May return versus October return
Assume Arvind was non-resident for 14 prior financial years, spent no days in India in those years and makes a permanent move in FY 2023–24. He remains in India after arrival, counting both endpoints. His portfolio is USD 800,000 and includes an unrealised gain of USD 400,000 (₹3.32 crore at an assumed ₹83 per USD); the residence test does not by itself tax or exempt an unrealised gain.
| Year | Return on 15 May 2023 | Return on 20 October 2023 |
|---|---|---|
| FY 2023–24 | 322 days, resident and RNOR (10 prior non-resident years) | 164 days, NR: neither ordinary day test is met given the four-year history; assume no deemed residence |
| FY 2024–25 | 365 days; RNOR (9 of the previous 10 years NR) | 365 days; RNOR (10 of the previous 10 years NR) |
| FY 2025–26 | 365 days; RNOR because the prior seven years total 687 days, even though only 8 of the prior 10 were NR | 365 days; RNOR (9 of the previous 10 were NR; 529 prior days also meet the test) |
| Tax year 2026–27 | ROR (1,052 prior days; 7 of the prior 10 were NR) | ROR (894 prior days; 8 of the prior 10 were NR) |
In the final row assume at least 182 days in India in the current year. Both paths first reach ROR in the same year under these assumptions; a different visit record can change the result.
2. A genuine overseas share sale and a later sale
Assume Deepa is RNOR in FY 2024–25 and ROR in tax year 2026–27 based on documented day and residence histories. She originally paid USD 20 for each of 10,000 foreign company shares in 2018, or USD 200,000. On 20 September 2024 she sells them abroad at USD 120 (USD 1.20 million); the gain is USD 1 million, or ₹8.30 crore using ₹83 per USD. Assume the gain accrues and is first received abroad, is not deemed Indian-source or received in India and has no other relevant Indian nexus; it is outside Indian scope on those facts. Foreign tax is a separate question.
She makes a genuine repurchase on 23 September 2024 for USD 1.20 million. On 1 October 2026 she sells at USD 135 per share (USD 1.35 million). Both the hypothetical original shares and the repurchased shares meet a more-than-24-month holding test for the assumed overseas shares. At a uniform illustrative exchange rate of ₹83, without the prior disposal the later gain would be USD 1.15 million (₹9,54,50,000); with the repurchase, it is USD 150,000 (₹1,24,50,000). At the 12.5% basic long-term capital gains rate under Section 197 of the 2025 Act, assuming no unused basic exemption or other adjustment, the comparison is ₹1,19,31,250 versus ₹15,56,250, a difference of ₹1,03,75,000 before surcharge, cess, foreign tax and trading costs. This is a rate illustration; use the actual dates, acquisition evidence, exchange rules and computation when filing.
3. A qualifying US retirement account
Assume Sanjeev, ROR in FY 2025–26, has a USD 1.5 million US 401(k) that satisfies Section 89A. The account has USD 65,000 of qualifying income during the year (₹53.95 lakh at an assumed ₹83 per USD) and no distribution. If a valid Form 10-EE election applies and the foreign country has not taxed the income on withdrawal or redemption, the stated income is not included in that year on these assumptions. When he later takes distributions, identify the portion taxable in each country, the year, the treaty article and any available FTC; there is no automatic 100% credit. Keep account statements and records separating principal and different income periods.
4. Interest on a qualifying RFC deposit
Rajesh returns from Dubai in June 2023 and places USD 500,000 in an eligible RBI-approved foreign currency deposit with a scheduled bank. An assumed 5.25% annual simple rate for a full year gives USD 26,250. At an illustrative ₹83 per USD the interest is ₹21,78,750, about ₹21.79 lakh. In a full year when he is RNOR and the Section 10(15)(iv)(fa) conditions hold, that interest is exempt. The illustration does not assume every person returning in June is RNOR for two years, or give a full year’s interest on a partial deposit year.
Checklist before and after returning
- Build immigration and residence histories for the year of return and the statutory lookbacks. Document any deemed-residence and treaty questions.
- Inventory accounts, holdings, purchase lots, beneficial interests and pension rights; separate dates, source, first receipt and remittances.
- Contact the bank for account redesignation and RFC eligibility. Separately check each remittance’s tax and documentary requirements.
- Check any foreign retirement election and deadline, and prepare the relevant foreign-income, FTC and asset disclosures for each year.
Frequently asked questions
1. Can I keep overseas assets after returning?
FEMA Section 6(4) generally permits keeping, holding, transferring or investing qualifying foreign currency, securities or immovable property acquired, held or owned while resident outside India, or inherited from someone resident outside India. Verify the original facts and any separate requirements for a new acquisition or transfer.
2. Does an RNOR with only foreign income have to file?
Check which income is within scope and all applicable return-filing triggers, including specified transactions and conditions that can require a return independently of taxable income. Do not assume a universal basic-exemption amount or infer the return obligation solely from Schedule FA.
3. Is an NRE deposit tax-free until maturity after return?
Do not assume that. The older Section 10(4)(ii) exemption depends on FEMA residence or permission from the RBI to maintain the account. Confirm redesignation, the tax treatment and the deposit terms with the bank.
4. What if a foreign pension is paid into an Indian bank?
First receipt in India can bring the amount into domestic tax scope. A later remittance after first receipt abroad is different. Also check the pension type, source and the applicable treaty; the bank account label alone is insufficient.
5. Can an RNOR give overseas assets to a resident child?
The recipient-side exception for a genuine gift from a qualifying relative generally applies to a parent–child gift under the applicable Indian income-tax law. Check the nature of the asset, transfer documentation, FEMA and any foreign taxes or reporting separately.
6. What changes when I become ordinarily resident?
Review worldwide income, the applicable return and schedules and treaty relief. Do not ignore a reportable asset merely because the balance is small. The Black Money Act’s ₹10 lakh reporting penalty is not automatic; check the statutory conditions, relevant year and exclusions, Sections 42 and 43 exclude qualifying assets other than immovable property where their aggregate value does not exceed ₹20 lakh, effective 1 October 2024. The Finance Act, 2026 added a corresponding asset exception to the separate prosecution provisions in Sections 49 and 50, with effect from the same date. These exceptions do not remove the underlying return disclosure requirements.
Sources
- Income-tax Act, 1961: Sections 5, 6, 10, 56, 89A and 139
- Income-tax Act, 2025 as amended: residence, scope, capital gains and retirement benefits
- Income Tax Department: residence and the transition between Acts
- CBDT Notification 24/2022: Rule 21AAA and Form 10-EE
- Income-tax Rules, 2026: Rule 74, Form 40 and foreign tax credit rules
- Income Tax Department: Form 40 guidance
- RBI: accounts in India held by non-residents and change of residence
- FEMA: residence and Section 6(4) foreign holdings
- India–US tax convention: pensions, social security and tax relief
- Income Tax Department: AY 2026–27 Schedule FA and ITR-2
- Black Money Act: foreign income and asset reporting provisions
- Finance (No. 2) Act, 2024: amendments to the Black Money Act reporting penalty exceptions
- Finance Act, 2026, Section 160: Black Money Act prosecution exceptions
- RBI: permitted RFC account credits and debits