Published 9 May 2026
The departure year -- determining residential status, the part-year residence question, the conversion of Resident accounts to Non-Resident External / Non-Resident Ordinary / Foreign Currency Non-Resident, the final Schedule FA disclosure, and the transition checklist for the year you leave India
Taxpayer Brief
The year you leave India to take up employment abroad is administratively the most complex year of your tax life. For part of it, you were Resident; for part of it, you were not. Your Resident Indian salary credited until the day of departure, the foreign salary credited from the day after, the bank accounts that need to convert from Resident to Non-Resident Ordinary or Non-Resident External, the demat account, the Permanent Account Number record on the e-filing portal, the foreign asset disclosure that you must make for the year as a whole, the Reserve Bank of India repatriation pre-positioning, and the final-year Schedule FA -- all sit in this single Income Tax Return. Get it right and the rest of your Non-Resident Indian life is straightforward; get it wrong and the section 148A reopening clock starts ticking.
1. The Residential Status for the Departure Year -- Likely Resident
The departure year is, in nine out of ten cases, a Resident year. The 182-day test under sub-clause (a) of clause (1) of section 6 is the typical trigger -- if you were in India from 1 April to mid-October before departing for the foreign assignment, you have crossed 182 days and are Resident for the year. The fact that you ceased to be Resident in October does not change the year-end classification. Indian tax-law treats residency as binary per year, not month by month.
Departure Date | Days in India in the Departure Year | Likely Status | Note |
|---|---|---|---|
April / May / June | 0 to 90 | Non-Resident from departure year | Few days in India before leaving; typically Non-Resident |
July / August | 91 to 152 | Could go either way | Combine with 60+365 test |
September / October | 153 to 213 | Resident for the year | 182-day test crossed before departure |
November / December / January | 214 to 305 | Resident for the year | Easy 182-day |
February / March | 306 to 365 | Resident for the year | Almost full year |
2. The Conversion of Bank and Demat Accounts -- Mandatory Within Reasonable Time
Once you become Non-Resident -- typically the day you leave India for an employment / studies / settlement abroad -- the Foreign Exchange Management (Deposit) Regulations, 2016 require you to convert your Resident savings, current and demat accounts to their Non-Resident counterparts.
Resident Asset | Convert to | Mandatory By |
|---|---|---|
Resident savings / current account holding Indian-source income (salary, rent, dividend) | Non-Resident Ordinary account | Within reasonable time of becoming Non-Resident -- generally interpreted as within three months |
Foreign earnings being remitted to India | Non-Resident External account | Open the Non-Resident External account before remitting |
Foreign currency holdings | Foreign Currency Non-Resident account or Resident Foreign Currency on return | Same |
Resident demat account holding Indian listed securities | Non-Resident Ordinary demat account (or Portfolio Investment Scheme account for fresh purchases) | Same |
Resident Provident Fund account | Continue contributing if employer is Indian; freeze if no contributions for over 36 months | Withdrawal possible after 5 years' continuous service or on Non-Resident status |
Resident insurance policies | Continue paying premium; rider classification reviewed by insurer | Inform insurer of status change |
The penalty exposure Operating a Resident account after becoming Non-Resident is a contravention of the Foreign Exchange Management Act, 1999. Penalty is up to three times the amount involved or rupees two lakh, whichever is higher, with continuing penalty for each day of contravention -- under sub-section (1) of section 13 of the Foreign Exchange Management Act, 1999. Convert promptly. |
3. The Departure-Year Income Tax Return -- Income Tax Return-2 as Resident
The final Resident return is filed as Income Tax Return-2 (or Income Tax Return-3 if business income exists) under the Resident sub-status. The income components are -- (i) Indian salary up to the date of departure; (ii) foreign salary from the date of departure to 31 March of the relevant year (Resident scope of income includes global income); (iii) Indian rent, dividend, capital gain, interest for the full year; (iv) any foreign-source income arising while still Resident.
Income Component | Year-End Treatment | Where in Return |
|---|---|---|
Indian salary up to departure date | Indian-source salary; Tax Deducted at Source already deducted; standard reconciliation | Schedule S |
Foreign salary post-departure | Foreign-source salary, taxable since Resident; foreign tax credit available under section 90 / 91 | Schedule S; Form 67 for foreign tax credit |
Indian house property income | Schedule HP -- treat as full year | Schedule HP |
Indian capital gains (sale of shares, mutual funds, property) | Schedule CG | Apply pre / post 23 July 2024 regime to each transfer |
Indian dividend, savings interest, fixed-deposit interest | Schedule OS | Per Annual Information Statement category 4.3 / 4.4 / 4.5 |
Foreign-source income (foreign dividend, foreign rent, foreign interest) | Taxable while Resident; foreign tax credit | Schedule OS or Schedule HP; Form 67 |
Foreign assets held during the year | Disclose in Schedule FA -- mandatory for Resident and Ordinarily Resident | Schedule FA |
Schedule FA in the departure year If you opened a foreign bank account, demat account, mutual-fund account, or any other foreign asset during the departure year (typically the moment you arrive abroad and open an account for salary credit), it must be disclosed in Schedule FA of the Resident departure-year return. Schedule FA covers the calendar year, not the financial year -- so a foreign account opened in (say) October 2025 must be disclosed as held from October 2025 to December 2025 in the Schedule FA of the Tax Year 2025-26 return. |
4. Updating the Income-tax Department Records
- Update residential status on the e-filing portal under 'Profile' -- mark as 'Non-Resident' from the next assessment year onwards.
