Rajesh sat in his Silicon Valley apartment, staring at his investment portfolio. After 8 years in the USA, he was finally ready to move back to India. But a simple question kept him awake at night: should he return in December or wait until April? This decision alone could mean the difference between saving or losing lakhs in taxes.
If you are planning to return to India after years abroad, you are facing one of the most important financial transitions of your life. The good news is that India's tax system offers a special benefit called RNOR status (Resident but Not Ordinarily Resident) that can protect your foreign income from taxation for 2-3 years. The challenge is understanding how to maximize this window through strategic planning.
This comprehensive guide walks you through every aspect of tax planning for NRIs returning to India, from timing your return date to managing foreign accounts, handling retirement funds, and ensuring full compliance with Indian tax laws.
Key Takeaway
Before you book your return ticket, here's what you need to know about managing your taxes when moving back to India:
- RNOR status provides a 2-3 year tax relief window where your foreign income stays tax-free in India
- Timing your return date strategically can extend RNOR benefits and save significant taxes on capital gains
- Foreign bank accounts need immediate conversion but FCNR deposits can continue tax-free until maturity
- US retirement accounts like 401k and IRA require Form 10EE filing to avoid double taxation on annual growth
- Non-disclosure of foreign assets attracts penalties up to ₹10 lakh per year under the Black Money Act
What Happens to Your Tax Status When You Return to India?
Understanding your residential status is the foundation of effective tax planning. Unlike citizenship or visa status, your tax residency in India depends purely on the number of days you physically spend in the country during a financial year.
Understanding the Three Tax Residency Categories
The Income Tax Act classifies every individual into one of three categories. Non-Resident Indians (NRIs) are taxed only on income earned or received in India, while their foreign income remains outside Indian tax jurisdiction. Resident but Not Ordinarily Resident (RNOR) is a transitional status that offers similar benefits to NRIs with limited exceptions. Resident and Ordinarily Resident (ROR) individuals face taxation on their worldwide income, regardless of where it is earned.
Your category determines what portion of your global income gets taxed in India. For returning NRIs, the goal is to qualify for RNOR status and maximize its duration.
How Residency is Determined (182-Day Rule Explained)
You become a resident in India if you satisfy either of two conditions during a financial year (April 1 to March 31). The first condition is staying in India for 182 days or more during the financial year. The second is staying for 60 days or more in the current year AND 365 days or more during the preceding four years.
For Indian citizens and Persons of Indian Origin (PIOs), the 60-day threshold extends to 120 days if your Indian income exceeds ₹15 lakh. This additional flexibility helps prevent accidental residency during short visits.
Let me show you how this works with a real example. Priya returns to India on January 15, 2025, after 10 years in Canada. From January 15 to March 31, 2025, she stays in India for 75 days. Since she stayed less than 182 days in FY 2024-25, she qualifies as a Non-Resident for that year. However, starting April 1, 2025 (FY 2025-26), if she stays beyond 182 days, she becomes a Resident.
The RNOR Advantage for Returning NRIs
Here is where the tax magic happens for returning NRIs. When you become a resident after years abroad, you do not immediately become ROR. Instead, you qualify as RNOR if you meet either of two conditions.
The first condition: you have been a non-resident in 9 out of the 10 previous financial years. The second condition: you have stayed in India for 729 days or less during the 7 preceding financial years. Meeting just one of these conditions qualifies you for RNOR status.
During your RNOR period, your tax treatment mirrors that of an NRI. Only your Indian-sourced income gets taxed, while foreign income remains exempt unless it derives from a business controlled from India. This creates a golden window for restructuring your international finances.
How Long Does RNOR Status Last After Returning to India?
This is the question every returning NRI needs answered. RNOR status typically lasts for 2-3 financial years after your return, depending on your prior residency history.
The Two Conditions for RNOR Qualification
Your RNOR status continues as long as you satisfy at least one of the two qualifying conditions. Remember, you need to have been a non-resident for 9 out of 10 previous years, OR you must have stayed in India for 729 days or less in the past 7 years.
The moment both conditions become false, you transition to ROR status. This is when your worldwide income becomes fully taxable in India.
