A returning NRI should know and understand various aspects of Foreign Exchange Regulations (FEMA), Indian Taxation and Banking Regulations in order to rearrange his financial affairs in India and outside India.
Detailed information covering important aspects for such arrangement is explained here;
A) Overseas Assets
All kind of Foreign exchange / Overseas assets such as properties, bank deposits, stocks and securities, life insurance policies, loans, company deposits, debentures, bonds etc. acquired, held or owned by an NRI while he was abroad can be continued to be so held and deal in any manner even after the NRI’s return to India for permanent settlement.
B) Indian Assets
I. Bank Accounts. (in India)
Returning NRIs, upon his return to India has to deal with his various accounts in India in the following manner:
|Account Description||Treatment to be given|
|NRO A/c||Re-designate to Resident A/c.|
|FCNR A/c||Hold upto maturity.|
|Upon maturity should be converted into Rupee Account or RFC A/c.|
|NRE A/c||Re-designate to Resident A/c or|
|Transfer Balance to RFC A/c.|
II. Resident Foreign Currency Account (RFC Account)
- A Returning NRIs, on becoming residents are free to open and maintain such accounts with authorised dealers.
- The funds held in RFC are fully repatriable and also denominated in Forex.
- Funds in RFC accounts can be remitted abroad for any bona fide purpose of the account holder or his dependants.
III. Shares Securities etc.
Returning NRI is required to inform all the companies, funds etc. as to change of residential status from NRI to Resident.
Income Tax Act
- The tax liability of a person returning India would depend on the Residential Status of a person as per the Income-tax Act, 1961.
- Under the Indian Tax Laws overseas income is liable to Tax in India only if the assessee is an ordinarily resident.
- A returning Indian who has been a Non Resident for 9 years or more, then for 2 successive years he shall be a resident but not ordinarily resident (RNOR).
- Interest on Non Resident External Account (NRE) and Foreign Currency Non-Resident Account (FCNR) [Section 10(4)(ii)] is Exempt in the hands of a person who is a Person Resident outside India as per section 2(w) of FEMA, 1999 and definition of ‘Non-Resident’ under Income Tax is not relevant for this sub section.
- Income in respect of Interest, premium on redemption, other payment on notified securities, bonds, certificates and deposits. [Section 10(15)(i)].
- Interest on India millennium Deposits (IMDs)/Resurgent India Bonds (RIBs) issued by State Bank Of India (The exemption from tax continues even if the NRI becomes a resident and is also available to the nominee or the survivor of the NRI or to a donee to whom the bonds have been gifted by the NRI.)
- Interest paid by schedule banks to Non Resident or to a person who is not ordinarily resident on RBI approved foreign currency deposits (i.e. RFC deposits) is exempt (s. 10 (15) (iv) (fa)). The exemption, in respect of RFC account, continues till such time as the account holder continues to be “Resident but Not Ordinarily Resident”.
- NRIs have been offered a separate concessional tax regime in respect of certain types of income under Chapter XIIA comprising section 115C to 115I. As per section 115E, concessional tax of 20 percent is available in respect of investment income and 10% in respect of long-term capital gains from the specified assets, which are acquired out of convertible foreign exchange. The benefit of concessional tax treatment under chapter XIIA continues even after NRI becomes a resident.
- Pension: If you are likely to receive pension from your former employer after you return to India, it may be liable to tax in India subject to provisions of Double Taxation Avoidance Agreement between India and the country from which you are receiving it.
- Assets located outside India of Non-resident (NR) / Resident but Not Ordinary Resident (RNOR) are exempt from Wealth Tax.
- If NRI return to India with the intention of permanently residing in India, the assets brought by him will be exempt. Also, the money and the assets acquired from the money, brought by NRI within one year after his return, will be exempt. This exemption is available to NRI for a period of seven years after his return to India. [Sec. 5(1)(v)].
The Government has announced a scheme for issuance of Persons having foreign of Indian Origin (PIO) Cards for Persons of Indian Origin living abroad and passports. The PIO cards, which would be extended to Persons of Indian Origin settled in countries other than Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan besides introducing a visa free regime, also confer some special economic, educational, financial and cultural benefits to the holders of these Cards.
The following facilities shall be extended to the PIO Card holders:
- Visa free entry to India.
- For PIO Card holders the requirement for registration with Foreigners Regional Registration Office has been done away with for continuous stay not exceeding 180 days.
All future benefits that would extend to NRIs would also be available to the PIO Card holders.
Aspects to be kept in mind by returning Indian
A Returning Indian needs to plan his return to India. For the purpose, he needs advice / information on various aspects of Tax Laws / FEMA, 1999.
- What is your residential status under? As per Foreign Exchange Management Act, 1999 & Income Tax Act, 1961.
- Planning the date and month of return to India so as ensure minimum tax liability in the year of return (i.e. April to March)?
- Holding and operating of non-resident Banking accounts on your return to India and Taxability thereof.
- Taxability of Income earned in and outside India i.e. In the year of return to India & in the subsequent period.
- Application of Double Taxation Avoidance Treaty, if any applicable.
- Advice / information on various aspects of Tax Laws / FEMA, 1999 in respect of holding of assets in and outside India / earning income in and outside India and its taxability?
- Assistance in Filing Return of Income.
- Reorganize your asset portfolio in India/outside India with professional assistance to ensure minimum tax. Thus we also advise on setting up Business/Investment outside India.
Sources: FEMA, RBI, NRI Tax Services