Filing your first Indian ITR after returning: RNOR status, foreign income, Schedule FA and what goes where
Your first ITR after returning to India is the most complex one you'll file. RNOR status may exempt foreign income. Here's what income to report, what's exempt, and how to complete ITR-2 for the year of return.
Shivang BadayaCo-Founder & Chief Executive Officer, RoviaThe year you return to India produces the most complex ITR you'll ever file. You have income from two countries, possibly two residential statuses within one year, RNOR exemptions to claim, foreign assets to disclose, and DTAA credits to compute. This guide walks through each piece.
Step 1: Determine your residential status for the year
Indian tax residential status for a financial year (April to March) depends on days spent in India:
Test 1: 182+ days in India during the financial year → Resident
Test 2 (for those who don't meet Test 1): 60+ days in India during the year AND 365+ days in India in the preceding 4 years → Resident
If neither test is met: Non-Resident for that year.
If Resident, then check if RNOR: You are RNOR if either:
- You were NR in 9 out of the preceding 10 financial years, OR
- You spent 729 days or fewer in India in the preceding 7 financial years
Most returning NRIs who were abroad for 5+ years will be RNOR for 2–3 years after return.
Practical example:
- Person returns from US on August 1, 2026
- Spends ~8 months in India in FY 2026-27 (Aug 2026 – March 2027) → 182+ days → Resident
- Was NR in all 10 preceding years → RNOR
- Status for FY 2026-27: RNOR
RNOR tax treatment:
- Indian-source income: fully taxable
- Foreign-source income (US salary, 401k, US dividends): NOT taxable in India
- Income from foreign business controlled from India: taxable
Step 2: Identify all income sources
Create this table for your return year:
| Income source | Amount | Source country | RNOR treatment | Taxable in India? |
|---|---|---|---|---|
| US salary (Jan–Jul, before return) | $X | US | Foreign-source | No (RNOR) |
| Indian salary (Aug–Mar, after return) | ₹Y | India | Indian-source | Yes |
| US RSU vesting (while in US) | $Z | US | Foreign-source | No (RNOR) |
| US RSU vesting (while in India) | $A | India | Indian-source (situs) | Yes |
| 401k distribution | $B | US | Foreign-source | No (RNOR) |
| US stock dividends | $C | US | Foreign-source | No (RNOR) |
| Indian FD interest | ₹D | India | Indian-source | Yes |
| US stock LTCG | $E | US | Foreign-source | No (RNOR) |
RSU situs issue: RSUs that vest while you are physically in India — even at a US employer — are typically Indian-source income (taxed as perquisite in India). RSUs vested while you were in the US (before return) are US-source. The split is by vesting date and location, not grant date.
Step 3: Compute Indian taxable income
Sum all Indian-source income from the table above:
- Indian salary: full amount
- Indian RSU vesting (if any)
- Indian bank interest, dividends
- Indian capital gains
Apply deductions:
- Standard deduction: ₹75,000 for FY 2026-27 (new regime) against salary
- Section 80C (PPF, ELSS, LIC, home loan principal): up to ₹1.5 lakh (old regime only)
- Section 80CCD(1B) NPS: ₹50,000 (old regime only)
- HRA exemption if applicable
New regime vs old regime:
- New regime: lower slab rates (nil up to ₹3L, 5% 3–7L, 10% 7–10L, 15% 10–12L, 20% 12–15L, 30% above ₹15L); almost no deductions
- Old regime: higher rates but deductions available (80C, 80D, HRA, home loan interest)
- For most returning NRIs with significant 80C investments and home loan: old regime may still be better in Year 1
Step 4: Schedule FSI (Foreign Source Income)
Even as an RNOR whose foreign income is exempt, you must report it in Schedule FSI (Foreign Source Income).
Schedule FSI has columns for:
- Country code
- Taxpayer ID in that country (your US SSN / ITIN)
- Nature of income (salary, dividend, capital gains, etc.)
- Amount in foreign currency
- Amount in INR (converted at RBI reference rate for the date of receipt)
- Tax paid in source country
- DTAA article claimed for exemption/credit
For RNOR, most items will show "exempt under RNOR status" rather than a DTAA credit — the exemption comes from Indian domestic law (Section 5), not the treaty. However, for income that becomes taxable (Indian-source income subject to US withholding by mistake), the DTAA credit applies.
Step 5: Schedule FA (Foreign Asset Disclosure)
Mandatory for all Residents (including RNOR). Disclose all foreign financial assets as of December 31 of the calendar year falling within the financial year.
For FY 2026-27: snapshot date = December 31, 2026
What to disclose:
| Schedule FA item | What to report |
|---|---|
| A1 — Foreign bank accounts | Account number, bank name/country, peak balance during calendar year, balance on Dec 31 |
| A2 — Foreign custodial accounts | US brokerage accounts (Schwab, Fidelity, IBKR) — peak value during year, Dec 31 value |
| A3 — Equity and debt interest | Stocks, bonds held directly (not via brokers) |
| A4 — Cash value insurance | US life insurance with cash value |
| A5 — Annuity contracts | — |
| A6 — Trusts | If you're a beneficiary/trustee of a foreign trust |
| A7 — Other capital assets | 401k, IRA, Roth IRA (report in A7 — these are retirement accounts, not custodial accounts) |
401k and IRA reporting:
- Report in Table A7 (Other capital assets)
- Nature: "US retirement account — 401k"
- Value: account balance in USD as of December 31, converted to INR at RBI rate
- Income from these accounts during year: if RNOR and no distribution taken, nil income
- No penalty on holding these — only a disclosure obligation
Missing Schedule FA: ₹10 lakh penalty under Black Money Act (Undisclosed Foreign Income and Assets Act, 2015). Courts have upheld this. File even if you're unsure — revised ITR to correct errors is better than omitting.
