What NRIs Need to Know About Income Tax in India, RNOR, and Assets Repatriation — Checklist & Practical Guidance

Introduction: For Non-Resident Indians (NRIs) and those returning to India, tax obligations can be complex. Your residential status – whether Non-Resident (NRI), Resident (ROR), or Resident but Not Ordinarily Resident (RNOR) – determines which incomes India will tax. Generally, NRIs and RNORs pay tax only on India-sourced income, while full residents are taxed on global income. At the same time, repatriating funds (such as property sale proceeds or investment earnings) involves compliance with Income Tax rules and FEMA/RBI regulations. This NRI Income Tax and RNOR Guide explains the key day-count tests, tax implications, RNOR planning tips, and step-by-step repatriation checklist for NRIs. Additionally, understanding the NRI Tax Return India is crucial for effective tax management.

Residency Rules

NRI Tax Return India Insight: Filing taxes as an NRI is essential to comply with Indian tax laws and avoid penalties.

NRI Income Tax and RNOR Guide: Understanding the Essentials

Indian tax law classifies individuals each year as ROR, RNOR, or NRI based on presence in India. The basic tests under Section 6 of the Income Tax Act are:

Understanding NRI Tax Return India Requirements

• NRI (Non-Resident): Present in India for less than 182 days in a financial year (or as modified for short visits). Indian citizens on foreign employment are NRIs if they stay <182 days in India.
• Resident: Present 182 days or more in the year, or 60 days in the year and 365 days in the prior 4 years. (A special “deemed resident” rule also applies if income other than foreign exceeds ₹15 lakhs and the person isn’t resident elsewhere.)
• RNOR (Resident but Not Ordinarily Resident): Applies when an individual qualifies as a resident but has spent most of the past years abroad. In practice, you’re RNOR if you meet the resident tests and either: (a) you were an NRI in 9 of the 10 preceding years, or (b) you stayed in India <730 days in the last 7 years. (For high-income Indians visiting India briefly, a modified 120-day rule also exists.) An RNOR status can usually be retained for up to 2–3 years after returning.

Key Point: Even one extra day can change your status: e.g. returning before October may make you a resident that year. It’s critical to track your travel days carefully. Misclassifying your status is a common mistake – it can lead to serious tax errors.

Taxation by Residency Status

Once status is set, your taxable income depends on it:

• ROR (Resident and Ordinarily Resident): Taxed on global income – all income earned or received anywhere (India or abroad) is taxable in India.
• RNOR: Taxed only on India-sourced income (like any other NRI). The only exception is foreign income from a business or profession controlled in India, which is taxable even for RNOR.
• NRI: Taxed only on income accruing or received in India (similar to RNOR).

Income Heads: All heads of income can apply, but the source matters:

• Salary: If paid for work in India, it’s fully taxable for all residents (ROR/RNOR/NRI). Salary earned and paid abroad is not taxed in India for NRIs or RNORs. For example, an NRI’s foreign salary credited to an NRE account in India is not taxed.
• House Property: Rental income from Indian property is taxable for all. Foreign property income is taxed only if you are a full ROR (not for RNOR/NRI).
• Capital Gains: Profits from selling Indian assets (property, stocks, mutual funds) are taxable in India, regardless of status. Short-term gains (holding up to 2–3 years) are added to taxable income (slab rates), while long-term gains get concessional rates. For example, property held long-term (over 2–3 years) incurs 20% LTCG tax with indexation. (Equity/REIT gains have a 10–12.5% LTCG rate beyond ₹1 lakh exemption.) Exemptions like Section 54 (reinvesting in residential property) or 54EC (invest in bonds) still apply. Short-term gains on sale of property or unlisted shares are taxed at the individual’s slab rate.
• Interest/Dividends: Interest on NRE/FCNR deposits is tax-free in India, whereas NRO account interest is fully taxable (TDS ~30%). Dividends from Indian companies/mutual funds paid to NRIs are subject to a flat 20% tax plus surcharge/cess (no basic exemption). Note: Under current law, dividends paid to anyone are taxed in-hand (the old DDT is abolished).
• Business/Professional Income: Income from a business or profession carried on in India is taxable for all residents. If you’re RNOR, foreign business income is exempt unless it’s controlled in India.

