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A Perfect Guide for Returning NRIs on Tax Implications

Will : legal declaration of how a person wish his/her possession to be disposed after their death

Fund : An amount of money saved or collected for a particular purpose

Return : Profit or loss derived from an investment

Investor : An investor is any party that makes an investment.

Capital Gain : Increase in the value of the asset, so you will get the gain only if you sell that asset..

It is a dematerialized account to trade listed stocks, debentures in electronic form. This is an alternative to Physical form of shares.

It is a dematerialized account to trade listed stocks, debentures in electronic form. This is an alternative to Physical form of shares.

It is a type of debt instrument, which is acknowledgement of the amount borrowed by the company. Generally, it has a term [time period] and rate of interest, which changes according to the company

Bad news: 99% of NRI investors are not with the right financial planner.

Good news: You can choose a right financial planner now.

Warning: Returning to India needs a well-thought out plan. Making any impulsive decision will have adverse effect.

What would be the impact on you and your family members if personal finance things don’t work out as per your expectation when you return to India…?

If you are a Non-Resident Indian (NRI) and returning to India permanently, you may have certain income tax worries. You may be curious to know that. This article is an attempt to clarify some of the tax implications for returning NRIs.

By the way, if you are retiring and returning to India, then you need a fool proof retirement plan as an NRI.

Who is an NRI?

If you are a citizen of India or a person of Indian origin who is outside India visits India in any year you would be regarded as an NRI if your total stay is less than 182 days in the relevant tax year.

Alternately, if you are not physically present in India for 60 days or more and 365 days or more in the four financial years prior to that financial year then you are also considered to be an NRI. If neither of these two conditions is satisfied, the individual would be treated as an NRI. The tax year is calculated from April 1 to March 31.

Who is an RNOR?

There is another category of non-resident Indians, known as ‘Resident Not Ordinarily Resident’ (RNOR). You can become an RNOR either if your stay in India in the 7 financial years immediately preceding that financial year is less than 729 days or if you were a Non-Resident for 9 of the 10 financial years immediately preceding that financial year.

A Resident other than an NOR is generally referred to as an Ordinary Resident (ROR).

In case an Indian citizen or a person of Indian origin visits India in any tax year, the above mentioned 60 days shall be replaced by 182 days. The proposed Direct Tax Code, however, does not give this preferential benefit to the non-resident Indians or person of Indian origin visiting India.

Tax implications for a Returning NRI

What do you think you need to do to ease you financially when you return to India…? How about understanding the tax implications for a returning NRI…?

The taxability of your overseas income (such as rental income from property outside India, capital gains, bank interest, dividends, etc.) arising out of your assets (such as bank accounts, stock market/securities, life insurance policies , loans, company deposits, debentures, bonds, residential properties, etc.) largely depends on your residential status in India.

As an NRI returning to India you may try to sell your overseas assets while you are still an RNOR or NRI who returns to India. As an RNOR or NRI return, if you sell any overseas assets and receive the sale proceeds outside India, you do not have to pay any taxes in India.

If you need to buy a house in India out of the sale proceeds, you can first receive the sale proceeds in an overseas bank account and thereafter remit part or whole of the proceeds back to India without creating any Indian tax liability.

Tax liabilities of a NRI returning to India

For income received or deemed to be received or accrues or arises in India during the previous year, both ROR and NOR/ NRI are fully taxable.

For income which accrues or arises outside India and received outside India in the previous year from any other source, for ROR is fully taxable, while NOR/ NRI is not taxable.

For income which accrues or arises outside India and received outside India during the preceding previous years and remitted to India during the previous year, both ROR and NOR/ NRI are not taxable.

Tax Benefits when you are an RNOR

When you are an RNOR, you will be exempted from income tax in India for your following incomes:

Capital gain arising from sale of fixed and financial assets held overseas (like properties and shares)
•Interest received from FCNR and RFC deposits
• Withdrawals or pension from the retirement account or pension scheme held overseas
• Interest or dividends earned in deposit or securities held overseas
• Rent received from properties held overseas

Based on your return date to India, you stand to enjoy these tax benefits for 2 to 3 years. However, all your Indian income will be taxed.

After losing the RNOR status

Over time, you will lose your RNOR status as and when you stop satisfying any one of the conditions mentioned for RNOR.
 
When you move out from RNOR and become an ordinary resident then even your global income will be taxed in India.

Suppose if your global income is taxed abroad, then you can claim the tax benefits as per the Double Taxation Avoidance Agreement. Therefore, you will not pay tax twice for this global income after you return.

If you are planning to sell an overseas property or withdraw from overseas retirement accounts, it is advisable to do these when you are an NRI or RNOR to avoid taxation in India.

What you as an NRI should do on return to India

What would be your next steps or action items after you return to India?

