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RNOR status for NRIs returning to India from the US: eligibility, 2-3 year duration, 401(k)/RSU/HSA tax rules, FBAR/FATCA, and Form 10EE filing steps explained.
RNOR — short for Resident but Not Ordinarily Resident — is the 2-3 year window that keeps your US income out of India's tax net right after you move back. It sits between full NRI status and full Indian residency, and getting your return date right can save an H-1B or Green Card holder a genuinely large amount of tax on 401(k), RSU, and brokerage gains.
This topic straddles both Acts. Income up to 31 March 2026 (FY 2025-26, assessed in AY 2026-27) is governed by the Income-tax Act, 1961. Income from 1 April 2026 onward (Tax Year 2026-27) falls under the new Income-tax Act, 2025 (Act No. 30 of 2025). Section 6, which defines residential status, keeps the same number in both — one of the few provisions that wasn't renumbered. Section 89A (retirement accounts, 1961 Act) becomes Section 158 under the 2025 Act, and Form 10-EE becomes Form 40. Section 234F becomes Section 428. Where we couldn't independently confirm a 2025-Act number this session, it's tagged [VERIFY] rather than guessed.
RNOR is a transitional tax status defined under Section 6 of the Income-tax Act. First, you have to clear India's basic residency test — 182 or more days in the country during the year, or 60-plus days that year along with 365-plus days across the previous four years. Once you've cleared that, whether you land in RNOR or jump straight to full resident (ROR) status depends on two further tests under Section 6(6).
As an RNOR, your Indian income gets taxed like anyone else's. But your US income — salary already earned there, 401(k) growth, gains sitting in a brokerage account — stays out of India's reach, much like it would if you were still an NRI. That's really the whole point of RNOR: a runway to sort out your US finances before India starts taxing everything you earn, anywhere in the world.
Applies to | Does NOT apply to |
|---|---|
H-1B/L-1/Green Card holders who were NRI for 9 of the preceding 10 years | NRIs who've already been shuttling between India and the US for years |
Returnees present in India for 729 days or fewer across the preceding 7 years | Anyone who's clocked 730+ India days across the last 7 years |
Indian citizens or PIOs deemed resident under Section 6(1A) of the 1961 Act (Section 6(7) under the 2025 Act) | Foreign nationals with no Indian citizenship or PIO status |
Anyone who has already cleared the basic "Resident" day-count test | Someone under 182 days who's still technically an NRI — RNOR never kicks in without first being Resident |
One thing worth flagging: you only need to clear one of the two extra tests below, not both. And if you're returning as a couple, each spouse's RNOR clock runs on their own travel history — coming back together doesn't automatically mean the same window for both of you.
Once you've cleared the basic Resident test, Section 6(6) checks two independent conditions, and passing either one keeps you in RNOR for that year:
The 9-out-of-10 test — you were non-resident in India in at least 9 of the 10 years right before this one.
The 729-day test — you spent 729 days or fewer physically in India across the preceding 7 years.
How long does it actually last? For someone who spent 7-plus years continuously in the US on H-1B or as a Green Card holder, both tests pass comfortably, so RNOR usually runs for the full 2 to 3 financial years. A shorter US stint of 5-6 years tends to taper down to just 1-2 years, because the 9-out-of-10 test starts failing sooner. There's also a small planning lever here: returning in February or March instead of April can buy you an extra transition year, simply because your first Resident year starts later in the annual cycle.
Two automatic triggers, on top of the two tests above:
The 120-day rule — an Indian citizen or PIO earning over ₹15 lakh from Indian sources who spends 120-181 days in India (with 365-plus days in the prior four years) becomes Resident, and lands in RNOR automatically that year.
Deemed residency under Section 6(1A) (Section 6(7), 2025 Act) — an Indian citizen earning over ₹15 lakh from Indian sources who isn't liable to tax anywhere else by domicile or residence is treated as a deemed Resident, and automatically classified as RNOR.
