NRI Returning to India: Essential

Financial and Tax Guide India, with its rapidly growing economy and deep cultural roots, often attracts Non-Resident Indians (NRIs) back to their homeland. While the decision to move back is a personal one, it brings several financial, tax, and investment considerations that require careful planning. This guide offers NRIs returning to India a comprehensive understanding of the steps to take for a smooth financial transition.

Why NRIs Move Back to India: Key Reasons

NRIs moving back to India often cite the following reasons:

1. Family and Lifestyle Preferences: They can be close to family and the cultural comfort of living in India.

2. Retirement: India offers a lower cost of living. Hence, it is an attractive retirement option.

3. Career Opportunities: With India’s economic growth, many NRIs return to explore lucrative career prospects.

4. Health and Social Security: Familiar healthcare systems and a robust social network also play a significant role.

5. Geopolitical Factors: Changes in immigration policies or global economic uncertainties may encourage NRIs to move back.

5 Financial Moves Every NRI should Make Before Returning to India

The transition back to India can be seamless with a well-structured financial plan. Here are five crucial steps every NRI moving back to India should consider:

1. Review Investment Portfolio

• Convert NRI Accounts: NRE and NRO accounts must be converted into resident savings accounts. Fixed deposits in NRE/NRO accounts also need to transition to resident FDs.
• Reassess Mutual Funds: You should update your residency status with Asset Management Companies (AMCs). Consider revalidating investments linked to NRI accounts.
• Realign Stock Investments: Close NRI demat accounts and open new resident demat accounts for seamless trading.

2. Tax Planning

• Understand Tax Residency Rules: Upon returning, your tax residency status will transition from Non-Resident to Resident but Not Ordinarily Resident (RNOR) and then to Resident and Ordinarily Resident (ROR).
• Double Taxation Avoidance Agreement (DTAA): Utilise DTAA benefits to avoid paying taxes on foreign income in both India and the country of origin while you are an RNOR.
• Update KYC and FATCA Details: Ensure compliance with FATCA/CRS regulations by updating your KYC details with financial institutions.

3. Foreign Account and Asset Management

• Retain Overseas Assets: Holding properties is permitted as long as FEMA regulations are followed. It is also recommended to verify with local laws in the foreign country to ensure compliance.
• RFC Accounts: Convert foreign earnings into Resident Foreign Currency (RFC) accounts for easier management in India.

4. Repatriation of Funds

• Plan Fund Transfers: Transfer funds systematically to minimise transaction costs and currency conversion losses.
• Compliance Check: Ensure fund repatriation aligns with Indian and foreign regulations.

5. Global/Dollar-Based Investments

• Retain or invest in global assets for diversification. This strategy helps hedge against currency risks and benefits from international market growth.

Why NRIs should Invest in Global Funds from GIFT City?

GIFT City (Gujarat International Finance Tec-City) has emerged as a financial hub. It offers several advantages for NRIs:

1. Ease of Compliance: Investments made through GIFT City fall under Indian laws, which simplifies regulatory requirements.
2. Global Investment Opportunities: NRIs can invest in global funds through platforms at GIFT City without relying on foreign intermediaries.
3. Cost-Effectiveness: Lower operational costs and tax benefits make GIFT City a preferred investment hub.
4. Access to International Markets: You can diversify portfolios while retaining the benefits of operating within Indian jurisdiction.

By investing in global funds through GIFT City, NRIs can gain international exposure without the need to manage complex foreign legalities. Why look outside when global opportunities are available in India under familiar laws?

NRI Going Back to India: Key Considerations for Taxation

It is important to understand income tax rules for NRI returning to India:

1. Residency Status:

   • RNOR status applies for the first 2 - 3 financial years post return.
   • During RNOR status, global income remains non-taxable unless derived from an Indian-controlled business or profession.
   • Transition to ROR status makes global income taxable in India.

2. Income Tax Implications:

   • Income from Indian sources such as rent, fixed deposits, and mutual funds is taxable.
   • Foreign income during RNOR status is non-taxable except under certain conditions.

3. Tax Benefits:

   • Utilise DTAA to avoid double taxation.
   • Tax exemptions or relief on RFC accounts and FCNR deposits continue during RNOR status.

What to Do with Foreign Assets?

NRIs returning to India permanently should carefully manage their foreign assets:

1. Property: Retain ownership while adhering to FEMA regulations, but make sure local rules in the foreign country are followed. Additionally, ROR taxpayers must disclose foreign assets in their Income Tax Returns (ITR).
2. Bank Accounts: Continue holding international accounts, provided local regulations permit.
3. Retirement Funds: Withdraw or manage these funds before transitioning to ROR status to avoid additional taxes in India.

Tips for NRI Returning to India: What You Need to Know Before Moving Back?

Some suggestions can help NRIs when returning to India. They include:

1. Plan Financial Transitions Early: Notify banks, brokers, and insurers about your change in residency status well in advance.
2. Update Financial Documentation: Ensure all KYC and FATCA/CRS declarations are updated to reflect your residency change.
3. Consider Currency Conversion: Monitor forex rates for favorable fund repatriation.
4. Seek Professional Advice: Engage financial advisors to ensure compliance with Indian and international laws.
5. Leverage Investment Opportunities: Utilise avenues like GIFT City for cost-effective global investments.

Summing It Up

Returning to India as an NRI is an opportunity to reconnect with your roots while leveraging the country’s economic growth. However, it requires meticulous financial and tax planning to ensure a smooth transition. By understanding NRI returning to India tax implications, foreign assets, and investment opportunities like GIFT City, it becomes possible to secure a financial future while aligning with Indian regulations.