Will : legal declaration of how a person wish his/her possession to be disposed after their death
Investor : An investor is any party that makes an investment.
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.
schedule your free appointment to get more personalised advice related to NRI Taxation, Financial Planning, Retirement Planning and Investment Advisory.
What would be the impact on you and your family members if personal finance things donâ€™t work out as per your expectation when you return to Indiaâ€¦?
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?
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 â€˜Resident Not Ordinarily Residentâ€™ (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 Indiaâ€¦? How about understanding the tax implications for a returning NRIâ€¦?
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:
â€¢ Capital gain arising from sale of fixed and financial assets held overseas (like properties and shares)
â€¢Interest received from FCNR and RFC deposits
â€¢ Withdrawals or pension from the retirement account or pension scheme held overseas
â€¢ Interest or dividends earned in deposit or securities held overseas
â€¢ 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 canâ€™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.
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 â€˜earnedâ€™ 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 Indiaâ€¦? A Certified financial planner can make all the difference to your personal finance. Hereâ€™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 NRIâ€¦? How about having an initial discussion with a financial planner about your challenges and difficultiesâ€¦?
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.