The returning NRI master guide: taxes, RSUs, and every financial decision to make before and after you land

Moving back to India after years abroad — whether from the US, UAE, Singapore, or the UK — is one of the most complex financial events of your life. It's not a single decision; it's a sequence of thirty decisions that interact with each other, many of which have irreversible consequences if done in the wrong order.

This guide covers everything: the RNOR tax window and how to maximise it, what happens to your RSUs at every stage of the transition, which accounts to convert and when, how to handle foreign retirement accounts, what FEMA requires of you, how Schedule FA works, and the advance tax implications in the years after you land.

It is written specifically for the engineer or finance professional returning from the US, although most of it applies to NRIs returning from any country.

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Part 1: Understanding your tax residency status — the foundation of everything

Your Indian income tax liability after return is entirely determined by your residential status for each financial year. Get this wrong and every other decision in this guide breaks.

The three statuses

Non-Resident (NR): You are outside India or have been in India fewer than 182 days in the financial year (or fewer than 60 days if you have not been in India for 365+ days in the preceding 4 years). Only India-source income is taxable.

Resident but Not Ordinarily Resident (RNOR): You are technically resident in India (meet the 182-day test) but fail the "ordinarily resident" test — meaning you were an NRI for 9 of the last 10 years, or were in India 729 days or fewer in the last 7 years. India taxes only: (a) India-source income, and (b) foreign income from a business controlled in India or a profession set up in India. Foreign investment income — RSU vests, US stock dividends, 401k distributions — is outside India's tax net.

Resident and Ordinarily Resident (ROR): You have been resident for 2 or more of the last 10 years AND have been in India 730+ days in the last 7 years. India taxes your worldwide income. Every RSU vest, every US dividend, every 401k withdrawal is taxable.

The transition matters enormously. RNOR is your protection window.

How long does RNOR last?

For a typical returning NRI who spent 10+ years abroad:

Return date	FY of return	RNOR years	Becomes ROR
Before September 30	FY 2026-27 (Oct or later qualifies as resident)	FY 2026-27, 2027-28	FY 2028-29
October–March	FY 2026-27 (partial year resident)	Possibly 2026-27, 2027-28	FY 2028-29 or 2029-30

The exact RNOR duration requires a day-count analysis of your previous 10 financial years. Run the numbers with a CA before you land. A 3-month difference in your return date can cost you an entire year of RNOR protection.

The 120-day rule (new from FY 2026-27)

If you are an Indian citizen or PIO with Indian income above ₹15 lakh and you spend 120 days or more in India in a financial year AND 365+ days in the preceding 4 years, you are classified as RNOR — not NRI — for that year.

This matters if you plan to "test" India before fully returning. Frequent trips back while technically still abroad can accelerate your status change. Count days carefully.

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Part 2: The RNOR window — what's protected and what isn't

What is NOT taxable during RNOR

• RSU vests from a foreign employer (US parent company) where the perquisite income is foreign-source
• Capital gains from selling US stocks held in your US brokerage
• Dividends received from US stocks in your US account
• 401(k) and IRA distributions received in the US
• NRE account interest (for the period before conversion)
• Foreign rental income from property abroad
• Foreign salary income for any period you worked abroad within the financial year

What IS taxable during RNOR

• Salary from Indian employer (even if the employer has a US parent)
• RSU perquisite income if your employer is the Indian subsidiary and the perquisite is on your Indian payslip
• Income from business controlled or profession set up in India
• Rental income from Indian property
• Capital gains from selling Indian property, Indian mutual funds, or Indian stocks
• NRO account interest (taxable from the date you become resident)
• Interest on RFC account and resident savings accounts

The critical RSU question: who is your employer?

This is the most consequential question for returning NRIs with unvested RSUs.

Scenario A — Indian subsidiary employer: Your Indian entity (Infosys, Wipro, a startup with Indian HQ) granted you RSUs as part of your India package. Even if the RSUs are in US company stock, the perquisite is on your Indian payslip, TDS is deducted by the Indian employer, and it is taxable regardless of your RNOR status. RNOR does not protect you here.

Scenario B — US parent employer (common for US-to-India transfers): You are employed by Google LLC, Microsoft Corporation, or another US entity and remain on the US payroll after returning to India. The RSU perquisite is US-source income. During RNOR, this is generally not taxable in India. This is the high-value scenario — thousands of dollars of vest income can escape Indian tax for 2–3 years.