A quick word on Green Cards and H-1Bs, since the two work quite differently:
Visa type | Effect on your RNOR position |
|---|---|
H-1B or L-1, no Green Card | Your RNOR clock in India starts the day you cross the Resident test; your US tax residency under the Substantial Presence Test usually ends separately, often mid-year |
Green Card holder moving back for good | RNOR works the same way on the India side, but you still owe a US Form 1040 on worldwide income every year the Green Card stays valid — RNOR doesn't touch that obligation at all |
Green Card surrendered around the time of return | Could trigger a separate US expatriation tax under IRC Section 877A if you count as a "covered expatriate" — broadly, average annual US tax above an inflation-indexed threshold, or net worth over $2 million [VERIFY: confirm the current-year Section 877A thresholds at irs.gov before making any decisions around timing] |
What actually stays exempt during RNOR: salary you already earned in the US, 401(k)/IRA growth, RSUs vesting from a US employer, and gains on foreign brokerage or crypto holdings are all foreign-source income, and they stay outside India's tax net during RNOR — as long as the money isn't received in India or tied to a business run from India.
Example 1 — the common case. Suresh worked in Seattle for 12 years on H-1B and later a Green Card, and moved back to Pune on 10 May 2026. He spends 235 days in India that year, so the basic Resident test is cleared easily. He was non-resident in India for all 10 of the preceding 10 years, so the 9-out-of-10 test passes without a second thought. That makes him RNOR. His Traditional 401(k), worth about ₹1.4 crore, earns ₹7 lakh in dividends and gains during FY 2026-27 — none of that is touched by Indian tax this year. Only his ₹1,60,000 in Indian NRO fixed deposit interest gets taxed: ₹1,60,000 × 30% works out to ₹48,000, plus 4% cess (₹1,920), for a total of ₹49,920 due, adjusted against any TDS already deducted.
Example 2 — the edge case most articles skip. Priya returns to Bengaluru from New Jersey after just 4 years on H-1B, having lived in India for 8 years right before that stint. She spends 210 days in India, which clears the Resident test — but she was non-resident for only 4 of the last 10 years, so she fails the 9-out-of-10 test outright. Falling back to the second test, her total India presence over the preceding 7 years adds up to 610 days, comfortably under the 729-day cap, so she still qualifies as RNOR through this route. During this window, she sells 800 vested RSU shares from her US employer at a gain of $60 per share — $48,000 total, roughly ₹39.8 lakh at ₹83/USD. Because she's RNOR and the shares are foreign-source, India taxes exactly zero capital gains on that sale. Had she waited until she was a full ROR, the same ₹39.8 lakh gain would attract 12.5% LTCG tax (foreign shares use a 24-month long-term holding threshold, and the usual ₹1.25 lakh listed-equity exemption doesn't apply here): ₹39.8 lakh × 12.5% comes to ₹4,97,500, plus cess.
Confirm your Resident status first. Count your India days: 182-plus in the year, or 60-plus in the year along with 365-plus across the prior four years.
Run the 9-out-of-10 test across the preceding 10 tax years.
Run the 729-day test across the preceding 7 tax years, alongside it.
Either test passing means RNOR for that year. Keep re-testing every year until both fail — that's the year full ROR status begins.
File Form 10-EE (for AY 2026-27) or Form 40 (from AY 2027-28) in your first ROR year if you hold a 401(k) or IRA, so India taxes it on withdrawal instead of accrual. Log in at the Income Tax e-filing portal, go to e-File → Income Tax Forms → File Income Tax Forms, pick the right form and assessment year, fill in the notified country and account type, and submit before your ITR due date. For the full walkthrough, Toolisky's 401(k) and Section 89A/158 guide goes step by step.
401(k) and IRA, during and after RNOR: while you're RNOR, don't worry about Form 10-EE/40 at all — foreign retirement account income isn't taxed in India during this window anyway. The moment you become ROR, file the form in your very first ROR-year return to shift taxation from accrual basis to withdrawal basis, matching how the US already taxes these accounts.