1) On return to India, you should re-designate your accounts in your bank as domestic Resident accounts or transfer the balance in your NRE/FCNR accounts to Resident Foreign Currency (RFC) accounts, if you so desire.

2) FCNR accounts can be continued till the date of maturity and upon maturity, can be converted to RFC accounts.

3) How long can I continue to maintain my NRE account after returning to India?

  • You need to convert your NRE account to resident account immediately upon returning to India. You can’t maintain your NRE account and NRE FDs when you are an RNOR.
  • You need to convert these accounts to resident accounts within a reasonable period of time. The reasonable period can be assumed as 3 months. If you are not converting the accounts within the reasonable period, you would be violating FEMA. It is better to avoid those hardships and convert the NRE accounts within the reasonable period.
  • Even after becoming a resident if you continue your NRE account and FDs, then the interest from them will be taxable. Interest from NRE account and FDs are taxable only for non-residents.

4) Also, you need to open a resident demat account, transfer the shares from your NRI demat account and close the NRI demat account.

5) If you have invested in mutual funds as an NRI, then as and when you return to India, you need to update them with resident bank details and change the residential status in mutual fund investments from NRI to resident.
What's the FIRST (or easiest) step you could take from the above as a returning NRI?

Resident Foreign currency (RFC) Account

Resident Foreign Currency is a Scheme approved by Reserve Bank of India permitting persons of Indian nationality or origin, who have returned to India on or after 18th April 1992 for permanent settlement (Returning Indians), after being resident outside India for a continuous period of not less than 1 year, to open foreign currency accounts with banks in India for holding funds brought by them to India.
 
Interest income from RFC accounts is taxable. But if you qualify as an RNOR, then the interest income from RFC account is not taxable.
 
RFC accounts can be opened in different forms like current account or savings account or term deposits.
 
Retaining Overseas Assets

 
It is not necessary for the NRI returned and turned Resident, to obtain any permission from RBI or any other authority to retain your overseas assets.
 
Sec 6 (4) of FEMA has granted permissions for returning NRIs to retain the overseas assets.

Final Thoughts

To summarise, an Ordinary Resident (ROR) is liable to pay tax on his global income, while an NRI is liable to tax on the income ‘earned’ in India.
 
You may reap the above tax benefits until you claim that you are an NRI, but once you pronounce your residential status you will avail no benefits and will be considered as a full-time resident of India and will have to follow the regular tax format.
 
That is you will enjoy NRI income tax benefits until the time you hold the NRI status in India.

What human resources do you have access to mentor your personal finance related issues before and after returning to India…? A Certified financial planner can make all the difference to your personal finance. Here’s a step by step guide to choose a right financial planner for NRIs.

What is one step you could take right now that would indicate you were moving forward in the right direction as an NRI…? How about having an initial discussion with a financial planner about your challenges and difficulties…?

To invest the savings properly and become wealthier after your return to India, you need a route map to take you from where you are financially and where you want to go financially. You will have a clear route map only when you create a financial plan for yourself and your family.

As an NRI, I hope this article has given you valuable insights about tax implications. Let us know your thoughts in the comment section.

If you want to create a workable financial plan, then I firmly vouch for you to take advantage of
 
OUR 30 MINUTES COMPLIMENTARY COUNSELING OFFER
To register for this ‘Free counseling’ please click here.

32 thoughts on “A Perfect Guide for Returning NRIs on Tax Implications”

  1. I have been an NRI for the last 37 years and returned to India in 2017. I have changed all nub NRE account into Reaident account. I would like to have more clarity on RNOR status.
    I used to visit every year to India for about 30-40 days. In that case how many years I can remain as an RNOR and get exempted from paying income tax on the money remitted from abroad.
    Please advise.
    Thanks and rwgarda

    1. As mentioned in the article you need to be an NRI for 9 years out of 10 preceding years to be an RNOR.
      On the year of return: You are an NRI for 10 years out of 10 preceding years. So you are an RNOR in the first year.
      On the 2nd year of return: You are an NRI for 9 years out of 10 preceding years. So you are an RNOR in the second year.
      On the 3rd year of return: You are an NRI for ony 8 years out of 10 preceding years. So you are NOT and RNOR.
      So for the first 2 years, you can enjoy as the benefits of an RNOR.

  2. Many Thanks for giving clear information on basic things which always remains in the mind of NRI who are expecting to come back to India for good.

  3. Hi. I am an NRI for the last 35 yrs and am planning to return for good this year end my investment isnbasically NRE deposits/FCNR/FD.given to understand that I am liable to pay taxes on NRI deposit interest from the year I am not NRI i.e. From fy 2019 is this true.

  4. I am outside India from year December 2013 to till date. I am planning to return to India by August 2018. I am not completing only 100 days outside India this financial year. What is tax implication? If I need to pay tax, what is percentage of total income??