Scenario C — Secondment (most common for returning engineers): You are transferred from the US entity to the Indian subsidiary. Your payroll switches. From the date your Indian employment begins, RSU income on your Indian payslip is taxable in India. The US-period unvested RSUs that vest after your transfer are treated as split-source: the portion attributable to services in the US is potentially foreign-source (RNOR-protected), the India-period portion is taxable. This requires lot-level analysis — the IRS/CBDT both have "source-country" rules for equity granted across multiple geographies.

Practical action: Before your transfer, document the RSU grant dates, grant prices, and the split between US-service days and India-service days for each unvested lot. Your employer's equity plan team or a cross-border tax advisor can help with this calculation. Do not leave it to the vest date.

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Part 3: RSU planning before you land

The 6–12 months before you land is when the highest-value decisions get made.

1. Vest acceleration vs. spreading

If you have a large unvested RSU tranche — say, a 4-year grant with 2 years remaining — the ideal scenario is for as many shares as possible to vest while you are still NRI or in your RNOR window.

Check your grant agreement for:

• Cliff vesting: all shares vest on a single date (risky — if the date falls after you become ROR, the full lot is taxable)
• Ratable vesting: shares vest monthly or quarterly (more manageable — each vest is assessed by your status that quarter)
• Acceleration triggers: does your equity plan allow early vest on relocation? Some plans have "change of work location" provisions

If you have flexibility on your return date, model the timing. Moving back in October rather than April can mean one additional vest quarter in RNOR.

2. Sell or hold before returning?

If you have large unrealised gains in US stocks, consider whether to sell before you return. While NRI, your US capital gains are taxed in the US under US rules — typically 15% or 20% long-term capital gains rate. Once you become ROR, those same gains would be taxed in India at 12.5% LTCG (for listed foreign equity held 24+ months) or at slab rate (if held less than 24 months).

The math depends on your US tax situation:

• If you are in the 15% US LTCG bracket, selling before return means a 15% tax
• If you stay and become ROR, you pay 12.5% Indian LTCG — potentially less, but you lose the RNOR window on any future growth
• If gains are short-term (held under 1 year), US rates can reach 37%; Indian STCG at slab is 30% + surcharge — roughly comparable for high earners

There is no universal answer. Run both scenarios with your actual cost basis, holding period, and expected tax bracket in each country. Large concentrated positions in a single employer's stock benefit most from pre-departure analysis.

3. The ESPP decision

Employee Stock Purchase Plans at discounts of 15% or more generate ordinary income at purchase in the US. If you hold ESPP shares:

• Qualifying dispositions (held 2+ years from grant, 1+ year from purchase): taxed as capital gains in the US at vest
• Disqualifying dispositions: ordinary income taxed at your slab

The Indian tax treatment follows the capital gains rules for foreign listed equity once you hold the shares. During RNOR, selling ESPP shares in your US account generates foreign-source capital gains — not India-taxable. Once you're ROR, all sales are India-taxable.

4. Your 401(k) and IRA

Do not touch your 401(k) before you leave unless you are 59½. The 10% early withdrawal penalty is on top of ordinary income tax — an expensive mistake.

What to do instead:

• Roll any 401(k) from previous employers into a single IRA rollover account before leaving the US. This simplifies administration from India.
• Keep contributing to your 401(k) through your last paycheck
• Do NOT convert a traditional IRA to Roth the year you return to India — the conversion income is ordinary income taxable in both countries; the Roth benefits only materialise in the US and provide no Indian tax advantage

Once you are RNOR: 401(k)/IRA distributions are US-source income and not India-taxable. Draw down if you need funds — just pay US withholding tax (30% for NRAs, or DTAA-reduced rate under US-India treaty).

Once you become ROR: Section 89A protects you. File Form 10-EE annually to defer Indian tax on 401(k) distributions to the year they are taxed in the US. Without Section 89A, a $50,000 401(k) distribution would be taxed in both countries simultaneously.

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Part 4: The first 30 days after you land — FEMA compliance

FEMA (Foreign Exchange Management Act) treats you as an Indian resident from the day you arrive with intent to stay permanently or for an uncertain period. The FEMA clock starts immediately. Income tax law starts the 182-day count. These are different systems with different timelines.