Calculating Your RNOR Duration (With Examples)
Let me show you how timing affects your RNOR duration. Amit lived in the USA from 2014 to 2024 (10 years as NRI). He returns to India on December 15, 2024.
For FY 2024-25 (stays 105 days from Dec 15 to Mar 31): He is a Resident. He qualifies as RNOR because he was NRI for 9 out of 10 previous years. For FY 2025-26: Still RNOR (condition still satisfied). For FY 2026-27: Becomes ROR (no longer NRI in 9 of past 10 years).
Total RNOR duration: 2 financial years.
Now consider if Amit returns on April 5, 2025 instead. For FY 2024-25: He stays abroad, remains NRI. For FY 2025-26: Returns and becomes Resident with RNOR status. For FY 2026-27: Still RNOR. For FY 2027-28: Becomes ROR.
Total RNOR duration: 3 financial years by simply delaying return by 4 months.
What Changes When You Become ROR
The transition from RNOR to ROR marks a significant shift in your tax obligations. Your global income now becomes taxable in India, including foreign salary, rental income from overseas property, dividends from international stocks, interest from foreign bank accounts, and capital gains from foreign asset sales.
You must also disclose all foreign assets and income in Schedule FA of your income tax return. Assets exceeding ₹1 crore and liabilities over ₹50 lakh require mandatory reporting. Failure to disclose can trigger penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
What Income Gets Taxed Under RNOR vs ROR Status?
Understanding what gets taxed in each status helps you plan asset liquidation and income timing strategically.
Taxable Income During RNOR Period
As an RNOR, you pay tax on income earned or received in India. This includes salary for services rendered in India, rental income from Indian property (with 30% standard deduction), interest from NRO accounts, dividends from Indian companies, and capital gains from selling Indian assets.
Additionally, income from a business or profession controlled from India gets taxed even if the business operates abroad. For example, if you run a consulting business for US clients but manage it from India, that income is taxable.
Foreign Income That Remains Tax-Free as RNOR
Here is where RNOR status creates tax savings. Rental income from foreign property stays exempt. Interest from foreign bank accounts is not taxed in India. Dividends from overseas stocks and mutual funds remain tax-free. Capital gains from selling foreign property or securities stay outside Indian taxation. Withdrawals from foreign pension funds like 401k or IRA are not taxed (with proper planning).
This exemption creates the perfect window to liquidate foreign assets without Indian tax implications. The key is timing these transactions during your RNOR period.
Complete Taxation After ROR Status Begins
Once you become ROR, everything changes. Your worldwide income becomes taxable in India. However, you can claim relief under Double Taxation Avoidance Agreements (DTAA) that India has signed with over 90 countries.
The DTAA prevents you from paying tax twice on the same income. If you pay tax on rental income in the USA, you can claim Foreign Tax Credit in India by filing Form 67 with your tax return. The Tax Residency Certificate (TRC) from your foreign country serves as proof for claiming these benefits.
When Should You Return to India to Maximize Tax Benefits?
Strategic timing of your return date can literally save you lakhs in taxes and extend your RNOR benefits significantly.
Why Your Return Date Matters (Strategic Timing)
The financial year in India runs from April 1 to March 31. Your residency status gets determined separately for each financial year based on days spent in India during that specific year.
Returning after October 2 of any year ensures you stay less than 182 days in that financial year, maintaining NRI status for one additional year. This extends your RNOR window and provides more time for tax-free foreign income.
Example 1: Returning Before vs After March 31
Consider Meera who has lived in Dubai for 12 years and plans to return in early 2025. Scenario A: She returns on January 10, 2025. She spends 80 days in FY 2024-25, becoming a Resident (RNOR). Her RNOR status lasts for FY 2024-25 and FY 2025-26 (2 years).
Scenario B: She returns on April 15, 2025. She remains NRI for entire FY 2024-25. She becomes Resident (RNOR) starting FY 2025-26. Her RNOR status lasts for FY 2025-26, FY 2026-27, and FY 2027-28 (3 years).
By waiting just 3 months, Meera gains an entire additional year of RNOR benefits, during which her foreign rental income of $2,000 per month (approximately ₹24 lakh per year) remains tax-free in India. At a 30% tax rate, this saves her ₹7.2 lakh in taxes.
