Time and again, NRIs who are planning to return to India have wondered what will happen once they move back. What about their bank accounts, their investments in India and abroad and the associated taxation changes? Income Tax for NRI Returning to India involves the change in their Residential Status, instruments of taxation and much more. There are various factors that need to be taken care of. In this ultimate guide, we will consider every major category where change happens for an NRI returning to India. Let’s first have a look at the categories, their highlights and the changes that need to be considered in the table below. Post that, let’s understand every category one by one.
| Category | Highlight | Changes to take care of |
|---|---|---|
| NRI Bank Accounts | Transition from NRI to Resident Bank Accounts | – Residential Status Rules – What to do with Deposits, Credit Cards and Loans (Home Loan, Personal Loan etc.) – Foreign Bank Accounts |
| NRI Investment | Sorting your Investments in India and Abroad | – Updating KYC – Understanding differences in rules for NRI and Residents – How to manage investments done abroad (eg. 401K, 529 in USA) |
| NRI Taxation | Complying to Tax Rules and understanding the differences between taxation for NRI and Resident Indian | – Filing Income Tax Returns – Shift from Tax Deducted at Source (TDS) to normal taxation – Understanding Double Taxation Avoidance Agreement (DTAA) |
| Real Estate | Changes in taxation on buying and income from property (Selling, Rent, Inheritance) | – Special Focus on Real Estate – Retirement Planning – What to do with properties abroad |
| Financial Planning | Understanding the basic aspects of planning your finances | – Emergency Fund – Insurance – Investments |
| Child Education | Planning your child’s education in India | – Admission in Schools – NRI Quota Eligibility – Understanding the processes |
| Job/Startup | Finding a stable source of Income in India | – Need for a job or have a great idea for a startup – Find a source for a fixed income – Aim for Career Growth |
| Documentation | Having the right documents for all purposes | – Aadhar, PAN or OCI Card – Identity Proof and Address Proof – Sorting Tax and Investment documentation |
| Remittance | Creating a smooth remittance channel | – Sending money abroad – Receiving money in India – Convenient remittance channels |
| Miscellaneous | Transit and other aspects | – Transit – Settling in India – Home Healthcare |
Our Checklists: Moving Back to India from USA: Checklist 2021 | Moving Back to India from UAE: Checklist 2020-21
Income Tax for NRI returning to India: Understanding the Categories
NRI Bank Accounts
For an NRI returning to India, there are certain changes in their bank accounts. Firstly, they need to track their Residential Status and understand what they can and can not do as per their status. The status to focus upon is: Resident but not Ordinarily Resident status after returning to India. Listed below are some pointers to take care of considering NRI Bank Accounts:
- Once you convert to a Resident Indian from an NRI, you need to convert your NRO Account to a Resident Savings Bank Account
- You can convert your NRE and FCNR deposits to RFC Account post maturity.
- The interest earned on NRE Deposits converted to RFC Accounts will be exempt from tax if the status of the returning NRI is RNOR
- You can keep using your foreign bank accounts or credit cards and add to your credit scores or give them up. It’s entirely at your discretion
- You might need an expert to assist you with the end to end process. Click on the button at the end of this guide to connect with our Expert on WhatsApp.
NRI Investment in India and Abroad
Investments are very important to multiply your net worth. Money that makes more money is essential to inch close towards your desired lifestyle. Many NRIs have investments both in India and abroad and an understanding of what happens to these investments while moving back to India is also essential. Let’s take a look at the below pointers to understand the changes:
- The first thing that you must do is inform the fund houses/banks through which you have invested both in India and abroad about the change in your residential status.
- You need to update your KYC in India so that the banks/fund houses can do the needful
- Taxation instruments used are different for NRIs and Resident Indians. In some cases, even the rate at which the tax is deducted is different. So you need to understand how the taxation will change once you transition
- You need to take care care of the withdrawals of investments done abroad or sort them according to your specific plans. You might need expert assistance for planning such actions as double taxation angle might come into play
- You might need an expert to assist you with the end to end process. Click on the button at the end of this guide to connect with our Taxation Expert on WhatsApp.