Step 6: Form 67 (DTAA credit)
If you have income taxable in both India and the US, file Form 67 to claim credit for US taxes paid:
Typical scenario for RNOR returning NRI: very few items (most foreign income is exempt). Form 67 may be needed only for:
- US withholding on dividends that is also taxable in India (unusual for RNOR)
- ROR returning NRIs (no RNOR protection) with US source income taxed in both countries
How Form 67 works:
- Available on incometax.gov.in → e-File → Income Tax Forms → Form 67
- Report: country code, income description, income amount, tax paid abroad, applicable DTAA article
- The lower of Indian tax on that income or tax paid abroad is allowed as credit
- File Form 67 before filing ITR — the ITR references the Form 67 filing date
Step 7: Advance tax during the year
If you return mid-year and have Indian income (salary starts from August), you'll have an Indian employer who deducts TDS on salary. But for:
- Interest, dividends from Indian investments
- Capital gains (Indian equity)
- Any income without TDS
Pay advance tax:
- June 15: 15% of annual tax liability
- September 15: 45% cumulative
- December 15: 75% cumulative
- March 15: 100% cumulative
Miss these and you pay Section 234C interest (1% per month on shortfall). In the year of return, if you didn't anticipate Indian income, a single self-assessment tax payment before July 31 (ITR due date) avoids most interest.
ITR-2 checklist for the year of return
- Determine residential status (days in India, prior years)
- List all income sources (US + India); identify RNOR exemptions
- Collect US documents: W-2, 1099-DIV, 1099-INT, brokerage annual statement
- Collect Indian documents: Form 16 (employer TDS), bank statements, demat P&L
- Complete Schedule FSI for all foreign income (exempt or not)
- Complete Schedule FA — December 31 balances of all foreign accounts
- File Form 67 if any DTAA credit needed (file before ITR)
- Compute Indian taxable income; choose old vs new regime
- Pay any balance tax (self-assessment tax) before filing
- File ITR-2 on incometax.gov.in by July 31 (or December 31 for belated)
Related: Schedule FA: foreign asset disclosure in detail · Section 89A and 401k/IRA · RNOR status explained
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Frequently asked questions
- What is my residential status in the year I return to India? ▾
- It depends on when you return. India uses the 182-day rule: if you spend 182+ days in India in a financial year (April–March), you are Resident. If you spend less, you remain Non-Resident for that year. For someone returning mid-year (say, moving back in September), you'll typically spend 5–6 months in India that year — which may cross 182 days. In the year of return, you may be NR, RNOR, or ROR depending on your exact arrival date and prior residency history. Most people who return in the first half of the year (April–September) become Resident (and possibly RNOR) in that very year. Those who return in the second half may still be NR for that year.
- As an RNOR, what income is exempt from Indian tax? ▾
- RNOR (Resident but Not Ordinarily Resident) status provides a transitional tax benefit: income earned or accrued outside India from foreign sources is NOT taxable in India. Specifically exempt for RNOR: US salary (if still working in US for part of year), 401k distributions from US accounts, US dividends and interest, UK/other foreign income. NOT exempt even for RNOR: income received in India (any Indian salary, Indian rental income, Indian interest), and income from a business controlled from India or a profession exercised in India. The RNOR window typically lasts 2–3 years after return.
- Do I need to file Schedule FA in the year of return? ▾
- Yes — Schedule FA (Foreign Assets) is mandatory for Resident individuals (including RNOR). Even though RNOR exempts foreign income from tax, you must disclose foreign assets. The December 31 snapshot rule applies: report the value of all foreign financial accounts, stocks, retirement accounts (401k, IRA), and other foreign assets as of December 31 of the calendar year ending within the financial year. So for FY 2026-27 (April 2026 – March 2027), the Schedule FA snapshot date is December 31, 2026. Failure to disclose: ₹10 lakh penalty under the Black Money Act — this is enforced.
- Which ITR form should a returning NRI use? ▾
- ITR-2 is correct for most returning NRIs: it covers salary income, capital gains (Indian and foreign), foreign income (Schedule FSI), foreign assets (Schedule FA), and DTAA credits (via Form 67). If you have business income or professional income above ₹50 lakh, use ITR-3. ITR-1 (Sahaj) cannot be used if you have foreign income or foreign assets — do not use it even if it appears simpler. The ITR-2 form has grown significantly; use the JSON utility (Java-based offline utility or Excel utility from the Income Tax portal) for accurate completion of Schedule FA, FSI, and Form 67.
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About the author
Co-Founder & Chief Executive Officer, Rovia
CFA charterholder with 10+ years across hedge funds and NRI fintech. Covers RSU taxation, equity comp, and cross-border investing for Indian residents. Ex-JP Morgan, Makrana Capital, Zolve.
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