Example 2: Planning Multi-Year RNOR Status
For maximum benefit, align your return with selling foreign assets. Suppose you own property in London worth £500,000 and plan to sell it. If you sell while RNOR, the capital gains remain tax-free in India (you still pay UK capital gains tax). If you sell after becoming ROR, you pay tax in India at 12.5% on long-term capital gains, even after claiming DTAA benefits.
On a £200,000 gain (approximately ₹2 crore), this represents potential tax savings of ₹25 lakh by timing the sale during your RNOR period.
How Should You Handle Your Foreign Bank Accounts?
Converting your NRI accounts correctly is mandatory under FEMA regulations and has significant tax implications.
NRE Account Conversion Requirements
Your NRE (Non-Resident External) account must be converted to either a Resident Savings Account or a Resident Foreign Currency (RFC) account once you become a resident. You cannot maintain an NRE account as a resident Indian.
The interest earned on NRE accounts is tax-free as long as you hold NRI status. Once converted to a resident account, the interest becomes taxable. Therefore, if you have NRE fixed deposits, plan the conversion carefully to minimize tax impact.
FCNR Deposits: Keep Until Maturity
Here is a valuable exception. FCNR (Foreign Currency Non-Resident) deposits can be maintained until their original maturity date, even after you become a resident. The interest earned remains tax-free until maturity, provided you qualified for RNOR status when you opened the deposit.
If you have FCNR deposits maturing 2-3 years after your return, they continue earning tax-free interest throughout your RNOR period. This makes them an excellent tool for preserving wealth during your transition.
RFC Accounts: Your Foreign Currency Solution
Resident Foreign Currency (RFC) accounts are specifically designed for returning NRIs. You can transfer funds from your NRE and FCNR accounts to RFC accounts, maintaining them in foreign currencies like USD, EUR, or GBP.
RFC accounts offer full repatriability without restrictions. The interest earned remains tax-exempt during your RNOR period. You can convert to Indian rupees at your convenience based on favorable exchange rates. These accounts can be maintained indefinitely, giving you flexibility in managing currency risk.
NRO Account Tax Implications
NRO (Non-Resident Ordinary) accounts hold your Indian-sourced income like rent or dividends. Interest earned on NRO accounts is taxable at 30% (plus applicable surcharge and cess) with TDS deducted at source.
After becoming a resident, you can continue using NRO accounts, but the interest remains taxable at your applicable slab rates. Most returning NRIs convert NRO accounts to regular resident savings accounts for easier fund management.
What is the Best Strategy for Foreign Investments and Assets?
Your foreign assets require careful planning to optimize tax efficiency and ensure compliance with Indian investment regulations.
Selling Foreign Property During RNOR Period
If you own property abroad, selling during your RNOR period offers significant tax advantages. The capital gains remain exempt from Indian taxation, though you still pay tax in the country where the property is located.
Take the example of Karthik who owns an apartment in Singapore purchased for SGD 600,000 in 2016. He sells it in 2025 for SGD 900,000 (approximately ₹5.4 crore), realizing a gain of SGD 300,000 (₹1.8 crore). If he sells while RNOR, he pays Singapore's property tax only. If he sells after becoming ROR, he pays tax in India at 12.5% on long-term capital gains after claiming DTAA benefits, adding approximately ₹22.5 lakh to his tax bill.
Liquidating Foreign Stocks and Mutual Funds
Foreign stocks and mutual funds receive similar treatment. Capital gains from selling these investments remain tax-free during RNOR period (you pay tax only in the country where they are held).
However, once you become ROR, these gains become taxable in India. Recent Income Tax Appellate Tribunal (ITAT) rulings have clarified that certain countries like Singapore, UAE, and some European nations offer capital gains tax exemptions under their respective DTAAs with India. Always verify the specific DTAA provisions for your country of residence.
Timing Capital Gains for Tax Efficiency
Strategic timing involves analyzing your tax slabs in both countries. If you are in a low tax bracket during your RNOR years in India but expect higher income (and tax rates) later, accelerate capital gains into your RNOR period.
