Moving from one country of residence to another permanently is never an easy process. It involves a lot of tough decision and considerations, including getting over or suppression of your emotional attachment to that place.
Moving from a place that was a home away from home is hard, but it is worth chance if the place you are moving to is your home.
The same is the case with NRIs who are planning to return to India permanently. The transition, as we mentioned earlier, isn’t all that smooth, especially the financial ones as NRI tax filing process is different than the resident return filing process.
While moving back to India, NRIs should keep certain things in their mind so that they do not suffer financial loss.
Here, we will be discussing all the tax planning tips that you should consider if you are an NRI returning to India.
Tax Planning for NRI returning to India
- Know your tax status
Understanding your tax status is the first and most important part of planning the finances if you are returning to India permanently.
You will automatically become a resident from an NRI as soon as you complete your stay in the country for more than 182 days in a financial year. This means that as a resident, you will have to pay taxes in India on your worldwide income.
In case you do not meet the 182 days stay condition you will be considered as an RNOR (Resident but not ordinarily resident) if you have not been resident in India for 9 out of 10 previous tax years or if you have lived in the country for less than 729 days in the 7 previous tax years.
If you are considered as an RNOR, the income that you earn in the country will only be taxed in India and not on your global income.
After you have completed two years’ stay in India, your status will change to resident and ordinarily resident (ROR), and then your global income will be taxed in India.
(Read: Who is an NRI as per Income Tax and FEMA?)
- Take care of the Bank Accounts and Other Investments
All the overseas account that you may have held needs to be closed. The Reserve Bank of India (RBI) has allowed 4 types of bank accounts in India for NRIs, namely
Foreign Currency Non-Resident (FCNR) account, Non-Resident Ordinary (NRO) account, Non-Resident External (NRE) account and Resident Foreign Currency (RFC) account. (Read: All you wanted to know about NRI Bank Accounts)
When moving back to India, you will have to re-designate your NRE and NRO savings account as resident accounts. You can change your FCNR FDs to the RFC account on maturity.
You also have to work on your KYC and Mutual fund records and you other NRI Investments too Update your status with Depository participant too.
- Assets held overseas what to do with them
Listing down all the assets that you hold overseas will smoothen your planning.
You can plan accordingly for the assets as managing them from India will require your time and lots of effort, more than their potential.
Depending on these factors you will have to decide whether you want to hold the assets overseas as they are or not and then act accordingly.
If you plan to hold the assets, reporting of such assets in your returns and taxation on them are also to be considered. If you are planning to dispose of any of your foreign investment, it is recommended you do it before you become an ordinary resident for tax purpose to avoid paying taxes in India on your foreign investment income.
- Rework Financial Plan
If you are planning to relocate to India after your stint in a foreign country, you will have to rework your financial plan. The tax implications, income, the expenses, assets and liabilities will be different for you for which a need to overlook the whole financial plan is necessary.
- Income and Tax
As mentioned earlier in this article, income earned both in India as well as overseas will be taxed in India.
The NRE or FCNR FD interest rate will be the same even after you return to India until maturity, but you will be charged tax on interest income when you (NRI) become a resident.
In case you have received an RNOR status, your FCNR FD, as well as your NRE FD’s interest income, will remain tax-free.
Conclusion:
After you return to India, there is a lot you can look forward to including exploring new job or business opportunities. To make your transition to India smoother, all you have to do is, after losing your NRI status, take help of a financial planner who is well versed with NRI taxation and understands the resident taxation process.
Plan better, think ahead and make the necessary financial decisions for an easy transition to a new place and new life. (Also Read: Things NRI Retiring in India should plan & common mistakes to avoid)
This article on Tax Planning Tips for NRIs returning to India is a Guest Post, contributed by Tax experts at H&R Block
I will be a resident in 2021 and I have some deposits parked in NRO Account. Since some of them mature next month can I rollover these deposits or should I indtead break the funds at maturity?
It hardly matters. Choice is yours.
Hi I am based out of UK from past two year and will be returning to India in January. Do I need to pay tax on my UK income in India for this financial year?
As you said, you would return to India in January, so for this Financial Year (2019-20), you were out of India for more than 182 Days (April to January), so you would be treated as an NRI and you need not pay tax on the UK income.
My name is Murali Pillai, a NRI who is planning to return to India by the end of this year.
I will have taxable income in India from Real est
Dear Sir,
Please elaborate your query so that we may answer you in a better way.
I am in US and relocating to India, I am looking for way to effectively use my 401k, Roth IRA and Equity investments to avoid taxes here and in India
First Thing you cannot avoid the taxes completely. You have to follow the law of the country in which you are a tax resident. So when you are a US tax resident, you will be charged tax as per their rules and when you come back in india, till the time you will be RNOR (Resident but not Ordinarily resident), you will not be asked to pay taxes on US Income/interest/capital gains, but once you become Indian resident, and at that time if you have some foreign investments in your name, you will be taxed on the same too .However, there won’t be any double taxation as you may claim the benefit under DTAA (Double taxation Avoidance agreement).
So what we need to look into is what would be the taxation if you come out of these instruments, while being a US tax resident or an Indian resident. and then weigh both the options.
I am in UK from 1st Dec, 2016 in deputation, I am planning to return to India now, when I should plan to avoid Income tax..
Could you please elaborate, what taxes are you referring to?
I am an NRI and has been residing in the Gulf for over 20+ years. Now I am planning to return to India permanently in Oct-Nov 2021. How do I plan so that I get the maximum tax benefit of either NRI or RNOR.
I am an NRI returning to India from Singapore after staying here for 2 years. I have investments in Unit Trusts in US held in SGD. Can I hold my investments even after I return. How will I be taxed if I sell these once I become a resident Indian.