Bank account conversions — do this first

NRE savings account → RFC account

The RFC (Resident Foreign Currency) account is the correct destination for most returning NRIs' NRE balances. It preserves your foreign currency in USD, EUR, GBP, or other currencies without mandatory conversion to rupees. It maintains your repatriation rights. During the RNOR period, RFC interest is tax-free (because it is foreign-source income). Once you become ROR, RFC interest becomes taxable.

Do NOT convert NRE to a regular resident rupee savings account if you have significant USD balances — you lose the currency optionality and pay forex conversion spread.

NRE fixed deposits → wait until maturity, then RFC

NRE FDs can continue until maturity under their original terms (and original interest rate). You are not required to break them. On maturity, move the proceeds to your RFC account, not a resident savings account.

NRO account → resident savings account

NRO accounts redesignate to resident savings accounts. The label changes; the account number typically stays the same. Interest on NRO accounts was always taxable for NRIs (at 30% TDS) — this continues unchanged.

FCNR(B) deposits → let run to maturity

FCNR(B) (Foreign Currency Non-Resident Bank) deposits continue under original terms until maturity, then move to RFC or resident accounts.

Timeline: Notify your bank relationship manager within 30 days of returning with intent to stay. Bring your travel documents and a letter stating your change of residential status. Most banks have a form for this.

Overseas direct investment and shareholding

Under FEMA, a returning resident is allowed to retain foreign securities (US stocks, foreign mutual funds) acquired while NRI. You do not need to sell your US brokerage portfolio when you return. However:

• You can no longer open new overseas investment accounts using the NRI liberalised repatriation route
• New foreign investments must be made under the LRS (₹10 lakh threshold per year under the old LRS; now ₹25 lakh under revised rules)
• Existing holdings can be retained and sold at any time; proceeds can be remitted to India through normal banking channels

Your existing IBKR, Schwab, or Fidelity account stays open. You continue to hold and sell. The difference is now you are investing as an Indian resident, and capital gains are reported in your Indian ITR under the relevant foreign asset schedule.

Foreign property

Retain. Under FEMA, a returning NRI can hold immovable property abroad that was acquired while non-resident. The rental income is foreign-source income — RNOR-protected. Capital gains on eventual sale are foreign-source — RNOR-protected. Once ROR, both become India-taxable.

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Part 5: Tax filing in the transition years

Year 1 — the return year (e.g., FY 2026-27 if returning in 2026)

Your status depends on your day count. If you returned in November 2026, you may have been in India for 150 days in FY 2026-27 — enough to be resident, and likely RNOR given your prior NRI years.

What to file: ITR-2 (if no business income) or ITR-3 (if any business/freelance income)

Foreign income: Declare in Schedule FSI (Foreign Source Income). Foreign income is disclosed but not added to taxable income if you are RNOR.

Schedule FA: Mandatory disclosure of all foreign assets as at December 31 of the calendar year within the financial year. For FY 2026-27, that is December 31, 2026. Disclose:

• Balance in your US brokerage account (fair market value in USD)
• Unvested RSUs (grant price or fair value — your equity plan statement will have this)
• Vested but unsold shares (market value)
• 401(k) and IRA balances
• US bank account balances
• Foreign property (address and acquisition value)

Schedule FA errors are the most common mistake returning NRIs make. An omission is not a minor technical lapse — it is a disclosure failure that can attract penalties under the Black Money (Undisclosed Foreign Income and Assets) Act of up to 300% of the asset value.

Advance tax: In your return year, compute advance tax on only India-source income during RNOR. If your only India income is your Indian employer's salary and Indian rental income, that is the base. RSU perquisite from US employer is excluded.

Year 2 — still RNOR (e.g., FY 2027-28)

Same structure as Year 1. Foreign income disclosed but not taxed. Keep all foreign accounts, continue to disclose in Schedule FA.

If any RSU lots vest from your US employer, the perquisite is foreign-source income — not taxable in India during RNOR. You will pay US taxes (if applicable). No Indian TDS is deducted because there is no Indian payer.

Watch your day count: If you travel internationally frequently, verify you remain RNOR. Spending significant time in India in Years 1 and 2 can accelerate your transition to ROR if you fail the 7-year/730-day test earlier than expected.