Conversely, if you can claim beneficial tax treatment under DTAA provisions after becoming ROR, it might make sense to defer some gains. Consult a cross-border tax advisor for personalized analysis.
Real Estate in India: When to Buy or Sell
For Indian property, the tax treatment depends on your residential status at the time of sale. If you sell Indian property while RNOR or ROR, capital gains are taxable in India regardless of your status.
However, you can claim exemptions under Section 54 (residential property), Section 54EC (specified bonds), or Section 54F (other assets) by reinvesting the gains. Understanding the latest capital gains tax rules helps you plan these transactions effectively.
How to Manage 401k and IRA Accounts When Returning to India?
US retirement accounts require special attention because they face taxation in both countries without proper planning.
Understanding Section 89A and Form 10EE
Here is the problem: Traditional 401k and IRA accounts grow tax-deferred in the USA, meaning you pay tax only when you withdraw. But once you become ROR in India, the tax department views the annual growth in these accounts as taxable income, even though you have not withdrawn anything.
This creates double taxation: India taxes the annual growth, and the USA taxes the withdrawal. To solve this, the Finance Act 2021 introduced Section 89A which allows deferral of Indian taxation on specified foreign retirement accounts.
By filing Form 10EE in your first year as ROR, you elect to be taxed in India only at the time of actual withdrawal, matching the US tax treatment. This eliminates taxation on annual accruals and allows you to claim Foreign Tax Credit under DTAA when you eventually withdraw.
Tax Treatment Without vs With Form 10EE
Let me illustrate with actual numbers. Rajiv has a 401k account worth $200,000 when he becomes ROR in FY 2025-26. The account grows by $15,000 during the year due to market returns.
Without Form 10EE: India taxes the $15,000 growth (approximately ₹12.5 lakh) immediately at his applicable slab rate (say 30% = ₹3.75 lakh tax). When he withdraws after 10 years, the USA taxes the entire withdrawal. He gets limited Foreign Tax Credit because the timing of taxation differs.
With Form 10EE: India does not tax the $15,000 annual growth. When Rajiv withdraws $50,000 (₹42 lakh) in a future year, both USA and India tax it in the same year. He pays US tax of approximately $15,000, then claims this as Foreign Tax Credit in India, reducing his Indian tax liability significantly.
Withdrawal Strategies for Different Scenarios
Your 401k retirement planning strategy depends on your age and liquidity needs. If you are under 59.5 years, early withdrawals attract a 10% penalty plus income tax in the USA. Consider keeping the 401k intact during your RNOR period and withdrawing only after age 59.5.
If you need funds urgently, withdraw during your RNOR period to avoid Indian taxation. Remember that withdrawals get taxed in the USA regardless of your residential status, but at least you avoid double taxation in India during RNOR years.
For Roth IRA accounts, the math differs because qualified withdrawals are tax-free in the USA. However, India may not recognize this tax-free status, so consult a tax professional before making withdrawals after becoming ROR.
DTAA Benefits for US Retirement Accounts
Article 20 of the India-US DTAA states that private pensions are taxable only in the country of residence. This means once you are residing in India, 401k and IRA withdrawals are taxable in India, not the USA.
However, you must submit Form W-8BEN to your US plan administrator or broker to certify you are a non-resident of the USA and claim reduced withholding rates. Without this form, the default 30% withholding applies, though you can claim a refund by filing Form 1040-NR with the IRS.
What Are the Capital Gains Tax Rules for Returning NRIs?
Capital gains taxation has undergone significant changes from July 23, 2024, affecting how your investments get taxed.
Updated 2025 Capital Gains Tax Rates
The Budget 2024 introduced revised capital gains tax rates. For listed equity shares and equity-oriented mutual funds, short-term capital gains (holding period less than 12 months) are taxed at 20%, while long-term capital gains (more than 12 months) are taxed at 12.5%, with gains up to ₹1.25 lakh per year exempt.
For unlisted shares, short-term gains (less than 24 months) are taxed at your applicable slab rates, and long-term gains (more than 24 months) are taxed at 12.5% without indexation benefit.
For property and real estate, short-term gains (less than 24 months) are taxed at slab rates, while long-term gains are taxed at 12.5% without indexation. However, properties purchased before July 23, 2024, allow a choice between 12.5% without indexation or 20% with indexation benefit.