TDS and Documentation: Indian payers withhold tax at source (TDS) on NRI incomes – e.g. banks deduct TDS on NRO interest, brokers on sale of shares, etc. Double taxation treaties (DTAA) often reduce these rates or allow credit. For example, under the India–USA DTAA the tax on India-source interest may be capped at 15%. India has DTAAs with 90+ countries (USA, UK, Canada, Australia, UAE, etc.). These agreements prevent double tax: you can often claim relief by submitting required documents. To use DTAA benefits, NRIs should obtain a Tax Residency Certificate (TRC) from abroad and file forms (Form 10F, Form 67) when filing the Indian return. Missing this paperwork is a common mistake that leads to higher tax withholding. When properly applied, DTAAs allow claiming foreign tax credits or reduced rates on interest, rent, dividends, capital gains, and other income.

Recent Updates: Finance Act 2023 introduced key changes. Notably, the TCS (Tax Collected at Source) rate on outward remittances under the Liberalised Remittance Scheme (for education, travel, etc.) was raised from 5% to 20% (no Rs.7 lakh threshold after Sept 2023). Also, Finance Act 2023 amends Section 9 so that gifts received by an RNOR are now deemed India-sourced and taxable. These updates reinforce the need to plan NRI tax and repatriation carefully (see Last Updated below).

RNOR Practical Planning

Returning Indians often aim for RNOR status as a tax planning tool. An RNOR pays tax on Indian income only, just like an NRI. Qualifying for RNOR: You must first become a resident (as above) and meet the “9/10-year” or “730-day” test. If eligible, you can elect RNOR status for the year you return and the next two financial years (total 3 years including year of return). During this window, your overseas salary, dividends, interest, pensions, capital gains, etc., remain non-taxable in India, easing the tax burden while settling back home. This can be a huge saving if you still have significant foreign income.

Pitfalls & Timeline: RNOR is temporary. It ends once you’ve had 3 years of Indian residence or otherwise fail the RNOR tests. After that, you become ROR and all global income is taxed. Don’t assume RNOR lasts indefinitely. Also, RNOR status only exempts foreign income; Indian income (salary in India, rent on Indian property, Indian investments) is still fully taxed. Keep in mind the income vs. FEMA residency gap: under FEMA rules you become “resident” (for account conversion etc.) after 182 days in a year, which may differ from your tax status. Plan your return year wisely – arriving in November, for example, lets you stay NR for that year. Finally, note the 2023 gift rule: gifts to RNORs are now taxable in India, so you can’t shelter foreign gifts by using RNOR status.

Repatriation of Funds & Assets

When you sell Indian assets or move money abroad, the Foreign Exchange Management Act (FEMA) and RBI rules apply. NRIs typically use NRE/NRO/FCNR bank accounts for these transactions. Key points and steps include:

• Repatriation Limits: Money in NRE/FCNR accounts (deposited in foreign currency or converted to INR) can be repatriated fully (principal + interest) anytime – there’s no cap. Funds in NRO accounts (INR earnings from rent, dividends, pensions, etc.) can be repatriated up to US$1 million per financial year, provided taxes are paid. If you need to send more, special RBI approval is required.
• Property Sale Proceeds: After selling property in India, deposit proceeds in your NRO account. Then the repatriation process usually follows these steps:
  1. Capital Gains Tax: Calculate and pay applicable tax on gains in your Indian ITR. For property gains you’ll typically pay 20% LTCG (with indexation) or slab rate for STCG. Obtain a tax clearance certificate or ensure tax is deducted (use Form 15CB as evidence).
  2. Documentation: Prepare Forms 15CA/15CB – Form 15CA (online self-declaration of remittance) and Form 15CB (CA certificate confirming tax has been paid on the funds). Also fill the bank’s Repatriation application (e.g. Form A2). Collect supporting docs: passport copy, PIO/OCI card or visa, NRI account statements showing the funds, the sale deed/purchase agreement, and the IT payment proofs or certificates.
  3. Bank Processing: Your bank (authorized dealer) will verify all documents. They require an account with an AD bank to authorize repatriation. Once satisfied, the bank remits the funds abroad. Typically, the money goes from your NRO to your NRE/FCNR or foreign account.
  4. Special Cases: For inherited property or gifts, also provide a Will or legal heir certificate. Tax clearance is mandatory (even though no capital gain tax on inheritance in some cases). The $1M cap still applies. If the inheritance is from a non-resident, RBI may need to approve.
• Investments & Bank Balances: Similar procedures apply to other assets. For example, mature mutual funds or stock sale proceeds can be repatriated after paying taxes (submit 15CA/15CB and Form A2). NRE/FCNR deposits held till maturity can be freely repatriated (principal+interest), and interest is tax-free. NRO deposit withdrawal is subject to the $1M limit after clearance. Always keep Form 15CA/CB ready for any cross-border remittance – banks typically won’t process large transfers without it.
• FEMA Compliance: Remember, FEMA rules govern these transfers. In summary: NRE/FCNR: complete repatriation free of tax. NRO: up to $1M/year after taxes. Above limits or special transactions (e.g. selling agricultural land, which NRIs can sell only to residents) have extra restrictions.