RSU, ESOP and ESPP: the grant itself triggers no tax anywhere. Vesting is treated as a perquisite and taxed as salary at your slab rate — but only if it's tied to an Indian employer, or you're already ROR at the time of vesting. If the RSU comes from your US employer and vests while you're still RNOR, that perquisite is foreign-source and untaxed in India. Selling vested shares during RNOR works the same way, drawing zero India capital gains tax — a one-time window that shuts the day you become ROR.
HSA (Health Savings Account): an HSA isn't a retirement account, and it doesn't sit on Section 89A/158's notified-country list, so the deferral relief simply doesn't apply to it. [VERIFY: no CBDT ruling addresses HSA treatment for RNOR or ROR taxpayers specifically — treat annual growth as a potential accrual-basis liability once you're ROR, and get this confirmed by a cross-border CA before you file.]
Crypto and other virtual digital assets: gains on foreign-exchange crypto holdings sold during RNOR follow the same foreign-source logic and generally stay outside Indian tax. Once you're ROR, though, every virtual digital asset gain — whether on an Indian or foreign exchange — is taxed flat at 30% under Section 115BBH, and losses can't be set off against anything.
FBAR and FATCA — the US side that RNOR doesn't touch: becoming RNOR in India changes nothing about what you owe the US Treasury. If you're a US citizen or Green Card holder, FBAR (FinCEN Form 114) is due once your combined foreign accounts — including NRE, NRO, FCNR and PPF balances — cross $10,000 at any point in the year, filed by 15 April with an automatic extension to 15 October. FATCA (Form 8938) kicks in starting at $50,000/$75,000 for a single filer living in the US, roughly double that for joint filers, and higher still if you're living outside the US. For the full India-US dual filing picture, see Toolisky's guide on whether NRIs must file returns in both India and the US.
One genuinely useful exemption: the Black Money Act, 2015 only applies to taxpayers who are Resident and Ordinarily Resident — RNOR is specifically carved out of its definition of "assessee." So during your RNOR years, you're not required to disclose foreign assets under the Black Money Act, even though your 401(k), RSUs, and US brokerage accounts still need to go into Schedule FA of your ITR once you become ROR.
You filed as ROR when you actually qualified for RNOR. File a revised return under Section 139(5) before the assessment year's deadline (31 March 2027 for AY 2026-27), backed by travel records that prove your day count.
Your bank left your NRE account open for months after you became a Resident under FEMA. Write to the bank and ask for redesignation to a resident or RFC account right away. Interest becomes taxable from your actual date of becoming a resident, regardless of how quickly the bank updates its records — FEMA rules and Income Tax rules run on separate tracks here. The RBI's own FAQ on accounts held by non-residents is the reference point if your bank pushes back.
You missed the Form 10-EE/Form 40 deadline in your first ROR year. You can't go back and claim the deferral for a year that's already been assessed. File the form this year to start the deferral going forward. For the missed year, a revised return might still work if the Section 139(5) window (2 years from the end of the relevant AY) hasn't closed — this depends heavily on your specific timeline, so get a CA to check it.
Passport with entry and exit stamps, or a reconstructed travel log built from boarding passes and visa stamps
PAN card (a digital copy works fine; apply now if you don't have one yet)
US W-2s, 1099s, and 401(k)/IRA/brokerage statements
Bank statements showing NRE/NRO/FCNR balances and interest credited
Employer letters or grant/vesting schedules for RSU, ESOP or ESPP
Green Card or visa status documents, if surrender or expatriation is relevant to you
Violation | Penalty | Section |
|---|---|---|
Wrongly claiming RNOR when you're actually full ROR (under-reporting) | Up to 50% of tax on the under-reported income | Section 270A, 1961 Act |
Same situation treated as misreporting (false claims or evidence) | Up to 200% of tax | Section 270A, 1961 Act |
Filing your ITR late | ₹1,000 (income under ₹5 lakh) or ₹5,000 (otherwise) | Section 234F, 1961 Act / Section 428, 2025 Act |
Unpaid tax, charged monthly | 1% interest per month | Section 234A |
Non-disclosure of foreign assets (401k, RSU, brokerage) once you're ROR | ₹10 lakh per year, waived if the undisclosed asset — excluding immovable property — is under ₹20 lakh | Black Money Act, 2015, Sections 42-43 |
US FBAR, non-willful violation | Up to $16,536 per report (2026 inflation-adjusted) | 31 U.S.C. § 5321 |
US FBAR, willful violation | Greater of $165,353 or 50% of the account balance | 31 U.S.C. § 5321 |
Toolisky's Section 234A/234B/234C Interest Calculator will show you your exact late-payment interest in seconds.
