Returning to India: RNOR Years and Foreign Assets

A person who comes back to India after years abroad usually brings foreign assets: bank and brokerage accounts, a retirement plan, employer shares, perhaps a flat. For a year or two the return may make little difference to Indian tax, because the person is likely to be “resident but not ordinarily resident” (RNOR) and foreign income stays largely outside the charge. Once the person becomes ordinarily resident, world income is taxable and every foreign asset has to be reported in the return, whether or not it earns anything. The penalty for leaving one out is fixed at Rs 10 lakh under the Black Money Act. This guide covers the transition.

Which Act applies

• Up to AY 2026-27 (FY 2025-26): section 6 and section 5 of the 1961 Act. The return is filed under section 139, whose fourth proviso requires a resident other than not ordinarily resident with foreign assets to file.
• Tax year 2026-27 onwards: section 6 and section 5 of the 2025 Act. The return is filed under section 263, whose sub-section (1)(a)(ix) carries the same requirement.
• Both periods: the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the Black Money Act). It defines its targets by reference to section 6(6) and section 139 of the 1961 Act. Section 8(1) of the General Clauses Act, 1897 reads a reference to a repealed and re-enacted provision as a reference to the provision re-enacted.

Step 1: the year of return

Residence for the year of return is decided by the ordinary tests. These are 182 days in India, or 60 days in the year with 365 days in the four preceding years. They are explained in Residential Status: Resident, RNOR and Non-Resident. A person who arrives in the first half of the tax year will usually cross 182 days.

A person arriving later may still be resident under the 60/365-day test. The exception in section 6(4) of the 2025 Act (Explanation 1(b) to section 6(1) of the 1961 Act) is for a citizen or person of Indian origin who, “being outside India, comes on a visit to India”. Whether a person who returns to settle “comes on a visit” in the year of return is a question of fact. The exception is framed for visitors.

Step 2: the RNOR years

A resident individual is “not ordinarily resident” in a tax year if section 6(13)(a) of the 2025 Act applies. That is so if he has been:

• “(i) a non-resident in India in nine out of the ten tax years preceding that year; or”
• “(ii) in India cumulatively for seven hundred and twenty-nine days or less in seven tax years preceding that year.”

Section 6(6)(a) of the 1961 Act is the same. Either limb is enough, and the test is applied afresh each year.

How it usually runs. Take a person who was non-resident for more than ten years and returns early in a tax year.

• Year 1. All ten preceding years are non-resident years, so limb (i) is met. The person is RNOR.
• Year 2. Nine of the ten preceding years are non-resident years, so limb (i) is met again. RNOR.
• Year 3. Only eight of the ten are. Limb (i) fails. Limb (ii) then turns on days. The seven preceding years include about two full years in India, roughly 650 to 730 days, plus any visits in the five years before return. If the total is 729 days or less, the person is RNOR for a third year. If not, the person is ordinarily resident.

The day count therefore matters for the third year, and visits to India in the years before return can tip it. The other two RNOR routes, the 120-day visitor and the deemed resident citizen, are in section 6(13)(b) and ©.

What RNOR status does

Income. Under section 5(1)© of the 2025 Act, income that accrues or arises outside India is included for an RNOR “only when it is derived from a business controlled in or a profession set up in India”. The proviso to section 5(1) of the 1961 Act is the same. Foreign salary for work done abroad, interest and dividends on foreign accounts, and gains on foreign assets are generally outside Indian tax in RNOR years. Income received in India is taxable whatever its source (section 5(1)(a)).

Foreign asset reporting. The fourth proviso to section 139(1) of the 1961 Act, and section 263(1)(a)(ix) of the 2025 Act, apply to “a person, who is a resident, other than not ordinarily resident”. The portal’s ITR-2 manual for AY 2026-27 states that Schedule FA “need not be filled up” by a non-resident or RNOR.

Black Money Act penalties. Sections 42 and 43 of the Black Money Act apply to “a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act”. RNOR years are outside them.

Non-resident Indian provisions. A person who held foreign exchange assets as a non-resident Indian may declare, with the first resident-year return, that the special provisions continue to apply to the investment income from them. This is under section 217(1) of the 2025 Act (section 115H of the 1961 Act). See NRI Returns, Refunds and Lower TDS.

Step 3: the first ordinarily resident year

From the first year of ordinary residence:

• World income is taxable under section 5(1). Tax paid abroad on it is credited under rule 76 of the 2026 Rules (rule 128 of the 1962 Rules), on filing Form No. 44 (Form 67) in time. See Treaty Relief: TRC, Form 10F and Foreign Tax Credit.
• A return is compulsory if the person holds, as beneficial owner or otherwise, any asset located outside India, has signing authority in a foreign account, or is a beneficiary of a foreign asset, even with no taxable income. Section 263(1)(b) requires such a person to file “regardless of income or loss”.
• Schedule FA must be completed in full. The ITR forms ask for foreign depository and custodial accounts, financial interests in entities, immovable property and other assets held at any time during the calendar year ending on 31 December. For example, the AY 2024-25 form used the calendar year ending 31 December 2023. The disclosure is required whether or not the asset produced income, and whether or not it was bought from income already taxed or earned while non-resident.

