Returning to India After 9 Years: How Long Is Foreign Income Tax-Free?

Summary: A returning NRI does not immediately become taxable in India on worldwide income upon moving back. Under Section 6 of the Income-tax Act, 1961, a person who becomes a resident may qualify as Resident but Not Ordinarily Resident (RNOR) under Section 6(6) if they were a non-resident in 9 out of the 10 previous years or were in India for 729 days or less during the 7 previous years. During the RNOR period, typically lasting two to three financial years, Indian income is taxable, while foreign income such as US rental income, dividends and a 401(k) generally remains outside Indian taxation, except foreign income from a business controlled from, or a profession set up in, India under Section 5. The content also states that the Section 10(4)(ii) exemption on NRE account interest ends once a person becomes a resident under FEMA and redesignates the account, while interest on eligible RFC accounts and existing FCNR deposits until maturity remains exempt under Section 10(15)(iv)(fa) during the RNOR period. It also recommends counting India stay days, redesignating bank accounts, considering foreign capital gains during RNOR years, and maintaining records for future reporting and foreign tax credit claims under Sections 90/91 and the applicable DTAA.

“After nine years in the US, we’re finally moving home to Bengaluru. I still have a 401(k), some US rental income and dividends I don’t plan to touch yet. The second I land, does India start taxing all of it? That thought is keeping me up at night.”

Take a breath – the answer is almost certainly no, not immediately. India has a little-known cushion built exactly for people like you: the Resident but Not Ordinarily Resident (RNOR) status. It’s a transition zone between being an NRI and a fully-taxed resident, and used well it can keep your foreign income tax-free in India for two to three years after you return. Most returning NRIs have never heard of it, and quietly overpay.

Meet RNOR – the two-to-three year cushion

Under Section 6 of the Income-tax Act, 1961, once you spend enough days in India you become a ‘resident’. But being a resident doesn’t automatically mean your worldwide income is taxed. You are further split into Ordinarily Resident (ROR) – worldwide income taxable – and Not Ordinarily Resident (RNOR) – where, like an NRI, only your Indian income is taxed and foreign income mostly stays exempt.

Under Section 6(6), you qualify as RNOR if you meet either of these, having just become a resident:

• You were a non-resident in India in 9 out of the 10 previous years, OR
• You were in India for 729 days or less during the 7 previous years.

Someone who’s been abroad for nine straight years, like our reader, sails through both. So even after moving back, you stay RNOR – typically for two, sometimes three, financial years – before becoming ordinarily resident.

What actually gets taxed at each stage

*Exception: under Section 5, foreign income from a business controlled from, or a profession set up in, India is taxable even for an RNOR.

Let’s understand this better with a practical example – 

Say the family lands in Bengaluru on 15 January 2026, in the middle of FY 2025-26. In that year they spend only about 76 days in India, so for FY 2025-26 they remain NRI. From FY 2026-27 they’re in India full-time – residents – but because they were non-resident in 9 of the prior 10 years, they are RNOR for roughly FY 2026-27 and FY 2027-28.

During those RNOR years, suppose they earn USD 30,000 (about Rs 25 lakh) of US rental income and dividends. India taxes none of it. Only their Indian income – say interest on Indian deposits or local consulting – is taxed here. They become fully taxable on worldwide income only from roughly FY 2028-29, once they turn ROR. That’s a two-year runway to reorganise foreign assets tax-efficiently.

The bank-account trap most returnees miss

Here’s where people slip up. NRE-account interest is tax-free under Section 10(4)(ii) only while you are a non-resident under FEMA. The moment you return to India permanently, FEMA treats you as a resident – so you must redesignate your NRE and NRO accounts to resident accounts and the NRE interest exemption ends. However, you can move eligible foreign-currency balances into an RFC (Resident Foreign Currency) account, and interest on RFC (and existing FCNR deposits till maturity, exempt under Section 10(15)(iv)(fa)) stays exempt while you are RNOR. Handled properly, your foreign-currency savings keep earning tax-free through the transition.

Your pre-landing checklist

• Count your India days carefully in the year you return – delaying your final move can extend NRI/RNOR benefits.
• Redesignate NRE/NRO accounts and open an RFC account on becoming a FEMA resident.
• Consider realising foreign capital gains during RNOR years, when they’re outside India’s net.
• Keep clean records of your foreign income – you’ll need them once you turn ROR and must report worldwide income (and can claim foreign tax credit under Section 90/91 and the relevant DTAA).

The takeaway

Moving home does not flip a switch that taxes your global income overnight. For two to three RNOR years, India taxes only what you earn here – a genuine, legal window to restructure foreign assets, book gains, and transition your accounts. Plan your return date and your banking around it, and RNOR turns from a bit of jargon into one of the most valuable reliefs a returning NRI will ever use.

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About the Author: Sonia Dawar is a Chartered Accountant and the founder of Dawar & Co. She has spent years helping NRIs, returning Indians and cross-border families untangle India’s tax rules without the jargon – turning intimidating questions into clear, confident decisions. Have a burning NRI tax question? Write to her at sonia@dawarandco.com or visit dawarandco.com.

Disclaimer: This article is for general information based on the Income-tax Act, 1961 (governing Financial Year 2025-26 / Assessment Year 2026-27) and is not a substitute for personalised professional advice.