Returning to India after Living Abroad? 5 NRI Tax Mistakes That Can Cost You Dearly (And How to Avoid Them)

By CA Ajay R. Vaswani | NRI Tax Expert | Founder – Zenify Consultancy Services (www.CAforNRI.com)

Returning to India after years abroad is a major life milestone. For many NRIs, it marks a new chapter closer to family, fresh career opportunities, starting a business, or planning long-term investments back home. However, from the perspective of Indian taxation, the year you return (and the years immediately after) can become unexpectedly complicated. Most NRIs who return to India do not face tax trouble because they are trying to hide anything. They face issues because tax rules change with residential status and the transition period is widely misunderstood. One wrong assumption made in the first year can create problems that appear much later during a remittance, a property sale, a refund claim, or in response to an income tax notice.

This is what many professionals refer to as “return shock” where you continue operating with an NRI mindset, but the Income-tax Act begins treating you as a resident. The good news is that most of these problems are preventable if you understand the five most common mistakes and take a few timely actions. This blog explains those five mistakes in a simple, clear manner and gives practical steps to avoid them so that your return to India is smooth and tax-efficient.

The most common and the most expensive mistake returning NRIs make is getting residential status wrong. In Indian taxation, almost everything depends on whether you are classified as NRI, RNOR, or ROR. Many people assume their status changes the moment they land in India. That is incorrect. Under the Income-tax Act, residential status is decided based on the number of days you stay in India during the financial year (April to March) and in some cases your stay pattern across earlier years. This difference is crucial because the tax impact of these three classifications is massive. If you remain an NRI, your Indian income is taxable in India but your foreign income generally remains outside the Indian tax net. If you qualify as RNOR, you are in a transitional category which often offers limited taxation on foreign income. But if you become ROR, your global income becomes taxable in India and you also become responsible for expanded reporting of foreign assets and accounts. A simple mistake in residential status can cause either overpayment of tax, incorrect DTAA claims, wrong reporting, or future scrutiny. To avoid this, residential status should be computed with precision in the year of return, preferably with a travel-day tracker and professional review. It is also important to understand that residential status under FEMA and residential status under the Income-tax Act are not always aligned, and this mismatch often causes confusion. Correct classification becomes the foundation of correct filing.

The second major mistake is over-reporting foreign income and paying tax unnecessarily. This happens because many returning NRIs mistakenly believe that once they return, all their foreign income automatically becomes taxable in India. As a result, they include foreign salary, overseas interest income, dividends, or overseas investment gains in the Indian return even when the law does not require them to do so. Over-reporting is just as damaging as under-reporting because it can lead to avoidable tax outgo and complex foreign tax credit claims. It can also create a chain reaction of mismatches across years. The year of return is particularly tricky because India follows a financial year system, whereas many countries follow a calendar year. That mismatch creates reporting errors for income earned before and after the date of return. The solution is straightforward—determine residential status first, then map foreign income properly based on taxable scope, timing, and legal classification. In most cases, this needs a structured “year of return income mapping” so that income is neither wrongly offered to tax nor missed.

The third mistake is the opposite of the second—ignoring foreign income reporting after becoming ROR. Many returning NRIs continue believing that foreign income is outside the Indian tax system because it is not connected with India. That is true only under NRI or, in many cases, RNOR classification. Once you become ROR, you are required to report and pay tax on global income in India, including foreign interest, dividends, foreign rental income, foreign capital gains, and in some cases, pensions. This becomes relevant not only for compliance but also for planning. NRIs who do not report foreign income after becoming ROR may face notices and deeper scrutiny later, especially as global information-sharing mechanisms and data matching capabilities improve. The right approach is to proactively plan the RNOR-to-ROR transition, and once the ROR phase begins, align reporting, DTAA relief, and foreign tax credit methodology for every overseas income stream.