    1. You will be considered as an NRI for the financial year 2018-19. You need not pay tax on the income earned outside India for 2018-19.

  5. I was in abroad since 1992 to 2016 August continuously.there after not traced correct job and hence still in India.So pls advise how long can I keep the NRI account and how long can I eligible for the tax free NRE deposits .

    1. As you have returned(even though temporarily), you have become a Resident from 2017-18. You should have converted your NRI deposits to Resident deposits in 2017-18.

  6. I am an NRI for 5 years and now coming back to India permanently in April. For FY 2017-18 and AY 2018-19 what should I do for IT Returns.? I do not have any source of Income in India in the last 5 years

    1. Based on you Income in India, you need to file IT returns for the FY 2017-18. If you don’t have an Indian Income for that period, then there is no necessity to file IT returns.

  7. First of all, thank you for writing such an insightful article. There is a lot of mis-information all around and your article sheds a lot of light on this topic.

  8. Hello sir,
    An individual goes for employment to Dubai in year 2016-17 since he did not stay in India for 182 days he is a non -resident .In year 2017-18 he is settling back in India .He has been in India for 60days during that year.What will be his Residential status?Can you please clarify if the provisions will change for settling in india and visit in India.
    Thank you

  9. I was an NRI since 2005. I was in India on personal health related issues since July23, 2016. For tax year 2016-17, I was a “Resident”. As I was an NRI for the previous 10 years, I guess my status in 2016-17 would be “RNOR”. During my stay in India, I was working for US organization and getting paid in US. I neither provide any services in India nor received any income directly in India. I filed my tax returns in US for 2016. Am I liable to pay the tax for the income I received in US for tax year 2016-17. Please carify

    1. Yes. You need to file IT returns for 2016-17 because you earned it when you are in India. However, you can get tax credit for the tax you paid in US.

  10. Hi Sir,

    I am living Australia for about 10 years and now planning to return back. I am disposing all my foreign wealth and bring back to India in the form of Indian Currency to my NRE account.

    My question is, is there any tax in INDIA and is there any restriction about transfer currency from Australia to India.

    Can you please explain?

    Thanks

  11. Hello Sir, I will be returning to India in April after leaving outside for 17 years. I have NRE and NRO Fixed deposits. Within how much time I should convert NRE/NRO FDs?

    I will be quite busy upon returns searching for houses to purchase, so I may not have time to go to the bank.

    Also, I have appeared for interviews and I expect to get a job but not sure also that may not materialize till June. Should I wait till I know the final outcome for converting NRE FDs to Resident FDs because I may not be able convert back to NRE FDs if I go out again.

    Appreciate your help.

    1. You need to convert the NRE FDs into Resident FDs within a reasonable amount of time. A reasonable time can be assumed as 3 months.

  12. I have been out of the country (india) for 17 years . Naturally I have been a NRI and had the benfit of tax exemptions . I have landed in India on the 10 Dec 2017 and intend to stay put in India for the rest of my life .
    Just want to know how long do i get the benefit of my NRE fixed deposit accounts and how long can I avail of the tax free NRE deposits even though I have returned to india for good . I believe I can get the benefit of tax exepmtions by maintaining my NRE account for the next 2years post my return to india . can you please confirm because i dont want to evade any tax guidelines but if the facilty is there i would definetely like to avail of it .

    1. You have got time up to 2 years to convert this.
      So you can wait and do the conversion after you get more clarity about your job.

  13. The definition of Resident Indian to find if I still hold NRI status or not, is confusing. With following no. days staying India, do I hold NRI status for current FY 2017-18 as most of the people talk about 182 days and second part of the rule about 4 years seems to be less understood.
    FY 2017-18 = 360 (expected)
    FY 2016-17 = 230
    FY 2015-16 = 0
    FY 2014-15 = 21
    FY 2013-14 = 98
    Thank you

    1. Hi Viresh Sharma,

      If you are in India for less than 182 days during the fiscal, you automatically become a non-resident. While that is true in most cases, there is also an alternative condition for being a resident of India, namely, if you are in India for 60 days or more during the year and 365 days or more during the earlier four fiscals. If you fulfil both these conditions, you are regarded as a tax resident of India, though you have been in India for less than 182 days.

      Since you are in India for 360 days for the current year 2017-18, you will become resident Indian.

      Rajan

  14. Yes you are an NRI only if you stay away from India for more than 182 days. So no need to convert your NRE and NRO account at this moment.

  15. I have been NRI for 30 yrs . Now I wish to return I understand that I can keep NRE account for 7 yrs ,but will the interest earned on these deposits will continue be Tax Free. Shiv

  16. This is usually all very fresh to me and this also article definitely opened the eyes. Thanks intended for sharing with us your information.

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