Indian Property Sale Taxation
When you sell property in India, the buyer must deduct TDS at 12.5% for long-term capital gains or 30% for short-term gains on the gross sale value. This can create cash flow issues if your actual taxable gain is much lower than the sale value.
You can apply for a Lower TDS Certificate (Form 13) from the Income Tax Department, ensuring TDS deduction only on actual gains rather than the full sale amount. This requires advance planning and submission of your estimated capital gains calculation.
Listed vs Unlisted Securities
The holding period determines whether your gains are short-term or long-term. For listed equity shares and equity mutual funds where Securities Transaction Tax (STT) was paid, the threshold is 12 months. For unlisted shares, debt mutual funds, and other assets, the threshold is 24 months.
Gold, jewelry, debt funds, and other capital assets follow the 24-month rule. Calculating your holding period correctly ensures you claim the appropriate tax rate and exemptions.
Claiming Exemptions Under Section 54, 54EC, and 54F
Section 54 allows exemption if you sell residential property and reinvest the long-term capital gains in another residential property in India within specified timelines (1 year before or 2 years after sale for ready property, or 3 years for under-construction property).
Section 54EC permits exemption up to ₹50 lakh by investing in specified bonds (NHAI or REC) within 6 months of sale. The bonds must be held for 5 years, and redemption triggers capital gains tax.
Section 54F applies when you sell assets other than residential property (like shares or land) and invest the entire net consideration in one residential property. This exemption has specific conditions around existing property ownership that you must verify.
What Are Your Foreign Asset Reporting Requirements?
Compliance with foreign asset reporting is non-negotiable and carries severe penalties for violations.
Schedule FA Disclosure Rules
Once you become ROR, you must disclose all foreign assets and income in Schedule FA (Foreign Assets) of your income tax return. This includes foreign bank accounts (current and savings), foreign equity and debt holdings, foreign custodial accounts, foreign cash value insurance policies, and any other foreign capital assets.
Even if these assets do not generate taxable income in India during your RNOR period, you must still disclose them once you become ROR. The Income Tax Department requires details like account numbers, peak balances, country where held, and income generated.
Assets Above ₹1 Crore Reporting Threshold
For FY 2025-26, if your total assets in India exceed ₹1 crore, you must provide detailed asset and liability disclosures in your ITR. This applies to both resident and non-resident accounts and includes bank deposits, property, investments in mutual funds, shares, and other capital assets.
Additionally, liabilities exceeding ₹50 lakh associated with these assets require reporting. This comprehensive disclosure helps the tax department track high-value transactions and prevent money laundering.
Black Money Act Penalties (Up to ₹10 Lakh Per Year)
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, imposes severe penalties for non-disclosure. Tax is levied at 30% on undisclosed foreign income and assets. A penalty equal to three times the tax amount applies, meaning effective penalty of 90% of the undisclosed income.
For non-disclosure of foreign assets, a flat penalty of ₹10 lakh applies for each year of default. Willful non-disclosure can also lead to prosecution with imprisonment ranging from 3 to 10 years.
These penalties apply even if the income was not taxable in India (such as during RNOR period) but was not disclosed. The disclosure requirement exists regardless of taxability.
Maintaining Proper Documentation
Keep detailed records of all foreign transactions, account statements, property purchase documents, investment confirmations, and tax payments made in foreign countries. These documents support your tax return filings and protect you during income tax assessments.
For claiming DTAA benefits, maintain your Tax Residency Certificate (TRC) from the foreign country, proof of tax payments abroad (Form 1040 for USA, Self-Assessment for UK), and bank statements showing tax withheld. Without proper documentation, you may face difficulties claiming Foreign Tax Credit in India.
How to Use DTAA to Avoid Double Taxation?
The Double Taxation Avoidance Agreement provides relief when the same income gets taxed in multiple countries.
Understanding Tax Residency Certificate (TRC)
A Tax Residency Certificate is an official document issued by the tax authorities of your country of residence confirming that you are a tax resident there. For claiming DTAA benefits in India, you must submit TRC along with Form 10F.