Income Tax for NRI
Understanding the Income Tax rules and regulations, the instruments like TDS and filing for a refund and many more aspects make this category the most time consuming of all. Every other category that we will discuss in this ultimate guide will have a taxation angle to it. So let’s study some basic pointers that will act as a base for all other categories:
- The very first thing to understand here is that any individual having a source of income in India must file a tax return in India irrespective of the fact that he is a Resident or an NRI
- NRIs are subject to TDS but Residents are not. Therefore, the shift from an NRI to a Resident will bring forth many changes on this front.
- Having income both in India and abroad can lead to double taxation too as for a Resident Indian, his/her global income is taxable in India. However, instruments like DTAA help individuals avoid double taxation arising on the same income.
- You might need an expert to assist you with the end to end process. Click on the button at the end of this guide to connect with our Taxation Expert on WhatsApp.
Also Read: Income Tax e-filing: Top 10 NRI Income Tax Filing Benefits | NRI Tax: Top 10 Mistakes made by NRIs while Filing ITR in India
Real Estate Investments for NRI returning to India
Real Estate as an investment class has many layers: Many NRIs look at it from an investment perspective that will fetch returns in form of rent or capital gains while many other NRIs look at it from a perspective of retiring peacefully in their home country as a safe haven. Now, the taxation angle on buying, selling, renting or inheriting a real estate property in India is very different for an NRI than it is for a Resident Indian. Let’s see why should an NRI buy a home in India and understand the different angles around real estate investments:
- The TDS on buying and selling of property is different for an NRI as compared to a Resident Indian
- There are certain restrictions on the types of properties an NRI can and can not buy in India (eg. An NRI can’t buy a plantation or agricultural land or a farmhouse) and also on the repatriation of sale proceeds from any property in India
- The transition from an NRI to a Resident will affect the above mentioned points
- You might need an expert to assist you with the end to end process. Click on the button at the end of this guide to connect with our Expert on WhatsApp.
Financial Planning for NRI returning to India
Financial Planning for an NRI returning to India is very essential. You can spot signs that raise an alarm for financial trouble. Income Tax for NRI is a part of financial planning and so are investments and bank accounts. Discussing the vitality of Financial Planning, our Taxation Expert, Shruti Agarwal iterates: Emergency Fund, Insurance and Investment are the three pillars of Financial Planning. For an NRI transitioning to a Resident Indian, it is essential that they understand the below mentioned points:
- It is necessary to create an emergency fund equal to 3-6 times of your monthly salary to prepare yourself against any medical or financial emergency
- Having a life and health insurance is also essential to make sure that you are ready and no pressure is felt as medical treatments can cost a fortune in India. Also, it provides security to your family
- Having diversified investments help you tackle everyday situations. Having liquid assets like gold can give you elasticity while having long term investments give you security.
- You might need an expert to assist you with the end to end process. Click on the button at the end of this guide to connect with our Investment Expert on WhatsApp.
Child Education in India
NRIs returning to India have a major query considering their child’s education in India. Many of them are unaware about the education boards in India and how they operate. Admission rules in CBSE board for NRI students has always been the top query. Returning to India and managing the education of children need proper planning. Check out these pointers for some valuable information in this regard:
- You can connect with the CBSE helpline for swift resolutions considering admission rules and guidelines for NRI Students. You can call on 011- 22248883, 22236116 or visit https://www.cbse.gov.in/cbsenew/contact-us.html for department wise contact details.
- For higher education, check out the NRI Quota guidelines for engineering and medical colleges
- Get acquainted with the different boards (CBSE, ICSE, State boards) and their requirements
- You might need an expert to assist you with the end to end process. Click on the button at the end of this guide to connect with our Expert on WhatsApp.
