You've packed up in Dubai, San Jose or London and moved back. Your 401(k), your NRE deposits, your rental flat in New Jersey — do you have to tell the Indian tax department about all of it from Day One? The answer depends almost entirely on one thing most returning NRIs get wrong: their residential status in the first three years after landing.

Most returning NRIs assume that the day they board the flight home, their US brokerage account and UK pension become fair game for Indian tax. That fear leads to two costly mistakes — either over-disclosing when there is no obligation, or missing disclosures when the obligation actually begins. The Income-tax Act, 2025 (in force from 1 April 2026) has not changed the residency framework at all. What has changed is enforcement, cross-border data sharing, and the penalty stakes. Getting this right in year one saves ten lakh rupees a year in penalties down the road.

The three-window rule you must plan around

Foreign income and foreign asset reporting in India hinges on residential status under Section 6 of the Income-tax Act, 2025 (same section number as the earlier 1961 Act). Every returning NRI passes through up to three phases, and each phase has a completely different disclosure obligation.

The RNOR window is the single most valuable planning tool for returning NRIs. You qualify as RNOR if you were a non-resident in nine of the ten preceding tax years, or your India stay in the preceding seven years does not exceed 729 days. Most genuine returning NRIs get two to three RNOR years before ROR kicks in.

Practical implication: During the RNOR phase, your US 401(k), UK ISA, Singapore CPF, foreign brokerage account, and overseas rental income sit entirely outside the Indian tax net — provided the income does not arise from a business controlled from India. No Schedule FA, no Schedule FSI, no reporting. This is not a loophole; it is the express design of Section 6.

When the disclosure switch flips

The moment you transition from RNOR to ROR, the picture changes overnight. From that financial year onwards:

• Your global income becomes taxable in India — salary, interest, dividends, capital gains, rental income, everything.
• Schedule FA becomes mandatory in your ITR-2 or ITR-3, regardless of the value of the foreign asset or whether it generated any income.
• The reporting period for Schedule FA runs on the calendar year (1 January to 31 December) falling within the relevant tax year — not the financial year. This trips up almost every first-time filer.
• You must file the return even if your Indian taxable income is below the basic exemption limit, because you hold foreign assets (fourth proviso to Section 139(1)).

What exactly must be reported in Schedule FA

Schedule FA is a disclosure schedule, not an income schedule. The trigger is ownership or beneficial interest, not income. Even a dormant zero-balance account must be reported. The categories are:

• Foreign bank accounts (savings, current, term deposits)
• Foreign custodial and brokerage accounts, including shares, mutual funds and ETFs held abroad
• Foreign equity and debt interests in unlisted entities
• Foreign cash-value insurance policies and annuity contracts
• Foreign immovable property
• Foreign trusts where you are a trustee, beneficiary or settlor
• Signing authority in any foreign account, even if the account is not yours
• Any other foreign asset (crypto held on foreign exchanges, foreign retirement accounts, ESOPs/RSUs of foreign parent companies)

The ₹20 lakh safe harbour — and what it does not do

The Finance (No. 2) Act, 2024 introduced a penalty carve-out under Section 42 and 43 of the Black Money Act — non-disclosure of foreign assets (other than immovable property) up to an aggregate value of ₹20 lakh does not attract the flat ₹10 lakh penalty. Note the two limits carefully: this does not exempt you from the disclosure obligation itself, and it does not cover foreign immovable property at all. A small foreign brokerage account still gets reported; you just avoid the flat penalty if you miss it inadvertently. Do not treat this as a free pass.

Section 89A relief on foreign retirement accounts — a special mention

If you hold a specified retirement account in the US, UK or Canada (401(k), IRA, Roth IRA, UK pension, RRSP), Section 89A of the 1961 Act — mirrored in the 2025 Act — lets you defer Indian tax on the accrued but undistributed income until you actually withdraw. You exercise this option in Form 10-EE. Without it, India taxes the accrual annually while the source country taxes only at withdrawal, and foreign tax credit gets messy across years. Make the election in the first ROR year itself.

Cross-verification is now real

The Income Tax Department receives annual data under the Common Reporting Standard (CRS) from over 100 jurisdictions and under FATCA from the US. Your Indian PAN is linked to your foreign account through your Indian address at KYC. Mismatches between CRS/FATCA data and Schedule FA generate reassessment notices under the new Section 148A framework. Assume the department already has a broad picture of your foreign holdings before you file.

What you should actually do

• Compute your residential status afresh every financial year for the first five years after returning. Do not assume RNOR carries forward automatically.
• Track the calendar-year balances of every foreign account from the first ROR year — you will need peak balance, closing balance and income earned, in INR converted at the SBI TT buying rate on the specified date.
• File Form 10-EE in the first ROR year if you hold a US, UK or Canadian retirement account, to lock in Section 89A relief.
• Close or consolidate dormant foreign accounts before ROR kicks in. Fewer accounts, cleaner disclosure, lower audit risk.
• Consider the FAST-DS 2026 voluntary disclosure window if you have missed Schedule FA in any earlier ROR year from AY 2016-17 onwards.

The single biggest error I see with returning NRIs is filing Schedule FA in the RNOR years out of over-caution — which then creates an inconsistency when they legitimately stop reporting an asset they closed in the RNOR window. Report what the law asks, in the year the law asks it. Not earlier, and never later.

CA Praneeth Thunuguntla | Thunuguntla & Associates | Income Tax & GST Advisory