US residents obtain TRC from the IRS, UK residents from HMRC, and so on. The certificate typically includes your name, address, tax identification number, and confirmation of tax residency for the relevant period.
Filing Form 10F and Form 67
Form 10F is a declaration that must be submitted along with your Indian tax return when claiming DTAA benefits. It captures details from your TRC including name, tax residency country, tax identification number in that country, and period for which TRC is applicable.
Form 67 specifically claims Foreign Tax Credit for taxes paid in another country. You must provide details of foreign income, tax paid abroad, relevant DTAA article, and the relief claimed. This form should be filed before submitting your ITR, as it cannot be revised later.
Claiming Foreign Tax Credit in India
Foreign Tax Credit allows you to reduce your Indian tax liability by the amount of tax already paid in another country on the same income. The credit is lower of the tax paid in the foreign country or the Indian tax payable on that income.
For example, if you pay $3,000 (₹2.5 lakh) in US taxes on rental income and the Indian tax on the same income is ₹3 lakh, you can claim ₹2.5 lakh as Foreign Tax Credit, paying only ₹50,000 additional tax in India.
What is Your Tax Planning Checklist Before Returning?
Strategic planning at different stages ensures you maximize benefits and maintain compliance throughout your transition.
6 Months Before Return (Pre-Departure Planning)
Start by calculating your expected RNOR duration based on your past residency history. Decide your optimal return date to maximize RNOR years. Review all foreign investments and decide which assets to liquidate while abroad (to avoid even RNOR taxation) versus during RNOR period.
Open or maintain an RFC account for post-return foreign currency management. Consolidate multiple 401k accounts into a single IRA for easier management. Update your address and tax status with all foreign financial institutions.
Consult both a tax advisor in your current country and a cross-border tax specialist in India. Understand the specific DTAA provisions between your country of residence and India. Plan for obtaining your Tax Residency Certificate from your current country.
During RNOR Period (First 2-3 Years)
Inform all Indian banks, mutual fund houses, and financial institutions about your changed residential status. Convert NRE accounts to resident savings or RFC accounts as required under FEMA. Continue FCNR deposits until maturity to enjoy tax-free interest.
Liquidate foreign assets strategically during this window to benefit from tax exemptions on foreign capital gains. If you own foreign property, this is the ideal time to sell. Similarly, redeem foreign mutual fund investments or sell stocks to lock in gains without Indian tax liability.
For US residents, file Form 10EE in your first year as ROR to defer taxation on 401k and IRA growth. Maintain detailed records of all foreign income and assets even though they are not taxable, as you will need this information for future disclosures.
Update your KYC and FATCA declarations across all Indian investments. Open a resident demat account and transfer holdings from your NRI demat account. Close your NRI demat account and Portfolio Investment Scheme (PIS) account as required by regulations.
Before ROR Transition (Final RNOR Year)
Prepare for worldwide income taxation by reviewing all foreign income sources. Calculate expected tax liability under both old and new tax regimes in India. Decide which regime offers better benefits based on your income structure.
Complete any remaining foreign asset liquidation before RNOR status expires. Once you become ROR, capital gains from foreign assets become taxable in India. Ensure you understand how to claim DTAA benefits and have obtained necessary documentation.
Set up proper tax filing systems for foreign income disclosure. Consider engaging a chartered accountant experienced in international taxation. Review your investment portfolio and consider tax-efficient restructuring based on your new ROR status.
Plan your withdrawals from foreign retirement accounts strategically. If you filed Form 10EE, coordinate withdrawal timing with your tax slab and DTAA benefits. Understand the tax implications in both countries before making any distributions.
Conclusion
Tax planning for NRIs returning to India requires careful attention to timing, strategic asset management, and rigorous compliance. The RNOR status offers a valuable 2-3 year window where your foreign income remains exempt from Indian taxation, but only if you plan your return date strategically and manage your foreign accounts correctly.
The key to maximizing benefits lies in three areas: timing your return to extend RNOR duration, liquidating foreign assets during the RNOR period to avoid taxation, and ensuring complete compliance with foreign asset reporting to avoid severe penalties. Whether you are managing US retirement accounts like 401k and IRA, selling foreign property, or converting your NRI bank accounts, every decision impacts your tax liability.
