We receive lots of queries concerning financial planning for an NRI returning to India permanently. Most of the queries are related to NRI bank accounts, home loans overseas, tax on foreign accounts, real estate purchase, etc. If you are planning a shift back to home, here are 5 important financial tips for NRI returning to India permanently.
5 important tips for NRI returning India permanently
1. Manage your bank and trading accounts
You might have an NRE, NRO or FCNR account as an NRI. An NRO savings account can be converted into a resident savings account. You can leave fixed deposits in NRE and FCNR accounts until maturity. After maturity, you can change them to RFC (Resident Foreign Currency) accounts. Individuals with RNOR status can also convert their NRI savings accounts to RFC accounts. Interest earned from such kinds of accounts is tax free during RNOR status.
- Demat accounts
As an NRI you might have opened an NRI Demat account to invest in the stock market, mutual funds, ETF, convertible debentures, etc. Once you return to India, you will have to open a resident Demat account and transfer all your investments to it.
2. Open resident account
After arriving in India, you will need a resident bank account to conduct various financial transactions in India to avoid any unintended violation under the Foreign Exchange Management Act (FEMA). For example, if you are planning to work in India, you will need to open a resident salary account, or resident fixed deposit accounts to save for the future.
3. Understand the tax implications for an NRI returning to India
Before moving back to India, you should be aware of your residential status as per the Indian income tax laws and the income tax implications for NRIs. After relocating to India, an NRI first becomes an RNOR (Resident but not Ordinarily Resident). You will remain an RNOR for a maximum of three years subject to conditions of your stay overseas. RNOR individuals are exempt from tax for incomes including:
- Interest earned on FCNR FDs
- Interest and dividends received from investments abroad
- Rental income
Once you become a resident Indian, your foreign income will also be taxable in India. However, you will get some exemptions under the DTAA from getting taxed twice.
4. Investment planning
Whether you are in India or abroad, it is important to make your financial plans based on your budget and goals. You might have earned a lump sum amount after your work stint abroad. You have to invest it wisely to ensure that your hard earned money earns more money for you.
There are several investment options which not only provide financial support and save your future, but also help you save taxes. Therefore you should build an investment portfolio to get your finances in order. For example, you can start investing in mutual funds in India. For individuals who have low to moderate risk tolerance, investment in mutual funds is a safer way than investing in equity. Mutual funds also have various tax benefits.
5. Consult a financial advisor
Since you have not been in India for a long period of time, you may not be sure of handling the reverse culture-shock. You might face many problems in planning your finances or investing in assets like real estate property, CRE, NPS, stock market, etc. In such a case the most suitable option before you is to seek the help of a financial expert.
SBNRI is a one-stop platform for NRIs abroad or in India. With this NRI-centric online banking platform, you can plan everything, from a resident account opening, NRI to resident account conversion, investment in mutual funds and stocks, to filing income tax returns. Click on the button below to ask any questions regarding NRI investment in India. Visit our blog and YouTube Channel for more details.