Usually 2 to 3 financial years for anyone who spent 7-plus years continuously in the US. Shorter stints of 4-6 years tend to taper to 1-2 years, since the 9-out-of-10 non-resident test fails sooner once your India history stretches longer.
No, and this is where a lot of people get confused. NRI means you failed India's basic Resident day-count test. RNOR means you passed it but still get one of two transitional exemptions on your foreign income. Think of it as a category inside Resident status, not a substitute for NRI.
Generally, yes. During RNOR, India doesn't tax income that accrues or is received outside the country, so 401(k) growth and withdrawals taken in that window fall outside Indian tax. You'll still owe US tax on the withdrawal, plus a 10% early-withdrawal penalty if you're under 59½.
No. Section 6 keeps its number, and the 9-out-of-10-year and 729-day tests stay identical in substance. What actually changes is the retirement-account relief section (89A becomes 158) and its form (10-EE becomes Form 40) — not the RNOR tests themselves.
If the vesting is tied to your US employer and it happens while you're RNOR, that perquisite is foreign-source and untaxed in India. Selling those shares in the same window also draws zero India capital gains tax. Both of these flip completely once you become a full ROR.
Yes, if you're a US citizen or Green Card holder — your RNOR status in India has zero bearing on what the US requires. FBAR applies once combined foreign accounts (including NRE/NRO/FCNR/PPF) cross $10,000; FATCA thresholds start at $50,000 for single filers.
You can't retroactively defer tax on a year that's already been assessed. File Form 10-EE (or Form 40, depending on the assessment year) this year to start the deferral going forward. A revised return might rescue the missed year if the Section 139(5) window is still open — that depends entirely on your specific filing timeline.
Not directly — RNOR eligibility in India depends purely on your day count and NRI history. But surrendering a Green Card can trigger a separate US expatriation tax under IRC Section 877A if you meet the covered-expatriate thresholds, so check current figures at irs.gov before you decide on timing.
This one's genuinely unsettled. HSAs aren't retirement accounts under Section 89A/158, so the withdrawal-basis deferral doesn't apply, and no CBDT ruling addresses HSA treatment specifically. Treat annual growth as a potential accrual-basis liability once you're ROR, and get it confirmed by a cross-border CA before filing.
ITR-2 if you have no business or professional income, ITR-3 if you do. ITR-1 and ITR-4 aren't available to anyone holding foreign assets like a 401(k), an IRA, or a foreign brokerage account.
Yes, in principle. NRE accounts should be redesignated to resident or RFC accounts once you're no longer NRI/RNOR under FEMA. There's no fixed grace period, but interest becomes taxable from your actual residency-change date regardless of when the bank catches up.
Same relief, different Act. Section 89A (1961 Act, Form 10-EE) applies through AY 2026-27. Section 158 (2025 Act, Form 40) applies from AY 2027-28 onward. The notified countries and the underlying deferral mechanic don't change.
Pull together your US and India travel records today, and run both RNOR tests side by side before you lock in a return date. Check your 401(k), RSU, and brokerage accounts against the RNOR status rules above, since selling during RNOR — not after — is what actually saves the tax. For official confirmation of section numbers and notified countries, cross-check the Income Tax Department's 1961-to-2025 mapping utility before you file anything.
For educational purposes only. Verify all figures at official sources before acting. Toolisky is not affiliated with any government body. Consult a qualified CA or legal professional before making compliance decisions. See toolisky.com/accuracy-and-limitations.
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