Moment guide · FY 2026-27

I am earning foreign bank interest during my RNOR years

Is interest on foreign bank accounts taxable during RNOR?

During your RNOR years, interest on foreign bank accounts is foreign-source income and is not taxable in India, and NRE/FCNR interest also stays tax-free. The moment you become an ordinary resident, that changes: foreign interest and NRE interest become taxable, and the NRE account should be converted to a resident account.

The #1 trap

Continuing to treat NRE interest as tax-free after becoming an ordinary resident — the section 10(4) exemption ends at ROR status, and the first ROR year brings both foreign interest and NRE interest into the tax net. During RNOR, by contrast, foreign bank interest is simply not taxable, so many returnees over-report it.

Dev, returnee from Canada in his first RNOR year

Dev returned to India in April 2025 after 11 years in Canada and is an RNOR for AY 2026-27. His Canadian savings account earned interest of CAD 9,000, which is about ₹5,50,000, during FY 2025-26, and because the interest accrues outside India from a foreign source, it is not taxable in India during his RNOR window. His NRE account in India continues to earn ₹2,80,000 of interest, which is also tax-free under section 10(4) while he is an RNOR, and his FCNR deposit interest is tax-free as well. Dev does not report any of these amounts as income in his Indian return, though the NRE and FCNR interest is not required in the return at all for an RNOR. In the next year, Dev's RNOR window ends and he becomes a resident and ordinarily resident: from AY 2027-28, the Canadian interest and the NRE interest both become taxable in India, and he converts his NRE account into a resident savings account as the law expects, so the interest flows into a normal resident account. If Dev had mistakenly filed the foreign interest as income during RNOR, he would have paid tax that was never due, so the correct status determination saved him real money. He keeps the Canadian bank statements and the NRE account statements, and he re-checks his RNOR status each year because the 9-of-10-years and 729-days tests change with time. A quick call with us dials in the final figure. Dev also verifies the source of each interest receipt during the RNOR years, because interest credited to an Indian NRO account from a foreign bank is still foreign-source income if it accrues outside India, but interest on an Indian fixed deposit is always Indian-source and taxable. If he transfers money from the Canadian account into an Indian FD during RNOR, the FD interest is taxable, so he keeps the foreign funds in the foreign account or in NRE/FCNR until he becomes ROR. The first ROR year is the boundary: the Canadian interest earned after the date he becomes ROR is taxable, and the NRE interest becomes taxable from the same year, so he converts the NRE account and reports both streams. If the RNOR window ends mid-year, he splits the year's income by the date his status changes, which requires the bank statements to be timed. A quick call with us dials in the final figure.