The fourth mistake that can truly haunt returning NRIs years later is ignoring foreign asset disclosure requirements. Foreign asset reporting under Indian ITR—commonly through Schedule FA is not merely a formality. For residents (particularly ROR), it often includes reporting foreign bank accounts, overseas demat accounts, shares, mutual funds or ETFs held abroad, foreign retirement accounts, foreign property, and beneficial interests in foreign entities. Many NRIs assume that disclosure is needed only if they have taxable foreign income. That is incorrect. In many cases, disclosure is required irrespective of whether that asset generates taxable income in India. Errors commonly occur when people forget dormant accounts, fail to report joint accounts, use incorrect conversion rates, miss accounts closed during the year, or misreport peak balances. These issues are avoidable if you create a proper foreign asset master sheet before filing your first return as a resident, supported by statements and documentation. Once the foundation is built correctly, annual compliance becomes easier and far less risky.

The fifth mistake is not updating bank accounts, deposits, and KYC after returning to India. Many NRIs continue operating NRE accounts, FCNR deposits, or NRI demat accounts long after returning, without redesignating them to resident status. This can lead to operational problems in investments, repatriation, tax treatment of interest, and banking compliance under FEMA regulations. It can also create mismatches between your tax residency and your banking profile. Re-designation is not simply a technical requirement—it is a practical safeguard. A proper transition plan should include updating the residential status with banks and investment institutions, revising KYC and FATCA declarations, and exploring legitimate structures such as RFC accounts depending on eligibility. When the account profile and tax profile align, the risk of future complications reduces significantly.

The core message for returning NRIs is simple: taxation should be treated as part of your relocation planning, not as an afterthought. The year of return is highly sensitive because residential status can change, income patterns overlap across jurisdictions, and reporting responsibilities expand. When handled properly, you can avoid unnecessary tax payments, prevent notices, protect DTAA eligibility, and ensure clean reporting. If you are returning to India in 2026 or have already returned recently, it is strongly recommended to get a one-time structured review for the year of return and the RNOR transition phase. This is where most value is created and most mistakes are prevented.

Returning to India after living abroad often triggers a unique set of tax questions that fall under “NRI returning to India taxation”, “RNOR vs ROR”, “DTAA planning for returning NRIs”, and “foreign asset reporting in Indian ITR”. These topics are increasingly searched by Indians relocating back from UAE, USA, UK, Singapore, Canada, Australia, and other countries, especially when foreign income and foreign assets overlap with the Indian financial year. To avoid return-related tax notices and compliance problems, returning NRIs should take a structured approach focused on three pillars: residential status under the Income-tax Act, FEMA banking transition, and correct foreign disclosure reporting. A single mistake in any of these areas can impact taxation for several years.

NRIs returning to India should first determine their residential status for the financial year (NRI/RNOR/ROR). Next, they should create a year-of-return income map to correctly classify Indian income versus foreign income. Finally, they should verify foreign asset disclosure requirements under Schedule FA and update banking and KYC status (including NRE/FCNR redesignation) to remain FEMA-compliant. Foreign income generally becomes taxable in India once a returning NRI becomes Resident and Ordinarily Resident (ROR). Under NRI or RNOR status, foreign income earned outside India is often not taxable (subject to specific exceptions). Correct classification is essential to avoid over-reporting or under-reporting.

This article is authored by CA Ajay R. Vaswani, an India-based Chartered Accountant and specialised NRI tax advisor, and is published by Zenify Consultancy Services, a dedicated practice focused exclusively on Indian income tax for NRIs, RNOR planning, residential status advisory, DTAA relief strategy, foreign income reporting, Schedule FA reporting, remittance compliance, Form 15CA/15CB certification, lower TDS certificate applications, and taxation of property sale by NRIs (Section 195 TDS). If you have foreign shares or ETFs, overseas retirement funds, foreign bank accounts, foreign property, RSUs/ESOPs, overseas dividends or interest, or you plan to remit large amounts into or out of India, a professional review is strongly recommended because these situations require advanced review of residential status, double taxation mechanisms, and disclosure responsibilities.

Zenify Consultancy Services supports NRIs returning to India with a structured advisory framework covering residential status computation, RNOR transition planning, foreign income classification, DTAA and foreign tax credit planning, Schedule FA preparation, FEMA banking compliance, and end-to-end tax filing support. For guidance, consult Zenify Consultancy Services at www.CAforNRI.com or write to contact@cafornri.com.