Returning back to your home country is an occasion filled with emotions. However, your return to India as an NRI investor is more important than your sentimental attachment to the motherland. Once you decide to reside in India it’s imperative that you work with a certified financial advisor to build a financial plan that allows you to reap the full benefits of your NRI status.
On top of managing your wealth, you’ll also have to quickly adapt to the legalities and formalities involved in filing your taxes. This is not the time to be making ill-informed and impulsive financial decisions.
But before we get to that you must understand which category of taxpayer you fall under. You are considered an NRI only if you spend less than 182 days in the country for the corresponding financial year, or if you spend less than 60 days in a year in the last 4 years in India, accumulating to no more than 365 days for the same time period. You will classify as a Resident Not Ordinarily Resident (RNOR) if you have stayed in India for less than 729 days in the last 7 years, or if your permanent residence was not in India for the last 10 years immediately preceding the current financial year.
Here are a few tax implications you need to know if you’re an NRI returning to India.
- Overseas Assets & Income – You need to ascertain your residential status to know whether or not you will be taxed for your overseas income. This includes rental income from property outside India, interest from bank accounts, life insurance policies, bonds, deposits, and a few others. If you plan your sell your overseas assets, do so before you lose your RNOR or NRI status. This is because RNORs and NRIs do not have to pay tax in India for the money received through the sale of overseas assets. This way you can use your liquid assets to make large purchases like buying a house, by transferring the money from an overseas bank account and remit the amount to India without increasing your tax liability.
- RNOR Benefits – RNORs enjoy a host of benefits when it comes to paying taxes in India. You will be exempt from paying tax from any capital gains that you make as a result of the sale of your property and shares that you own overseas. You also do not have to pay taxes on interest earned from FCNR or RFC deposits, and money gained from pension schemes you bought overseas. The same goes for interest or dividends that you get from securities you own. In case you do not sell your overseas property you can lease it out and earn a tax-free rental income as well. Once you lose your RNOR status your total income (earned in India and abroad) will be taxed in India. However, under the Double Taxation Avoidance Agreement (DTAA) you can claim tax credit and reduce your overall tax liability.
- Bank Accounts And Investments – Make sure that you re-designate all your accounts as domestic resident accounts. The other option is to transfer your wealth from your NRE/FCNR accounts to an RFC account. You can keep your FCNR accounts running till the date of maturity, after which you will have to convert them to RFC accounts as well. Keep in mind that you should avoid maintaining your NRE accounts and NRE FDs as an RNOR. After becoming a resident, the interest will be taxable in India; only non-residents can claim tax exemption on interest earned from these accounts.
- Overseas Assets – You are allowed to keep your overseas assets even after you become a resident. According to Section 6 (4) of FEMA, NRIs are allowed to retain their overseas assets without any additional permissions.
In order to better understand the financial implications of your return to India, it is advisable that you seek professional financial assistance from a certified financial planner or wealth management firm. They will help you make smart and effective financial decisions as you transition from NRI to a full resident investor.