What to have ready

• Travel records for the ten preceding years, to fix the RNOR years.
• A list of every foreign asset: account numbers, institution, address, date opened or acquired, peak and closing balances or values, and income. This includes employer stock plans, retirement accounts and insurance policies.
• Foreign tax statements and payment proof for the first ordinarily resident year, for the foreign tax credit.
• For each asset, the source of the money used to buy it and when it was acquired. This matters if a disclosure gap is found later.

The penalty for leaving an asset out

Section 43 of the Black Money Act applies to a resident other than not ordinarily resident who has filed a return under section 139(1), (4) or (5) and “fails to furnish any information or furnishes inaccurate particulars in such return relating to any asset (including financial interest in any entity) located outside India”. The Assessing Officer “may direct that such person shall pay, by way of penalty, a sum of ten lakh rupees”. Section 42 imposes the same Rs 10 lakh penalty on such a person who holds a foreign asset or has foreign income and does not file a return at all before the end of the assessment year.

The threshold. As originally enacted, the proviso to each section excluded only bank accounts with an aggregate balance up to Rs 5 lakh. From 1 October 2024, the Finance (No. 2) Act, 2024 substituted a proviso. The sections now do not apply “in respect of an asset or assets (other than immovable property) where the aggregate value of such asset or assets does not exceed twenty lakh rupees”. Foreign immovable property of any value remains within them.

Prosecution. Sections 49 and 50 of the Black Money Act provide for prosecution for wilful failure to file, or wilful failure to disclose, by such a person. The Finance Act, 2026 inserted the same Rs 20 lakh exclusion into both sections, deemed to have effect from 1 October 2024.

Undisclosed assets. These penalties are for reporting failures. Where a foreign asset’s source is unexplained or the income was never taxed, the Black Money Act charges tax under its own provisions, and section 41 adds a penalty of three times that tax.

How the Tribunal has applied section 43

The words “may direct” have led the Tribunal to treat the Rs 10 lakh penalty as discretionary.

• In Rohit Krishna v. CIT(A) (ITAT Mumbai, 26 August 2024, BMA No. 11/M/2024, AY 2016-17), a resident employee held employer stock options in an account with a UK broker opened by the employer. The full value had been taxed as a salary perquisite with tax deducted, but the shares were not shown in Schedule FA. Following Hindustan Steel Ltd., the Tribunal held that penalty is not automatic for a “technical or venial breach” without mala fide intent, and deleted it.
• In Sanjay Bhupatrai Shah v. DDIT (ITAT Mumbai, 24 January 2025, BMA Nos. 20 to 22/Mum/2024), the assessee was named as a joint holder of a Mauritius fund investment made by his son with money lent by the father. The son had reported it as sole owner. The Tribunal deleted penalties for three years on the ground of a bona fide belief that the father was not the owner.

The penalty is not always deleted. In Akil Abbas Rassai v. DDIT (ITAT Mumbai, 30 April 2025), the Tribunal distinguished an earlier order in BMA Nos. 1 to 3/M/2023 dated 9 August 2023. In that case penalty was upheld where a resident had invested jointly with her spouse in a foreign fund, using money remitted from India, and had left it out of Schedule FA for three years. These are Tribunal orders on their facts. The discretion is exercised case by case, and the Rs 20 lakh threshold now removes smaller non-property holdings altogether.

The 2026 disclosure window

Chapter IV of the Finance Act, 2026 (sections 130 to 144) enacted the Foreign Assets of Small Taxpayers Disclosure Scheme, 2026. According to the e-filing portal’s FAQ, the Scheme was operationalised by CBDT Notification No. 114/2026 dated 14 August 2026. It commenced on 16 August 2026, and the last date for a declaration in Form 1 is 31 December 2026.

The Table in section 133 has two categories:

• Undisclosed foreign assets or income, aggregating not more than Rs 1 crore. The amount payable is tax at 30 per cent of the asset’s value as on 31 March 2026 or of the income, plus an amount equal to that tax.
• Assets acquired from income earned while non-resident, or from income already taxed, that were not declared “in the relevant Schedule in the return of income on becoming a resident”. The aggregate value must not exceed Rs 5 crore, and the amount payable is a fee of Rs 1,00,000.

The second category is drawn for the returning resident who did not complete Schedule FA. Under section 139 of the Finance Act, 2026, a valid declaration and payment give immunity from further tax, penalty and prosecution under the Black Money Act for the previous year ending 31 March 2026 or any earlier year. Section 140 excludes proceeds of crime under the Prevention of Money-laundering Act, 2002, and years whose Black Money Act assessment is complete. The amounts paid are not refundable (section 138).

Summary

1. Work out residence for the year of return under the ordinary tests.
2. Work out the RNOR years under section 6(13)(a), counting days carefully for the third year.
3. In RNOR years, foreign income is generally outside Indian tax and Schedule FA is not required.
4. Before the first ordinarily resident year, list every foreign asset, its value and the source of funds.
5. From that year, file a return even without taxable income, complete Schedule FA in full, offer foreign income and claim foreign tax credit with Form No. 44.
6. Where an asset was left out of an earlier return, a revised return within time, or a declaration under the 2026 Scheme by 31 December 2026, are the statutory routes.

This is the last guide in the non-resident set. The guides index lists the related guides on returns, TDS and appeals.