Remember that the transition from RNOR to ROR brings worldwide income taxation, making advance planning essential. With proper guidance from cross-border tax experts and strategic execution of the checklist provided in this guide, you can save lakhs in taxes while ensuring full compliance with Indian tax laws.
Frequently Asked Questions
Can I keep my NRE fixed deposits after returning to India?
You cannot maintain NRE accounts after becoming a resident Indian as per FEMA regulations. You must convert your NRE fixed deposits to either resident fixed deposits or transfer the funds to RFC accounts within a reasonable time after your return. However, existing NRE FDs can typically be allowed to continue until their maturity date, though the interest earned may become taxable depending on your residential status at the time of maturity. The safest approach is to convert them to RFC fixed deposits which offer similar repatriation benefits.
Do I need to pay tax on my 401k withdrawals in both USA and India?
This depends on your residential status and whether you filed Form 10EE. During your RNOR period, 401k withdrawals are not taxable in India, though you still pay US tax. After becoming ROR, if you filed Form 10EE under Section 89A, India taxes withdrawals only when you actually take the money out (not on annual growth). You can then claim Foreign Tax Credit under India-US DTAA by filing Form 67. Without Form 10EE, India may tax annual account growth even before withdrawal, creating double taxation issues. Proper financial planning helps you minimize this tax burden.
What happens if I don't disclose my foreign assets in my tax return?
Non-disclosure of foreign assets attracts severe penalties under the Black Money Act, 2015. You face a flat penalty of ₹10 lakh for each year of non-disclosure, regardless of whether the income was taxable in India. Additionally, if undisclosed income is discovered, you pay 30% tax plus a penalty equal to three times the tax amount (90% effective penalty). Willful attempt to evade tax can lead to prosecution with imprisonment from 3 to 10 years. The disclosure requirement applies to all foreign assets once you become ROR, even if they generate no income or were acquired during your NRI period.
Can I claim DTAA benefits if I pay taxes in both countries?
Yes, the Double Taxation Avoidance Agreement exists precisely to prevent paying tax twice on the same income. You must obtain a Tax Residency Certificate (TRC) from the country where you paid tax, complete Form 10F with details from the TRC, and file Form 67 claiming Foreign Tax Credit when submitting your Indian tax return.
The credit allowed is the lower of the tax paid abroad or the tax payable in India on that income. You cannot claim DTAA benefits without proper documentation, so maintain detailed records of foreign tax payments, TRC, and income statements from foreign sources.
Should I sell my foreign property before or after becoming ROR?
Selling foreign property during your RNOR period offers significant tax advantages. The capital gains remain exempt from Indian taxation (though you still pay tax in the country where property is located), potentially saving lakhs in Indian taxes.
Once you become ROR, India taxes capital gains from foreign property sale at 12.5% for long-term gains, even after claiming DTAA benefits. For example, on a capital gain of ₹2 crore from a London property, selling during RNOR could save you ₹25 lakh in Indian taxes. However, consider the overall timing based on property market conditions, your financial needs, and tax implications in the country where the property is located.
How do I convert my NRI mutual fund investments to resident status?
You must inform each mutual fund house or your Asset Management Company (AMC) about your change in residential status. Update your KYC details from NRI to resident Indian, provide proof of your current resident status (updated Aadhaar, passport, or utility bills), and link your investments to a resident bank account instead of NRE/NRO accounts. Most AMCs allow this through online portals or by submitting a physical status change request. For systematic transactions, update your bank mandates for SIPs and redemptions. Taxation changes from the financial year when your status changes, so ensure accurate reporting in your tax returns.
There is no need to sell and repurchase the investments, as the conversion is administrative and does not trigger capital gains.
About the Author
By Prakash
CEO & Founder of InvestMates
Prakash is the CEO & Founder of InvestMates, a digital wealth management platform built for the global Indian community. With leadership experience at Microsoft, HCL, and Accenture across multiple countries, he witnessed firsthand challenges of managing cross-border wealth. Drawing from his expertise in engineering, product management, and business leadership, Prakash founded InvestMates to democratize financial planning and make professional wealth management accessible, affordable, and transparent for every global Indian.
