After having worked abroad Ajay(name changed) as an NRI (non-resident Indian) is, now planning to return back to his homeland. Increasing employment opportunities and improving standard of living in India, are one of the primary reasons choosing to return to India and intending continue to hold his foreign earnings overseas and gradually want to bring the money back to India as and when it is required. Ajay is well conversant with NRE and FCNR deposits in India. Likewise, he is also very much acquainted about deposits in NRO account and NRSR account. However, he is not very much known with special provisions for NRIs who are returning to live in India for an indefinite stay or permanently. While returning to India, he would have to see changes in taxation and banking systems that might not be known to him and could also be confusing for him.

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Like Ajay, being NRI one of you may also surely have some foreign investments such as your bank account balance, investments in shares, mutual funds, etc. and would like to bring back your foreign currency from your overseas bank account. This article provides you to some key pointers for returning NRIs who retain overseas income and investments.

Banking System

It is understood that NRO or NRE accounts were opened while you are in abroad and maintaining the NRI status, have to be converted into resident account as normal savings account when you are returning to India. Sometimes, you may still want to keep your earnings in the foreign currency because you have to pay some bills in abroad or to wait for the better conversion rates or maintaining any foreign currency fixed deposit account (FCNR), to be held up to maturity. In this case, The Reserve Bank of India has granted general permissions to maintain foreign currency accounts abroad only to persons who have returned to India on or after 18th April 1992 for permanent settlement (Returning Indians), after being resident outside India for a continuous period of not less than 1 year, to open foreign currency accounts with banks in India for holding funds brought by them to India. This will enable a person returning as non-resident to make payments and invest freely in foreign currency outside India. It can be possible to open either a Resident Rupee Account or Resident Foreign Currency Account (RFC) with any designated Indian bank at the option of the account holder.

On return to India, you should have designated your accounts in your bank as domestic Resident saving accounts or transfer the balance in your NRE/FCNR accounts to Resident Foreign Currency (RFC) accounts, if you so desire. FCNR accounts can be continued till the date of maturity and upon maturity, can be converted to RFC accounts. Also, if the Returning NRI had been non-resident for a continuous period of 2 years, he gets exemption from income-tax for subsequent 9 years on the interest earned in RFC account.

RFC (Resident Foreign Currency) Account

This name itself implies that this account is meant for maintaining the foreign currencies while you are resident Indian. It may be maintained in the form of current, savings without cheque facility or term deposit accounts and held singly or jointly only in the names of eligible persons. The term deposit accounts can be maintained for one to three years. Funds eligible to be held in RFC account are transferrable from NRE/FCNR accounts, proceeds of conversion of overseas assets, income, pensions or any other superannuation receivable from your employers abroad and foreign exchange brought to India at the time of return. The funds in RFC accounts are free from all restrictions regarding utilization of foreign currency balances including any restriction on investment in any form outside India. Interest is credited quarterly and is taxable. However, if you are a Resident but not Ordinary Resident, then you will be able to avail of a tax exemption on the interest on RFC accounts for the two year period when you hold this status. Currently RFC term deposit rates are in the range of 2.5-3.5% for terms over 1 year for the US dollar. Interest rates vary by term and by currency.

Tax Implications

As an NRI returning to India, firstly there is no compulsion for a returning Indian to transfer all her overseas investments to India. You can continue to hold your foreign earnings, foreign securities or any immovable property that is situated outside India if it was acquired when you were a resident outside India. The income from such investments can also be retained outside India.

As a returning NRI, you may try to sell your overseas assets such as rental income from property outside India, capital gains, bank interest, dividends, etc. arising out of your assets such as bank accounts, stock market/securities, life insurance policies, loans, company deposits, debentures, bonds, residential properties, etc. while you are still a NOR or NRI. As a NOR or NRI, if you sell any overseas assets and receive the sale proceeds outside India, you do not have to pay any taxes in India. If you need to buy a house in India out of the sale proceeds, you can first receive the sale proceeds in an overseas bank account and thereafter remit part or whole of the proceeds back to India without creating any Indian tax liability.

Tax Liability

As an NRI returning to India, you would be a resident but not ordinarily resident for two years for income tax purposes and you would be liable to tax only in respect of your Indian income. Thereafter you would become a resident and ordinarily resident in which case your worldwide income is liable to tax in India. You will, however, be entitled to the benefits, if any, under the double tax avoidance agreement (DTAA) entered into by India and the country in which your income arises, including credit for taxes paid in that country.

To summaries, an Ordinary Resident (ROR) is liable to pay tax on his global income, while a NRI is liable to tax on the income ‘earned’ in India. If you decide to go abroad again for a long term, you can either remit the RFC balance abroad or transfer funds from your RFC account into an NRE or FCNR foreign currency non-repatriable account.

You may reap the above tax benefits until you claim that you are an NRI, but once you pronounce your residential status you will avail no benefits and will be considered as a full time resident of India and will have to follow the regular tax format.

That is you will enjoy NRI income tax benefits till the time you hold the NRI status in India.

In order to invest the savings properly and become wealthier after return to India, you actually need a route map of where you are financially and where you want to go financially. You will have very clear route map only when you create a financial plan for yourself and your family.

If you want to create a workable financial plan, then I firmly vouch for you to take advantage of our financial planning services.

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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in
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