NRI returning to India, the RNOR planning window.

Resident but Not Ordinarily Resident (RNOR) is the Indian tax status between NRI and ROR. For 2-3 financial years after returning to India permanently, the typical returnee holds RNOR status (assuming they were non-resident in 9 of the preceding 10 years, or physically present in India for 729 days or less in the preceding 7 years).

RNOR taxability: India-source income only — same as NRI. Foreign dividends, foreign capital gains, foreign rental, foreign retirement withdrawals are NOT taxable in India during RNOR.

After RNOR ends (usually year 3 or year 4 post-return), status becomes ROR and worldwide income is Indian-taxable. The RNOR window is a one-time planning opportunity.

1. Sell appreciated foreign equity holdings. US brokerage long-term capital gains at 15-20% US rate; no additional Indian tax during RNOR. After RNOR, these gains would be Indian-taxable at 12.5% LTCG (with FTC for US tax paid under India-US DTAA Article 25).
2. Convert / withdraw US retirement accounts. Traditional IRA / 401(k) withdrawals are US-taxable at your US marginal rate. During RNOR, no Indian tax on top. After RNOR, the Indian-taxability of foreign-pension payouts becomes complex — EET regime distinction. The RNOR window is the cleanest time to decide: distribute lump sum, Roth-convert, or roll to annuity.
3. Sell foreign real estate. US / UAE / UK property sold during RNOR — US / UAE / UK tax at source, no Indian tax on top. After RNOR, Indian tax on worldwide capital gains applies (with FTC).
4. Close dormant foreign bank accounts. Simplifies future FBAR / Schedule FA reporting. During RNOR there is no Schedule FA filing obligation; after ROR there is.
5. Convert foreign business income streams. If you hold a foreign business, consider taking the final distribution / liquidating / converting to passive income during RNOR. Post-RNOR, foreign business income can be Indian-taxable if controlled from India.
6. Re-designate NRE / FCNR accounts. On becoming Resident, NRE and FCNR accounts must be re-designated as Resident accounts (RFC or regular) within specified timelines. The interest exemption under Section 10(4)(ii) ends on re-designation.
7. File Schedule FA (Foreign Assets) once ROR. Mandatory annual disclosure of all foreign assets. Non-disclosure penalty: Black Money Act, up to USD 10 lakh + possible imprisonment. Build the asset log during RNOR.

For US NRIs returning to India, the US retirement account decision is the single largest financial choice. Options:

Option A: Lump-sum distribution during RNOR. Full balance withdrawn in one year. US tax on the full amount at US marginal rate (often 32-37% for a large balance), plus 10% early-withdrawal penalty if under age 59.5. No Indian tax during RNOR. Net cash available immediately in India. Downsides: punitive US rate on a one-year lump-sum, loss of future tax-deferred growth.

Option B: Rollover to IRA, periodic withdrawals. Keep the IRA in US, draw down over 10+ years. Each year's withdrawal is US-taxed at your then-marginal rate (lower if your US income is minimal post-move). But each year's withdrawal is also potentially Indian-taxable once ROR — India may treat IRA distribution as 'pension income' taxable at slab rate, with FTC for US tax paid under DTAA Article 20. Net Indian tax: typically neutral but complex.

Option C: Roth conversion during RNOR. Convert traditional IRA to Roth IRA while RNOR — US tax on the conversion amount at your then-US-marginal rate, no Indian tax during RNOR. After conversion, Roth withdrawals are US-tax-free (if 5-year rule met) and India has not clearly ruled on Roth taxability but likely tax-free. This is often the best outcome if US marginal rate is manageable in the conversion year.

Decision depends on: your US marginal rate in RNOR year, Indian marginal rate forecast post-ROR, your age (early-withdrawal penalty), balance size, and your appetite for ongoing US tax filing. Model all three.

On becoming Resident in India, FEMA requires the account holder to re-designate NRE and FCNR accounts within reasonable time. Options:

• Convert NRE Savings Account to Resident Savings Account — immediate conversion, interest from the conversion date is Indian-taxable.
• Convert NRE Fixed Deposit to RFC (Resident Foreign Currency) Account — maintains foreign-currency denomination, allows continued use of the foreign-currency corpus. Interest on RFC is taxable but can be useful for returning NRIs with pending foreign-currency obligations.
• Convert NRE Fixed Deposit to Resident Rupee Deposit — most common; rupee-denominated; interest fully taxable from conversion.

Failure to re-designate: banks may freeze the account; FEMA penalty possible for continuing to hold NRE after becoming Resident. Act within the first 60-90 days of return.