Indians Returning from the US in 2025 and 2026: The End of RNOR Treaty Benefits and What You Must Know
If you are an Indian citizen or PIO living in the United States and planning to move back to India in the next two to three years, this update is extremely important for you.
A quiet but major change announced by the United States Treasury in 2024 is about to remove one of the biggest tax advantages that returning NRIs have enjoyed for decades. The India US tax treaty benefits that applied during the RNOR period are now at risk.
What is RNOR Status and Why Was It So Valuable
When you return to India after living abroad, Indian tax law categorises you into three buckets
- NRI You pay tax only on income earned in India
- RNOR This usually applies for the first two to three years after your You pay tax on India income and on income from any business that is controlled from India
- ROR After the RNOR period ends, you are taxed on your global income
Until 2024, the RNOR period was considered a golden window because India did not tax your US dividends, interest, capital gains, rental income, pensions, or royalties from platforms like YouTube and Spotify. At the same time, the US continued to treat you as a tax resident of India under Article 4 of the India US tax treaty. This allowed you to enjoy reduced withholding tax rates of 15 percent to 25 percent instead of the default 30 percent that applies to non residents.
In simple terms, many NRIs paid almost no tax on their US income for two to three years after returning to India.
The Game Changing US Announcement
In its 2024 observations on the OECD Model Tax Convention, the US Treasury clearly stated
If an individual is not liable to tax on worldwide income in the other country, the US will no longer treat that person as a tax resident of that country even if domestic law classifies them as a resident.
This means RNORs are not taxed on global income in India. So the US will now deny treaty benefits to RNORs.
What Will This Change Look Like
Once US banks, brokers, custodians and platforms update their systems, most RNORs will start facing a flat 30 percent withholding on many types of US income. This is expected from 2025 or 2026.
Here is the impact at a glance
Type of income
|
Type of Income
|
Earlier Tax Rate
|
Tax Now
|
|---|---|---|
|
Dividends
|
15 to 25 percent
|
30 percent
|
|
Interest from US banks
|
15 percent
|
30 percent
|
|
Long term capital gains on US stocks
|
Zero percent
|
15 to 20 percent and in some cases 30 percent withholding
|
|
Royalties from YouTube, Spotify, books, patents
|
15 to 20 percent
|
30 percent
|
|
Technical services
|
15 percent
|
30 percent
|
|
Private pensions and annuities
|
0 to 15 percent
|
Likely 30 percent
|
Who Will Be Hit by This Change
- People returning to India from the US after January 2025
- US employees planning to work remotely from India
- Retirees who depend on US pensions or investments
- Digital creators earning from US platforms
- Anyone holding a large US brokerage or retirement portfolio
When Will the Higher Taxes Start
There is no official date. But most experts expect the change to take effect from late 2025 or in the Indian financial year 2026 to 2027. Some institutions may apply it earlier as soon as they update their W 8BEN processing.
Seven Important Steps for Returning NRIs
1. Re evaluate your return date
If possible, restructure your investments before you physically shift to India.
2. Sell or rebalance high dividend US stocks before returning
Dividend tax will jump to 30 percent for RNORs. Moving to growth stocks can help reduce the impact.
3. Move US investments to an Indian brokerage or global feeder fund
Many NRIs are shifting their US holdings to Indian platforms under the LRS route. Once held in an Indian demat, dividends may again qualify for treaty benefits once you become ROR.
4. Plan your 401 k or IRA withdrawals early
A lump sum withdrawal during the RNOR period may lead to 30 percent US withholding and later Indian tax. Plan carefully.
5. Be strategic while filling Form W 8BEN
Some believe that if you can certify ROR status, certain institutions may still allow treaty benefits. This is a developing area.
6. Accelerate your ROR status if you have already returned
It sounds strange but once you become ROR, India taxes your global income. Yet the US will again recognise you as a tax resident of India, which restores treaty protection.
7. Speak to a cross border tax expert
This is not a do it yourself situation. A CPA and Indian CA combo can save you significant tax.
Final Thoughts
The RNOR tax holiday on US income that many returning Indians depended upon is now practically over due to this US policy change.
If you are planning to return anytime between 2025 and 2028, start planning now. Review your US investments, pension accounts, and relocation timeline. Once you land in India and become RNOR, the 30% withholding begins with no treaty relief.
Stay updated through trusted NRI tax communities and experts.
This article is written by Sargam Gupta at PrimeWealth. PrimeWealth is a SEBI Registered Investment Advisory
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