The Biggest Tax Benefit Window for Returning NRIs (With US Case Study - 2026)

For NRIs returning to India, RNOR (Resident but Not Ordinarily Resident) is the single most powerful, and most time-sensitive, tax provision available under Indian law

RNOR can create a temporary window where:

• Foreign income is not taxable in India

• Foreign assets may not be reportable

• Certain income may fall outside both Indian and US tax, if timed correctly

This article explains:

• What RNOR status is

• Exact legal eligibility criteria

• What income is taxable vs exempt during RNOR

• How RNOR interacts with US tax residency

• A US → India return case study showing the overlap window

• Common mistakes that permanently destroy RNOR benefits

What Is RNOR?

RNOR stands for Resident but Not Ordinarily Resident, a special tax residency classification under Section 6 of the Indian Income-tax Act.

RNOR applies to individuals who:

• Become Residents of India after living abroad, and

• Do not yet meet the conditions to be treated as fully resident (ROR)

RNOR is temporary and typically lasts 1 to 3 financial years, depending on prior residency history.

RNOR Eligibility: The Exact Legal Tests

RNOR determination is a two-step process.

STEP 1: Are You a Resident in India in the Current Year?

RNOR applies only if you first qualify as a Resident.

Test 1: 182-Day Rule

Did you stay in India for 182 days or more during the financial year?

• If Yes → You are a Resident → go to Step 2

• If No → go to Test 2

Test 2: Secondary Residency Tests

Are you an Indian citizen or PIO visiting India and is your Indian income (excluding foreign income) more than ₹15 lakh?

If No (normal rule applies):

Did you stay in India for:

• 60 days or more in the current year, and

• 365 days or more in the last 4 financial years?

• If Yes → Resident → go to Step 2

• If No → Non-Resident (RNOR does not apply)

If Yes (relaxed rule applies):

Did you stay in India for:

• 120 days or more in the current year, and

• 365 days or more in the last 4 financial years?

• If Yes → Resident → go to Step 2

• If No → Non-Resident (RNOR does not apply)

STEP 2: RNOR vs ROR (Applies Only If You Are Resident)

Once you qualify as a Resident, your status depends on either of the following tests.

Test A: 10-Year Test

Were you Resident in India for at least 2 out of the last 10 financial years?

• If No → You are RNOR

• If Yes → go to Test B

Test B: 7-Year Day Count Test

Did you stay in India for 730 days or more during the last 7 financial years?

• If No (729 days or less) → You are RNOR

• If Yes → You are Resident and Ordinarily Resident (ROR)

Special Case: Deemed Resident (RNOR by Default)

You are treated as Resident RNOR if:

• You are an Indian citizen

• Your Indian income (excluding foreign income) exceeds ₹15 lakh

• You are not liable to tax in any other country

This rule exists to prevent tax statelessness and automatically assigns RNOR status.

RNOR Tax Treatment: What Is and Isn’t Taxable

Income Taxable in India During RNOR

• Income earned or received in India

• Salary for services rendered in India

• Rental income from Indian property

• Capital gains from Indian assets

Income Generally NOT Taxable in India During RNOR

• Foreign income earned and received outside India

• Overseas salary (for services rendered outside India)

• Interest from foreign bank accounts

• Dividends from foreign stocks and ETFs

• Capital gains from foreign assets (subject to specific facts)

This exemption on foreign income is the core RNOR benefit.

Foreign Asset Reporting During RNOR

During RNOR:

• Foreign assets are generally not reportable in Schedule FA

• This includes:

  • Foreign bank accounts

  • US brokerage accounts

  • RSUs / ESOPs

  • Foreign retirement accounts

Once you become ROR, full reporting becomes mandatory.

RNOR and US Tax Residency: The Overlap Window

RNOR planning becomes especially powerful for US non-citizen NRIs.

US Tax Context (High Level)

• US citizens and Green Card holders are taxed globally regardless of residence

• Non-citizens without a Green Card are taxed only if they meet the Substantial Presence Test (SPT)

If SPT is not met after departure, US tax residency can end.

Case Study: US → India Return With RNOR Overlap

Profile

• Indian citizen (not a US citizen, no Green Card)

• Worked in the US on H-1B for 8 years

• Holds:

  • US brokerage account

  • Vested RSUs

  • US bank balances

  • Indian investments

• Returns to India permanently

Timeline

FY 2025–26

• Spends more than 182 days in India

• Qualifies as Indian Resident

• Meets RNOR conditions

US Tax Status

• Does not meet Substantial Presence Test

• Ceases to be US tax resident

Resulting Tax Position During RNOR

This creates a temporary overlap window where certain income is not taxed in either country, provided residency timing is precise.

Important Clarifications

• This overlap does not apply to:

  • US citizens

  • Green Card holders

• It depends heavily on:

  • Exact travel dates

  • SPT calculations

  • RNOR eligibility

• A few days’ miscount can eliminate the benefit entirely

Professional advice is strongly recommended.

Common RNOR Mistakes

• Assuming RNOR is automatic

• Returning mid-year without residency planning

• Liquidating foreign assets too early

• Ignoring US SPT rules

• Becoming ROR earlier than expected

RNOR benefits are permanently lost once missed.

RNOR vs ROR: Quick Comparison

Final Takeaway

RNOR is the single biggest tax planning window for returning NRIs.

It:

• Exists for a limited time

• Requires precise residncy calculations

• Can eliminate Indian tax on foreign income

• May create a rare India–US non-tax overlap for non-citizens

Once RNOR is lost, it cannot be recreated.