Compliance Checklist

To ensure smooth compliance and repatriation, NRIs should keep the following ready:

• PAN (Permanent Account Number): Mandatory for any Indian income (salaries, capital gains, etc.) and for filing returns on repatriation.
• Income Tax Return (ITR): File in India by July 31 (or September 30 with audit) if you have Indian income or if TDS was deducted. Use the correct ITR form (ITR-2 or ITR-3) for NRIs.
• Form 15CA / 15CB: For foreign remittances/assets sale, Form 15CA (online self-declaration) and Form 15CB (CA certificate) are needed.
• TRC and Form 10F: To claim DTAA benefits, obtain a Tax Residency Certificate from your resident country and submit Form 10F (details of residency) to Indian tax authorities. Form 67 is used in India to claim foreign tax credit after offering income to tax.
• Identity and Status Proof: Keep copies of your passport, visa/residence permit, OCI/PIO card or citizenship certificate, and proof of foreign residence (utility bills, etc.) – banks and tax authorities often request these to verify NRI status.
• Financial Documents: Bank statements for NRE/NRO/FCNR accounts; investment statements for stocks, mutual funds; sale deeds or agreements for any assets sold; evidence of tax paid (Form 26QB, IT challans).
• FEMA Forms: Banks may require Form A2 (Application for realization/conversion of foreign exchange) for larger transfers.

Keeping these documents organized and updated will make NRI filings and repatriations much smoother. As one expert notes, the most costly errors come from overlooking such compliance steps.

Common Mistakes & FAQs

Many NRIs run into avoidable pitfalls. Common missteps include misclassifying residency status (continuing to use NRI assumptions after qualifying as RNOR/ROR), ignoring the expiry of RNOR (treating it as permanent), or failing to claim DTAA benefits due to missing documentation. Others forget to convert NRE/NRO accounts after becoming resident or improperly claim exemptions on NRE interest. Below are brief answers to some frequent questions:

• Do NRIs have to file an Indian tax return if they have no income in India? Generally no, if you truly have zero India-source income and no TDS was deducted, you may not need to file. Indian tax rules only tax income that accrues or is received in India. However, if any tax was withheld on your behalf (e.g. on bank interest) or you want to claim a refund, you should file an ITR. When in doubt, consult a tax specialist.
• What is “RNOR” and how long does it last?

RNOR means Resident but Not Ordinarily Resident. You qualify if you meet the resident tests and were an NRI 9 of last 10 years or spent <730 days in 7 years. It lasts only for the first 2–3 years after your return. During RNOR, your tax is like an NRI’s – only India income is taxed. Once the period ends, you become a full resident (ROR) and global income is taxed. Note: Finance Act 2023 also now taxes gifts to an RNOR as India income.

• How much can NRIs repatriate from India each year?

 NRIs can send up to US$1 million per year from their NRO account abroad (after paying applicable taxes). Money held in NRE or FCNR accounts can be freely repatriated (both principal and interest) without any limit. Transfers beyond these limits or for special categories may require RBI approval.

Ready to Get Clarity on Your NRI Tax and Repatriation Matters?

NRI taxation, RNOR planning, and repatriation involve multiple laws—Income Tax, FEMA, RBI regulations, and DTAA provisions. A small oversight can lead to excess tax, delays, or compliance notices.

For personalised NRI consultation, strategic tax planning, NRI tax return filing in India, or smooth repatriation of funds from India, you may directly connect with:

CA Praveen Jain
📞 96876 89872
Founder – caindiaglobal | Mumbai | Global Virtual Practice

Early planning leads to better outcomes—especially for returning NRIs and high-value asset transactions.