Year 3 — the ROR transition (e.g., FY 2028-29)

This is the year everything changes. From April 1, 2028, if you are now ROR:

1. All global income is taxable — RSU perquisite from US employer, 401k distributions, US dividends, foreign rental income
2. Capital gains from selling US stocks are taxable in India — 12.5% LTCG if held 24+ months, slab rate if shorter
3. Section 89A applies to 401(k)/IRA distributions — file Form 10-EE to defer Indian tax to US tax year
4. Advance tax estimates must include global income — significant change from Years 1 and 2

The year before you become ROR is when the most valuable planning happens. Consider:

• Timing sales of appreciated US positions to fall in the last RNOR year
• Drawing down foreign income in RNOR years if you have the flexibility
• Establishing cost basis documentation for all foreign assets before becoming ROR (this is the base for Indian capital gains calculation)

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Part 6: RSU tax mechanics once you are ROR

Once you are fully resident and ordinarily resident, RSU taxation in India follows the same rules as for any Indian employee — but with one key difference: the perquisite is computed in INR and there is often no Indian employer to withhold TDS.

The two-event tax structure

Event 1: Vesting (perquisite)

Your RSU perquisite income = Number of shares × Stock price on vest date (USD) × SBI TT-buying rate on vest date

This is added to your income as "salary" and taxed at your applicable slab rate.

If there is no Indian employer deducting TDS (because you remain on US payroll), you are responsible for computing and paying advance tax on each vest. The advance tax deadlines are June 15 (15% of annual), September 15 (45% cumulative), December 15 (75%), and March 15 (100%).

Event 2: Sale (capital gains)

When you sell the shares after vest, the capital gain = Sale proceeds (INR, using USD/INR on sale date) − Cost basis (INR perquisite value at vest, which is the "deemed cost" of acquisition)

• Sold within 24 months of vest: Short-term capital gains, taxed at slab rate
• Sold 24+ months after vest: Long-term capital gains at 12.5% flat (no indexation for foreign listed equity as of FY 2024-25 onwards)

DTAA credit for US taxes paid

If your US employer withholds US taxes on your RSU perquisite (common for US-listed companies distributing RSUs to Indian employees), you can claim a foreign tax credit in India to avoid double taxation.

File Form 67 along with your ITR. Attach:

• Form W-2 or pay stub showing US taxes withheld on RSU income
• Proof of remittance or US tax payment

The credit is limited to the Indian tax payable on the same income — you cannot use excess US tax credit to reduce tax on other Indian income.

Surcharge thresholds — watch these

Once your RSU perquisite pushes total income above ₹50 lakh, surcharge applies:

Total income	Surcharge on tax
Up to ₹50 lakh	Nil
₹50 lakh–₹1 crore	10%
₹1 crore–₹2 crore	15%
₹2 crore–₹5 crore	25%
Above ₹5 crore	37%

A large October vest pushing you from ₹48 lakh to ₹60 lakh of income costs approximately ₹1.2–1.5 lakh in additional surcharge on the marginal amount. This is the case for a larger sell-to-cover at vest.

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Part 7: The accounts checklist — full picture

Keep these (no action needed)

• US brokerage account (IBKR, Schwab, Fidelity) — retain; file Schedule FA
• US 401(k) and IRA — retain; do not withdraw until 59½; file Section 89A when ROR
• RFC account — your primary USD holding account in India
• Foreign property — retain under FEMA

Convert these

• NRE savings → RFC savings (within 30 days)
• NRE FD → let mature, then RFC FD (no need to break early)
• NRO savings → resident savings account (automatic redesignation)

Open these

• RFC account (if not converting NRE — open one regardless as the USD hub)
• Indian savings account for salary credits (if returning to Indian employer)
• PPF account (if you had one as NRI, check — NRIs cannot contribute to PPF; you can restart a new one as resident)

Close or stop contributing to these

• US employer 401(k) contributions stop when your US payroll stops
• US health savings account (HSA) — cannot contribute as non-US-resident; funds remain invested

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Part 8: The year-by-year financial calendar

6 months before returning

• Compute exact RNOR duration with a CA based on your day count history
• Model RSU vest schedule vs. return date — optimise return date if flexible
• Review 401(k) balance: consolidate old employer accounts into IRA rollover
• Check ESPP shares: qualifying vs. disqualifying disposition status
• Model pre-departure stock sales: US CGT vs. India CGT comparison
• Identify which employer entity you will be employed by in India

