NRI to resident again:
5 income tax mistakes returning Indians often make and how to avoid them
Jan 19, 2026
Why returning NRIs face ‘return shock’
The first year after returning to India can be quite tough for NRIs when it comes to taxes. Changes in residential status, how overseas income is taxed, the need to disclose foreign assets, and the rules around the Double Taxation Avoidance Agreement (DTAA) can catch returnees off guard.
Many rules that did not apply earlier suddenly become relevant, leading to what tax professionals call “return shock.” A lot of long-term tax issues begin with errors made in this transition year.
How residential status determines tax scope
After losing NRI status, returnees become either Resident but Not Ordinarily Resident (RNOR) or Resident and Ordinarily Resident (ROR). Once residential status is established, it defines what income is taxable in India. ROR is taxed on both Indian and foreign income. In contrast, RNOR is taxed mainly on Indian income, with foreign income taxed only if linked to a business or profession controlled from India.
Mistake #1: Getting residential status wrong
The tax liabilities in India are mainly determined by your residential status, which is based on day counts, not intent. Returning after October means you remain an NRI for that year as your stay in India is less than 182 days, but returning earlier can change your status mid-year.
Many returnees continue filing as NRIs even after qualifying as RNOR, or they fail to understand when RNOR status changes into ROR. This can result in reporting the wrong income for tax purposes and missing out on treaty or Foreign Tax Credit (FTC) benefits.
Mistake #2: Ignoring overseas income and assets
A common mistake is assuming foreign income is always exempt from India’s tax net. Once ROR status applies, global income must be reported.
Similarly, many NRIs fail to disclose overseas bank accounts, ESOPs, RSUs, or assets, believing assets acquired as an NRI never need disclosure. Missing Schedule FA after becoming ROR is a compliance risk.
Mistake #3: Misunderstanding RNOR benefits
Many returnees treat RNOR as equivalent to NRI status for too long. RNOR is only a temporary transition. Once it shifts to ROR, global income becomes taxable in India. Failing to track this change is a major reason for under-reporting global income later.
Mistake #4: Assuming foreign tax paid means no Indian tax
Paying tax overseas does not automatically settle Indian tax liability. Income must first be offered for taxation in India before claiming the Foreign Tax Credit (FTC). Missing steps like Form 67, tax residency certificates or treaty analysis can be other mistakes.
Mistake #5: Forgetting Indian tax and banking compliances
Many returnees forget to convert NRE/NRO accounts after becoming residents, updating KYC, or revising residential status with banks, brokers, and mutual funds.
Continuing to claim NRE interest as exempt or ignoring FEMA requirements can lead to incorrect reporting and penalties.
How returning NRIs should approach Year One
Returning NRIs should track day counts carefully, reassess residential status annually, convert bank accounts promptly, and update KYC across financial institutions. Overseas income and assets should be reviewed before filing returns.
Advance tax planning, FTC documentation, and proactive evaluation of treaty benefits can help avoid costly tax surprises and regulatory trouble later.
[The Economic Times]
