Planning to Move Back to India? Understand the Tax Implications for NRIs

Are you an NRI planning to return to India? Then you need a proper plan to come back home so that there are no emergencies or barriers related to your finances.

Although tax implications for NRIs are fairly generous, there are still many things to consider while you plan your relocation to India.

Taxation Bodies for NRIs

The first thing you need to do is to know about the two main taxation bodies that govern NRI taxation in India. Foreign Exchange Management Act (FEMA) overseas where you can invest, while the Income Tax Act (ITA) regulates taxation of those investments. 

Residential Status and Tax Liabilities 

You would also need to determine your residential status for the financial year. FEMA classifies residency based on intent, whereas ITA defines it based on the “days present” residing in India if it is more than 182 days for tax purposes.

You can take the help of online tools to determine your residency.

If you qualify as a resident ®, your income becomes taxable, earned in or outside India. However, if you are qualified as Resident but Not-ordinarily Resident (RNOR), your income earned in India only would be taxed. 

One thing to remember here is that if your income overseas has already been taxed there, you are eligible to claim tax benefits as per the Double Taxation Avoidance Agreement and prevent yourself from being taxed twice. 

Tax Benefits for NRIs 

As you are classified an RNOR, your overseas income is excused from being taxed in India. It can include interests or dividends earned on assets held overseas, or other rents or securities, among others.

However, it is advised that you consult with a tax consultant for more details. 

Update your bank accounts 

As an NRI, you are allowed to have only certain types of accounts like FCNR account, NRE Savings account or NRO Savings account.

If you are certain that you want to relocate to India, a Non-Resident Ordinary (NRO) account can be re-designated as your resident account. However, you can also open a Resident Foreign Currency (RFC) account in case you want to park your income earned overseas without converting them to INR. That way you can save your Money and Reduce Taxes too and Transfer it to your savings account whenever you want.

Next, you need to update your bank account details, and records of mutual funds along with other investments done in India. Likewise, you’ll need to transfer your NRI Demat account to the Resident Demat account with updated details. Plus, you can keep your FCNR account and later move them to an RFC account after maturity. 

You are also allowed to hold your assets acquired overseas when you are an NRI. Or, you can also terminate them and transfer to India. However, it is suggested you liquidate your foreign investments before relocating to India. 

Relocating to India is a personal decision, but we recommend you plan it carefully and seek assistance from a tax consultant. With SBM Bank, all your banking worries will be resolved as it offers hassle-free bank services for NRIs and returning NRIs.