How NRIs Returning to India Can Use RNOR Status for Cost Basis Reset on US Stocks

Step 1: Confirm You Qualify for RNOR Status

RNOR, or Resident but Not Ordinarily Resident, is a transitional tax status under Section 6 of India's Income Tax Act. It applies to returning NRIs during the first few years after they move back. During this period, your foreign income, including gains from selling US stocks, is completely exempt from Indian tax.

The two RNOR eligibility conditions

You qualify as RNOR in a financial year if you meet either of these two conditions:

• You were a non-resident Indian (NRI) for at least 9 out of the 10 financial years immediately preceding the current year, or
• You spent fewer than 729 days in India across the 7 financial years before the current year.

Most NRIs who worked in the US for 5 or more years will easily satisfy the first condition. You only need to meet one.

How long RNOR status lasts

RNOR status typically covers 2 to 3 financial years after you return to India. The exact duration depends on how long you were an NRI and when you moved back. Most returning NRIs get a 2-year window. In some cases, it stretches to a third year.

Confirm your specific duration before planning the reset. See the detailed RNOR eligibility rules to calculate exactly how many years you have.

Step 2: Time Your Move Correctly on Both Sides of the Border

This is where most people get tripped up. The cost basis reset only works if your gains face zero tax in both India and the US at the same time. The two countries follow different calendars and different rules.

The India side: Financial year timing

India's financial year runs from April 1 to March 31. Your RNOR status is determined based on this calendar. If you moved back in April 2025, your RNOR status begins for FY 2025-26.

Any gains from selling US stocks during an RNOR financial year count as foreign income and are fully exempt from Indian tax. You do not need to declare them or pay any tax in India.

The US side: The IRS 183-day NRA rule

Once you permanently leave the US, you become a non-resident alien (NRA) for US tax purposes. The US generally does not tax NRA capital gains from selling US stocks. But there is one critical exception.

Under Section 871(a)(2) of the US Internal Revenue Code, if you are physically present in the US for 183 days or more in a single calendar year, the IRS taxes your capital gains at a flat 30% rate, even if you are otherwise an NRA for residency purposes.

This is a separate test from the Substantial Presence Test that determines residency. The rule is simple: if you executed your reset in a year you spent 183 or more days in the US, you owe 30% US capital gains tax and the strategy fails on the US side.

The practical solution: execute the reset in a calendar year where you spent fewer than 183 days in the US. If you moved back to India in mid-2025, it is usually safest to wait until January 2026 to sell and repurchase.

Step 3: Notify Your US Broker of Your NRA Status

Before you sell a single share, formally notify your US broker that you are now a non-resident alien. You do this by submitting Form W-8BEN, a short IRS certification document.

What Form W-8BEN does

W-8BEN informs your broker that you are no longer a US tax resident. This changes how your account is classified for withholding purposes. Specifically, it reduces dividend withholding from the default 30% to the rate under the India-US tax treaty, typically 15% or 25% depending on the dividend type.

More importantly for this strategy, it ensures your capital gains from stock sales are correctly treated as NRA gains, which means no US withholding on the proceeds.

What changes after you file it

Major brokers including Fidelity, Schwab, and Interactive Brokers all accommodate NRA accounts. Filing W-8BEN does not close your account. Some brokers may restrict access to certain products like US money market funds, but your core stock and ETF holdings will remain intact.

File this form as soon as you establish your India residency. Do not wait until you are ready to sell.

Step 4: Identify Which Holdings Qualify for the Reset

Not every US financial account qualifies for this strategy. Getting this wrong can create unexpected tax problems.

What qualifies

The reset works for holdings in a taxable brokerage account: US-listed stocks, ETFs, and bonds in a regular account. If Priya holds $150,000 in S&P 500 ETFs and US tech stocks in a Schwab taxable account, all of it qualifies.

Vested RSUs that were already taxed at the grant date also qualify, since they sit in a taxable account with a cost basis equal to the fair market value on the vesting date.

What does NOT qualify

• 401(k) and IRA accounts: These are tax-deferred retirement accounts. Distributions are taxed as ordinary income, not capital gains. This strategy does not apply to them.
• Unvested RSUs or stock options: You cannot sell what you do not yet own.
• Roth IRA: Has its own distribution rules. The reset strategy does not apply.

Once your RNOR window closes, you become a Resident and Ordinarily Resident (ROR). At that point, future gains from your US stocks become taxable in India. The 12.5% LTCG rate applies if you hold the reset shares for more than 24 months after the repurchase date. Short-term gains go directly into your income slab, which could mean 30% or higher for most returning professionals. Resetting your cost basis now means future taxable gains start from a much higher base.