- Update foreign address, country of residence, foreign mobile number, foreign email.
- Pre-validate a Non-Resident Ordinary or Non-Resident External account for refund crediting.
- Confirm Permanent Account Number-Aadhaar position -- a Non-Resident is exempt from the Aadhaar requirement under Notification No. 37/2017.
- Save the residential-status update acknowledgement in the client folder.
5. Pre-Departure Tax Planning
Action | Timing | Benefit |
|---|---|---|
Sell underwater investments before becoming Non-Resident | Before departure | Long-Term Capital Loss can be set off / carried forward; Non-Resident regime restricts certain set-offs |
Realise long-term gains up to rupees one lakh twenty-five thousand annual exemption | Before departure under Resident status | Use the section 112A exemption now; the same exemption is available as Non-Resident but in a slightly different context |
Pre-pay self-assessment tax for the departure year | Before 31 July of next year (and ideally before departure) | Avoid section 234A interest |
Open Non-Resident External / Non-Resident Ordinary accounts | Before departure where possible | Avoid Foreign Exchange Management Act non-compliance window |
Apply for Tax Residency Certificate from the destination country | Within first 3 months of arrival | Reduces Non-Resident Ordinary interest Tax Deducted at Source from 31.2% to 10-15% |
File Form 67 for any foreign tax credit | Before filing Resident return | Statutory pre-condition for foreign tax credit under section 90 / 91 |
6. The Departure-Year Filing Calendar
Date | Action |
|---|---|
Departure date | Day of leaving India; ceases to be Resident from this date for prospective tax years; Resident for the current year continues until year-end |
Within 7 days of departure | Inform employer of new tax-residency status |
Within 30 days | Convert Resident bank accounts to Non-Resident Ordinary / Non-Resident External |
Within 90 days | Update e-filing portal residential status; pre-validate Non-Resident account |
By 15 September of next year | Compute and pay second advance-tax instalment |
By 15 December of next year | Third advance-tax instalment |
By 15 March of next year | Fourth advance-tax instalment |
By 31 May of next year | Reconcile the year's Annual Information Statement and Form 26AS |
By 31 July of next year (Assessment Year filing deadline) | File the final Resident Income Tax Return-2 with Schedule FA disclosure |
BharatTax NRI Compliance Tool Is your Non-Resident status reflected in the income-tax department's Permanent Account Number database, and is your Permanent Account Number-Aadhaar status correctly tagged as exempt? Use the NRI Compliance Tool at itr.bharattax.co to verify, update residential status on the e-filing portal, and pre-validate your Non-Resident External or Non-Resident Ordinary bank account for any refund. |
7. Case Law Reference and Anticipatory Legal Analysis
Case Law Reference: First-year-NRI Income Tax Return jurisprudence The transition from Resident to Non-Resident status creates a 'split year' for tax purposes. The Income Tax Appellate Tribunal Mumbai in [VERIFY: confirm Tribunal citation on first-year-NRI Income Tax Return] applied the principle that the residential status applicable for the entire tax year is determined by the day-count test under section 6; there is no 'partial year' status. The Bombay High Court in [VERIFY: confirm High Court ruling on the year-of-departure tax planning] addressed the strategic timing of departure. [VERIFY: cross-check specific Tribunal and High Court citations in the BharatTax case-law database.] |
Prospective Interpretation -- The departure-year strategic planning Two unsettled interpretive issues. (i) Treatment of Schedule FA disclosure in the year of departure -- where the assessee was Resident and Ordinarily Resident in the departure year, Schedule FA disclosure is mandatory for foreign assets including new foreign brokerage / foreign-bank accounts opened post-departure. (ii) Treatment of section 6(1) day-count for departure-year individuals -- the day of departure is generally counted as a day in India. The BharatTax case-law database should monitor emerging Tribunal positions. [VERIFY: confirm Tribunal decisions emerging on the year-of-departure framework.] |
8. Key Takeaways
- The departure year is in most cases a Resident year -- 182 days threshold typically crossed before mid-October departure.
- Convert Resident bank, demat, mutual-fund accounts to Non-Resident Ordinary / Non-Resident External / Non-Resident Ordinary-Demat within reasonable time -- Foreign Exchange Management Act non-compliance penalty is up to three times the amount.
- File Income Tax Return-2 as Resident with global income disclosure including Schedule FA for any foreign asset opened in the departure year.
- Update e-filing portal residential status to Non-Resident for the next assessment year onwards; pre-validate Non-Resident account for refund.
- Apply for Tax Residency Certificate within first three months of arrival in destination country -- reduces Non-Resident Ordinary interest Tax Deducted at Source from 31.2% to 10-15%.
- File Form 67 before the return for any foreign tax credit on foreign salary earned post-departure but during the Resident year.
Disclaimer: This article is for general information only. It does not constitute tax / legal advice. Please consult a qualified Chartered Accountant or tax practitioner for advice specific to your circumstances. The legal position is current as of FA 2024 (No. 2) / FA 2025; subsequent amendments and CBDT notifications may modify the position.