Moved back to India and wondering how your tax liability has changed? You may be qualifying for a buffer period that can help you transition smoothly to the Indian tax system as a resident Indian.
This buffer is called RNOR, or Resident but Not Ordinarily Resident.
Taxability in India is determined based on an individual's residential status which is broadly classified in three categories, said Kunal Savani, partner at Cyril Amarchand Mangaldas. “One is Resident and Ordinarily Resident (ROR), whose worldwide income is taxable in India. Second is Non-Resident (NRI), whose taxability is generally restricted to India-sourced income. Third is Resident but Not Ordinarily Resident (RNOR), a short window for returning NRIs under some conditions.”
An individual qualifies as RNOR under any one of these two conditions: you've been a non-resident in 9 out of the 10 years before you return, or you have spent 729 days (approximately 24 months) or less in India across the preceding seven years.
Say, Mr X, who worked in Dubai for 12 years, moves back to India in 2026. Since he was a non-resident in all 10 of the preceding years, he easily qualifies as RNOR, giving him a buffer of two to three years before he becomes Resident and Ordinarily Resident (ROR). ROR simply refers to an Indian tax resident.
In contrast, Mr Y, after five years of working in Delhi, moved to Dubai. Just after three years, he returned to India. Since he has spent over 729 days in India in the preceding seven years, he is treated as a full resident from day one, with his global income and foreign assets taxable immediately.
Benefit of RNOR status
During the RNOR window, your Indian income is taxed exactly as it would be for any resident. Any income earned in India—salary, rent from property, interest from Indian accounts—is taxable and must be declared in the ITR.
Foreign income is where the window works in your favour. Ankit Jain, partner at Ved Jain and Associates, explained that an RNOR pays tax only on income that arises or is received in India. “Dividends, rental income, capital gains or any other income earned abroad stay untaxed during this period,” he said. This also means that foreign asset disclosure in Schedule FA also isn't required at this stage as it becomes mandatory once you become an ROR.
Savani added one exception that income earned outside India from a business controlled or a profession set up in India does get taxed, even during RNOR. This window should not be treated as a blanket tax holiday, as it shields only foreign income and assets, whereas Indian income remains fully in the tax net throughout.
Using the window for tax planning
Since foreign income stays outside India's tax net during RNOR, this period is often the best time to deal with overseas investments and retirement savings before they come under Indian tax.
Savani pointed out that once someone becomes an ROR, India can tax not just withdrawals from foreign retirement accounts like a US 401(k) or UK pension, but also the interest, dividends and gains accumulating inside them every year.
“Many countries, including the US, tax these accounts only when money is withdrawn, so this can create a mismatch and even double taxation," Savani said. "While there is an option under Section 158 (Form 40) that allows eligible taxpayers to defer Indian tax on income accruing inside notified retirement accounts until the money is actually withdrawn, but it's often simpler to just sell the underlying investments and book the gains while still RNOR, when they're tax-free in India, rather than deal with this deferral process later.”
Keyur Gandhi, managing partner at Gandhi Law Associates called the RNOR period the last real opportunity for legitimate tax planning on foreign assets. “Selling foreign stocks or mutual funds, or evaluating withdrawals from overseas retirement accounts before slipping into ROR status, can meaningfully improve tax efficiency,” he said.
For example, if a returning Indian sells US-listed shares during RNOR, the capital gains may not be taxable in India. If the same sale occurs after becoming ROR, the gains would generally be taxable in India, subject to DTAA relief. At the same time, if the same person has become a non-US tax resident on leaving the US, the US generally does not tax capital gains on listed shares and as an RNOR, India may also not tax such foreign capital gains, said Gandhi.
“This benefit may be applicable in most such cases. However, it would depend on the person’s tax residency, the nature of the asset and the applicable DTAAs,” he added.
Mistakes to avoid
To maximise benefit during the RNOR window, there are several mistakes to avoid.
The most common slip, according to Pallav Pradyumn Narang, partner at CNK, is not tracking the calendar closely enough. The 9/10-year and 729-day tests are cumulative and keep shifting each year, so RNOR status can lapse without the person realising it, triggering foreign income tax and Schedule FA disclosure requirements from that year onward.
A second mistake is assuming that routing foreign income into an Indian bank account keeps it exempt. “Income received or deemed to be received in India is taxable regardless of its source, so crediting foreign earnings to an Indian account defeats the RNOR shield,” Narang added.
On the disclosure side, it is common for returning NRIs to miss Schedule FA once ROR status kicks in due to lack of awareness. This lapse can attract a penalty of upto ₹10 lakh per year under the Black Money Act. Gandhi noted that genuine, unintentional lapses are typically viewed differently from deliberate concealment, and prompt correction through a revised return can significantly reduce this exposure.