Finding a Job or becoming an Entrepreneur
Once you come back to India, you might need a job here to stabilize your monthly income. Finding a job in India or starting a new business is comparatively tough given the unemployment rate in the country. Many of our NRI friends in the gulf and from other countries have been affected badly by the pandemic and have returned to India wounded by job loss. If you are searching for a job or planning to start a new business in India then you need to take care of certain pointers. Let’s take a look:
- The Indian economy is retreating at a very good rate promising higher stability in 2021-22
- Ensuring a fixed source of income is essential to sustain yourself and your family
- Keep your resume handy and start applying beforehand if you are planning to quit your job abroad or have lost your job
- You might need an expert to assist you find a job in India. Click on the button at the end of this guide to connect with our Expert on WhatsApp.
Sorting your documentation in India
Every country has some important documents that you need in order to do the everyday tasks there. Like in India we have the Aadhar Card and the PAN Card as the two most important documents. The Aadhar Card is a proof of residency in India while the PAN Card is used for filing your tax returns and sorting your investments in India. The OCI Card also comes in handy for OCIs staying in India. There are certain pointers that you need to take care of. Let’s check out:
- The Aadhar Card is used as an identity and address proof almost everywhere in India
- The PAN Card is essential for filing your taxes in India and for carrying out investments in India
- These cards are also essential for managing your bank accounts in India
- You might need an expert to assist you with the end to end process regarding sorting your documentation in India. Click on the button at the end of this guide to connect with our Expert on WhatsApp.
Remittance
As an NRI, one of the most important aspects is establishing a smooth channel for remittances to India from abroad and vice versa. Many NRIs face problems in understanding the differences between exchange rate and transfer fees. Also, finding a dependable and affordable channel for remittance becomes hard. Let’s take a look at a few pointers to help you understand better:
- Most of the remittance channels don’t charge a transfer fee. They have their own exchange rates that create the difference. If they are charging a fixed fee (like Transferwise does) then they provide a fixed exchange rate as well for a specified time (again in case of Transferwise)
- The exchange rates fluctuate very often. Just look at the final amount received in India and then weigh in other factors like transfer time, channel or fees if any
- You can find best mediums to send money abroad from India and vice versa using the above points
- You might need an expert to assist you with the end to end process regarding remittances to India. Click on the button at the end of this guide to connect with our Expert on WhatsApp.
Miscellaneous
Apart from the above mentioned categories, there can be other aspects as well that will help us understand what to do when an NRI moves to India. We need to make sure that every box is checked to avoid any unwanted struggle in a rather smooth process. Aspects like transits, home health care, settling in India and other maintenance activities can come under this category. Let’s consider some points:
- It is helpful to plan your retirement and select a place for it. Once this is done, further steps can be taken
- You also need to take care of your parents and family in India and might require home health care services in India. It’s better to sort that as well
- Pension or Retirement Plans might come in handy
- You might need an expert to assist you with the end to end processes. Click on the button at the end of this guide to connect with our Expert on WhatsApp.
Income Tax for NRI returning to India: Get Expert Assistance
Income Tax is an aspect that somehow penetrates every other category and influences your decisions in their regard. We at SBNRI understand that as an NRI returning to India, it is extremely vital that proper care is taken considering income tax and how it can affect various aspects on a larger scale. We have experts who will assist you throughout the process. Just click on the button below to connect with our Expert on WhatsApp. Also visit our blog and Youtube Channel for more details.
Income Tax for NRI Returning to India: FAQs
An NRI can stay 182 days in India. If they stay for more than 182 days then they lose their NRI status and become Resident Indians.
You can keep your NRE Deposit as it is till maturity and convert them into a RFC Account after that.
Many NRIs are returning as the result of the pandemic. Many NRIs have lost their jobs or want to be with their family in India.
NRI as per RBI is defined as a person resident outside India who is a citizen of India. In terms of Regulation 2 of FEMA Notification No.13 dated May 3, 2000, Non-Resident Indian (NRI) means a person resident outside India who is a citizen of India.
However, the Maturity amount received under most of the LIC Saving Plans is 100% Tax Exempted, only maturity from the single premium plans is taxable. This rule applies to everyone whether it is NRIs or domestic residents.
The mutual funds can be held when resident status changes. A re-KYC as an NRI is required.
