Tax Planning for NRI Returning to India

 Tax Laws and Implications for NRIs Returning to India

The table below contains the Tax Regulations and implications applicable to the Non-Resident Indians (NRIs) returning to India: 

Moving back to India? Banking to-do's for NRIs

As an NRI, you must have many bank accounts in India to manage your funds, such as NRO accounts, NRE accounts, FCNR accounts, and different international bank accounts. One thing you must be wondering about is what will happen to these accounts after you have returned to India. Let's understand this:

1. Revisit all your bank accounts in India

According to the guidelines of the Reserve Bank of India (RBI), if you relocate to India permanently, then you can no longer hold your NRO/NRE accounts. Let's look at the options available for you in different cases:

• NRO Account: After moving to India, you have to either close your NRO account or convert it into a resident savings account.
• NRE Account: For NRIs, there are also two options: You can either convert your NRE account into a resident savings account or transfer all your funds from your NRE account to an RFC account. 
• FCNR(B) Account: The NRIs are allowed to hold the deposits in an FCNR(B) account until maturity. After that, you need to transfer all the deposits to a resident savings account (if you want to maintain them in INR) or an RFC account (if you want to maintain them in foreign currency). 

2. Evaluate the uses of International Bank Accounts

As per the guidelines of the RBI, you can continue holding your international accounts, which you have opened overseas in the past. There is no need to close your international accounts after returning to India. One thing you need to check is whether the laws of the country in which you have opened the international account allow you to continue them or not. 

Tax Implications When You Relocate to India

It is very crucial to understand the rules for taxation for NRIs who are returning to India:

1. Residency Status

Here's how you can define the residency status:

• After an NRI returns to India, the RNOR status applies to them for 2 to 3 financial years.
• During the RNOR status, the income earned globally will be non-taxable in India until and unless it is derived from a business/profession controlled from India.
• After your status changes to ROR, your global income will again be taxable in India. 

2. Income Tax Implications

Implications of Income Tax are given below:

• The income that comes from Indian sources is completely taxable. It includes rents, mutual funds, fixed deposits, etc.
• The foreign income earned during the RNOR status is completely non-taxable except under some specific conditions.

3. Tax Benefits

Here's how you can avail the tax benefits: 

• The taxpayers should utilise DTAA to avail benefits and avoid double taxation.
• During the RNOR status of the NRIs, they can enjoy the tax reliefs or exemptions on the FCNR deposits and RFC accounts.

5 Financial Moves Every NRI Should Take Before Returning to India

You can make the whole process of transitioning back to India very smooth and seamless if you have a well-structured plan. 

Here are the 5 crucial financial steps that every NRI who is moving back to India should take:

1. Review your Investments

• Reassess Mutual Funds: You should consider revalidating your investments that are linked to your NRI accounts. Also, update your residency status with the Asset Management Companies (AMCs).
• Convert NRI Accounts: After returning to India, you should convert your NRI accounts to resident savings accounts. If there are any FDs in your NRI accounts, then you should also transition them into resident FDs. 
• Realign Stock Investments: You should open the new demat accounts made for residents for smooth trading. Close your NRI demat accounts if you have any.

2. Tax Planning

• Understand Tax Residency Rules: After your return to India, your tax residency status will also go through a transition. It goes like Non-Resident to Resident but Not Ordinarily Resident (NROR) and then later to Resident and Ordinarily Resident (ROR). 
• Update details of FATCA and KYC: You should timely update your KYC details with all your financial institutions to maintain compliance with FATCA/CRS regulations. 
• Double Taxation Avoidance Agreement (DTAA): As an RNOR, you can avoid paying taxes on foreign income in both India and the country of origin by utilising DTAA benefits.

3. Repatriation of Funds

• RFC Accounts: You should transfer your foreign income into the RFC accounts to maintain them in foreign currencies in India. It makes it very easy to manage them.
• Retain the Overseas Assets: If you can hold the foreign assets like properties, as long as you follow the FEMA regulations. You should also take a follow-up about the laws of the foreign country to ensure compliance. 

4. Management of Foreign accounts and assets

• Check for Compliance: Make sure that your funds are aligned with the Indian and Foreign rules and regulations. 
• Plan Fund Transfers: To minimise the currency conversion losses and transaction costs, you should transfer the funds systematically. 

5. Global or Dollar-based Investments

• You should always invest in global assets for diversification and retain them. This strategy works in your favour, against the currency risks. It can provide you with the benefits of international market growth. 

How to Manage Foreign Assets?

It is very important for the NRI moving back to India to manage their foreign assets. Here are the ways to manage different assets: 

1. Property: You can retain the ownership of the foreign property, but make sure that you follow the Foreign Exchange Management Act (FEMA) regulations and local rules of the host foreign country. Also, it is important for the ROR taxpayers to disclose their foreign assets in their Income Tax Returns.  
2. Bank Accounts: If the local regulations permit, you are allowed to hold your international accounts even after you return to India.
3. Retirement Funds: You can avoid the extra taxes in India by withdrawing or amending these funds before converting to ROR status. 

Some Tips for NRI Returning to India 

Here are some of the tips for the NRI returning to India:

1. Plan Your Financial Transitions Early: You should notify all your brokers, banks, and insurers about your residency status change in advance.

2. Update Financial Documents: Make sure that all your documents, like KYC and FATCA/CRS declarations, are up to date, and they should reflect your changes in residency. 

3. Consider Conversion of Currency: You should monitor the forex dates as per your favorable fund repatriation. 

4. Investment Opportunities: For the affordable global investments, you should utilise avenues like GIFT City. 

5. Seek Advice From Professionals: You should take the advice from the financial advisors to make sure that you comply with Indian and International laws.