3 Important Financial Changes For NRIs Returning To India

Amid the worldwide COVID-19 crisis, many non-resident Indians (NRIs) lost their jobs. Especially those engaged in the service sectors like hospitality, travel or other client-facing businesses have seen pay cuts and layoffs in India as well. News reports suggest that many of these non-resident Indians (NRIs) had decided to move to India for good.

If you are one of these NRIs who has decided to move back to India, here are 3 financial changes that you will need to take care of.

1. Banking

After moving abroad, you may have converted your ordinary bank account in India to a non-resident ordinary (NRO) or non-resident external (NRE) account. These are convenient for transferring foreign income to India.

However, once you are back in India and decide to stay, you will have to convert your existing NRE and NRO account into resident savings account within a couple of months of your arrival. If you fail to do so, it would be considered a violation under the Foreign Exchange Management Act (Fema).

If you have any FCNR (Foreign Currency Non-Resident) deposits, you can continue with the same until maturity but at a contracted rate of interest. Once the deposit matures, you need to convert them to resident rupee deposit accounts or a resident foreign currency (RFC) accounts-if you wish to continue to hold foreign currency.

The interest rate earned on deposits in RFC accounts is not taxable until you enjoy the RNOR (Resident but Not Ordinarily Resident) status. More on residential status for tax purposes below.

Also, you may want to inform your bank in the country you previously resided in, about your move to India. You may be asked to maintain a minimum balance in the bank account as per their norms.

Taxation

In the past, you were not required to pay tax for your income earned outside India. If you worked in a tax haven like Dubai, it will be a considerable change for you. Once you lose your NRI status, you will be taxed for your income earned in India as well as abroad (if received in India), based on your residential status.

Returning NRIs could be classified into two categories of residencies: ordinarily resident and resident but not ordinarily resident (RNOR).

As per Indian Income Tax laws, one is ordinarily resident if they have stayed in India for 182 days or more in that particular financial year (FY) or if you have stayed for 60 days or more in the FY and 365 days or more in the preceding four FYs.

RNORs are those that have either retained their NRI status in nine out of 10 FYs preceding the relevant FY or stayed in India for 729 days or less in the seven FYs preceding the relevant FY.

It is important to know that as an ordinary resident, your global income will also be taxable for the particular year, and you will be required to report all foreign assets in filing your income-tax return (ITR). Note that due to Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, make sure to carefully report all foreign assets or income earned abroad in the ITR without any omission or inaccurate particulars, to avoid penal consequences.

The RNOR will help save you from paying taxes on any foreign income as long as the status prevails. Also, FCNR deposits continue to remain tax-exempt in India till you enjoy the RNOR status.

If are able to live abroad longer, you can plan your return in a way that you can enjoy the NRI status for the maximum period. You can seek advice from a professional tax adviser to plan your arrival.

3. Investments

Real estate

If you own or have purchased a property on loan abroad, you may decide to rent it or sell it before you leave. It will get difficult to manage it remotely from India, especially with the travel restrictions due to the pandemic.

As for buying a home in India, do not walk into online deals at the moment just because rates are attractive due to the pandemic. It would be wise to stay on rent for you few months and decide on your sources of income, employment opportunities and schooling for your children before you decide to make a big purchase like buying a home.

Pension plans or long term investment plans

If your employer at your previous country of residence provided you with retirement savings plan like 401K in the US, you might want to continue investing in it, especially if you are close to retirement, as withdrawal may have huge tax implications. Seek advice from a professional investment manager about your tax implications on such investments from India and starting an Indian based retirement fund account.

If you had made mutual funds or other investments in India, you will have to inform the fund house about the change in your residential status. The same goes for any stock brokerage services/demat account services that you may have employed. It's best to seek help from a professional adviser to sort these out.

Insurance

You will have to purchase a health and life insurance plan for you and your family as your policy abroad will not provide you cover in India.