1 month before returning

• Notify US bank(s) of impending address change
• Notify US brokerage of India address (some brokers restrict NRA accounts — check)
• Download year-to-date tax documents: W-2 (if getting one), 1099s, equity plan statements
• Prepare Schedule FA disclosure data: foreign asset values as of Dec 31 of the year
• Set up a US mailing address (forwarding service) for ongoing US tax mail

First 30 days after landing

• Notify your Indian bank of FEMA residential status change
• Convert NRE savings to RFC account
• Redesignate NRO to resident savings
• Continue NRE FDs until maturity
• Update KYC with bank and broker

First ITR filing as resident (due July 31 of Year 2)

• File ITR-2 or ITR-3 depending on income sources
• Include Schedule FSI for all foreign income (even if RNOR-exempt)
• Include Schedule FA for all foreign assets as of Dec 31
• Include Schedule TR if claiming foreign tax credit
• File Form 10-EE if applicable (Section 89A for 401k/IRA — only in ROR years)

Every year during RNOR

• Track RSU vest dates: note SBI TTBR on each date even if not immediately taxable — you need cost basis for when you eventually sell as ROR
• File Schedule FA annually with updated balances
• Compute advance tax on India-source income only
• Monitor RNOR day count — verify you have not inadvertently become ROR early

The year before you become ROR

• Identify appreciated US positions: harvest before RNOR expires
• If large RSU vests expected in ROR year: plan advance tax from Day 1 of the year
• Review 401(k) distribution strategy with Section 89A
• Brief your employer's payroll team on your ROR status change: TDS on RSU perquisite needs to begin

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Part 9: The mistakes that cost returning NRIs the most

1. Missing Schedule FA The most common and most expensive error. Many returning NRIs simply don't know Schedule FA exists, or think it applies only to ROR residents. It applies from your first resident ITR filing — including RNOR years. The Black Money Act penalty for undisclosed foreign assets is not proportional; it is punitive.

2. Converting NRE to resident savings instead of RFC Losing the currency optionality on a large USD balance when you could park it in RFC for 2–3 RNOR years — earning interest tax-free during RNOR — is a straightforward missed opportunity. Every returning NRI should open an RFC account.

3. Withdrawing 401(k) early to "simplify" The 10% early withdrawal penalty plus ordinary income tax is typically 40–50% effective cost in the US alone. "I'll just bring the money back to India" is a very expensive form of simplification.

4. Not documenting RSU cost basis before becoming ROR When you eventually sell shares as an ROR, your Indian capital gains tax is computed on INR cost basis. Your cost basis is the INR value of the perquisite on each vest date — using the SBI TT-buying rate on each vest date. If you do not record this at vest time, reconstructing it years later from SBI historical data is painful. Keep a record for every vest: date, shares, USD price, USD/INR rate, INR perquisite.

5. Staying on US payroll too long Some returning engineers try to remain employed by the US entity indefinitely to preserve RNOR treatment. This works until it doesn't — if income tax authorities determine your work is being done in India for the Indian entity's benefit, the foreign-source classification is challenged. Secondments longer than 2–3 years with India-based operations draw scrutiny.

6. Treating RNOR as permanent RNOR ends. Plan for the transition. The year you become ROR, your advance tax obligation jumps significantly if you have large RSU vests. Many returning NRIs discover this at Q2 advance tax time and face Section 234C interest on underpayments.

7. Assuming DTAA eliminates double taxation automatically India's DTAA with the US (and most countries) provides relief, but you have to claim it. Relief is not automatic. File Form 67 with documentary evidence. If you miss it, you cannot retrospectively claim the credit after your ITR is processed.

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The one number to track

Your RNOR end date. Everything in this guide — when to sell, when to draw from 401(k), when to plan for higher advance tax, when to tell your employer's payroll to start TDS — flows from this one date. Compute it precisely with a CA before you land. Write it down. Set a calendar reminder 90 days before it arrives.

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Related: Section 89A: avoiding double taxation on 401k and IRA as a returning NRI · RSU tax for NRIs · UAE NRI returning to India: complete transition guide · What is Schedule FA? · Schedule FA step-by-step guide · DTAA US-India complete guide · Advance tax calendar for RSU holders