Step 5: Sell Your Stocks and Repurchase at the Current Price

Once your W-8BEN is filed and you have confirmed your timing, the execution itself is simple: sell your holdings, let the trade settle, and repurchase the same stocks at today's market price.

How to execute

Log in to your brokerage account and place sell orders for the positions you want to reset. US stock trades settle in one business day (T+1). Once the sale settles, place buy orders to repurchase the same holdings. Your new cost basis is the price you paid on repurchase.

You can repurchase on the same day if your broker allows it. US wash-sale rules do not apply to NRAs, because those rules govern losses that would otherwise be deductible on a US return. Since your gains and losses are not being reported on a US return, wash-sale restrictions are not relevant here.

A real example

Rahul moved back to India in April 2025. He holds $200,000 in US tech stocks, purchased years ago at a cost of $80,000. His unrealised gain is $120,000.

By January 2026, he has spent only 40 days in the US during calendar year 2025. He is still RNOR in India for FY 2025-26. He sells all his shares at $200,000 and repurchases them at the same price.

• US tax on the $120,000 gain: $0
• India tax on the same gain: ₹0
• New cost basis: $200,000

Two years later, he sells at $250,000. His taxable gain in India is now $50,000 (roughly ₹42 lakh at USD/INR = 84). At 12.5% LTCG, his India tax is approximately ₹5.25 lakh.

Without the reset, his taxable gain would have been $170,000 (₹1.43 crore). At 12.5% LTCG, he would owe approximately ₹17.9 lakh. The reset saves him over ₹12 lakh in a single decision.

For a full breakdown of India capital gains rates on different asset classes, see our detailed guide.

Note: Hold the repurchased shares for at least 24 months before selling to qualify for the 12.5% LTCG rate. If you sell sooner, gains are added to your income and taxed at your slab rate.

Step 6: Prepare Your Records Before RNOR Status Expires

The reset is only half the work. Once you have executed it, clean documentation is what protects you during future tax filings.

Your obligations once you become a full Resident

When your RNOR period ends, you transition to ROR status. Your worldwide income, including future US stock gains, US rental income, and interest on foreign accounts, becomes taxable in India. This is a major shift. Many returning NRIs underestimate how much their India tax burden changes from year three onward.

You will also need to file a final US Form 1040-NR covering the year of the reset. This confirms your NRA status and that no US capital gains tax was owed. Keep this return permanently.

Documents to maintain after the reset

• Brokerage statements showing the exact sale and repurchase dates, prices, and quantities
• Form W-8BEN acknowledgement from your broker
• Final US Form 1040-NR
• A cost basis summary for each holding in INR, converted at the exchange rate on the repurchase date

Hand this documentation to your Indian CA before your first ITR filing as an ROR. For a step-by-step walkthrough on filing US and India taxes after returning to India, our guide covers the full process.

Common Mistakes to Avoid

Even people who know about the RNOR cost basis reset make avoidable errors. Here are four to watch out for.

Mistake 1: Executing the reset in a year you spent 183 or more days in the US. This triggers the IRS Section 871(a)(2) flat 30% tax on your capital gains, eliminating the entire US-side benefit.

Mistake 2: Not filing Form W-8BEN before selling. Without it on file, your broker may withhold US taxes on proceeds. You can recover this money by filing Form 1040-NR, but that takes time and creates paperwork that could have been avoided.

Mistake 3: Trying to reset tax-deferred accounts. Withdrawing from a 401(k) or IRA is not a capital gain. It is ordinary income. You may also face a 10% early withdrawal penalty if you are under 59.5 years old. These accounts are outside the scope of this strategy.

Mistake 4: Not documenting the new cost basis for India. The India tax authorities will not automatically know your new cost basis. If you cannot prove it during scrutiny, you could face tax on a much larger gain. Good records now prevent a costly dispute later.

For a broader look at tax planning when returning to India, including how to handle NRE accounts and Indian investments, see our complete guide.

The IRS guide on taxation of nonresident aliens is the authoritative reference for understanding your US obligations as an NRA.

How InvestMates Can Help You Execute the RNOR Strategy

The RNOR cost basis reset requires getting multiple things right at the same time: confirming your residential status, timing the execution across two tax years in two countries, notifying your broker correctly, and setting up clean records for India filings.

InvestMates advisors work specifically with NRIs navigating the India-US financial crossover. They can help you confirm whether your residential history qualifies for RNOR, calculate exactly how much your portfolio stands to save, and guide you through the right sequence of steps so nothing is missed.

The platform also lets you track your US and India portfolios in one view, with cost basis, currency exposure, and unrealised gains all visible together.

If you are mid-way through your RNOR window and unsure how much time you have left, book a free consultation with an InvestMates advisor. This is one decision where acting a year too late costs you permanently.