b. Evaluate usage of your international bank accounts
As per the Reserve Bank of India (RBI), you can continue to hold your international bank accounts, which you had opened overseas when you were an NRI. However, you may need to ascertain whether the regulations of the country, where you hold the account allows you to continue maintaining these accounts.
2. Managing your existing investments
As you transition to a new residency status in India, you should review and assess the implications of the same on your existing investments in India and overseas.
a. Investments in India
- Demat account: You should inform the bank and broker about your new residency status. You will have to open a new resident demat account and have your existing securities held in your NRI demat account transferred to this account. Subsequently, you will then also have to close your NRI demat account and the NRE Portfolio Investment Scheme (PINS) account. In addition, you will have to do a fresh Know Your Customer (KYC) and update your Foreign Account Tax Compliance Act (FATCA) declaration as applicable for the United States (US) or Common Reporting Standard (CRS) for the United Kingdom (UK), Canada or any of the 100+ countries that have adopted CRS.
- Mutual funds: You must inform your bank/broker/Asset Management Company (AMC) through whom you have invested in mutual funds about the change in your residency status, and have your linked NRI bank accounts updated to a resident savings accounts. You will also have to update your KYC and FATCA/CRS status.
- Fixed deposit (FD):If you have an FD account, such as an NRE/NRO FD, the account should be converted to a resident FD account. You will still earn interest and the same will be taxable at the applicable tax rates.
b. Investment in overseas assets
As per the prevailing Foreign Exchange Management Act (FEMA) regulations, you are permitted to continue holding your overseas assets (which you had invested in when you were an NRI) when you become a resident Indian. You must check with your current country of residence if you can hold these assets once you move to India.
3. Insurance policies
NRIs returning to India can continue with their insurance policies (e.g., health insurance, motor insurance etc.) purchased in India, as long as they continue with the said policy while they were designated as NRIs. Life insurance policies purchased from India, should be valid upon your return, provided you have paid all due premiums. You must notify the insurer of your change in residential status and update your bank account information. Submission of the request documents will also be necessary for a seamless process. The insurance policies you purchase in a foreign country may not be valid once you return India.
Once you return to India as a resident Indian, you have all investment options available including those which were previously restricted for you as an NRI. These include - opening a new Public Provident Fund (PPF) account, investing in Tier II National Pension Scheme (NPS), all types of mutual funds, intraday trading in stocks, Sovereign Gold Bonds (SGBs), agricultural land, plantation, trading in currencyderivatives and commodities, RBI floating rate savings bond etc. You should get in touch with your bank or investment advisor for more details.
Tax implications when you return to India
When you return to India, your residency status will undergo a change. You will qualify to become a ‘resident’ in any Financial Year (April - March) if you satisfy any one of the conditions outlined in the table below:
Based on the above residency conditions, once you qualify as a ‘resident’ on your return to India, you may be considered either a Resident and Ordinarily Resident (ROR or OR), or Resident but Not Ordinarily Resident (RNOR or NOR) based on the below conditions:
Generally, over a period of two to three FYs, you will transition from being an RNOR to an ROR. Sameer, an Indian citizen, left India for the first time and went to the United States (US) for employment purposes in January 2012. He returned to India permanently on August 1, 2022. Let’s understand how his residency status will change over the next few FYs.
- FY 2022-23: He will qualify as a resident because his stay in India exceeds 182 days during the FY. Further, as a resident, he will qualify as an RNOR since:
- He is not a resident for at least 9 out of 10 immediately preceding FYs; and
- His cumulative stay during the immediately preceding 7 years is less than 730 days.
- In FY 2023-24: He qualifies to be a resident. Although, he has not been a non-resident in at least 9 out of 10 immediately preceding FYs, he will still qualify as an RNOR because his cumulative stay has not yet exceeded 729 days during the preceding 7 years.
- In FY 2024-25:He will qualify as an ROR as:
- He has spent more than 182 days in India in the financial year.
- His cumulative stay in India during the immediately preceding 7 years is more than 730 days; and
- He has not been a non-resident in at least 9 out of the 10 years preceding FY 2024-25.
Your taxability depends on whether you qualify to be an RNOR or an ROR. You can determine your taxability as per the table outlined below:
Please note, tables are best viewed on desktops and in landscape mode on mobile phones.
| Particulars | Non-Resident (NR) | RNOR | ROR |
|---|---|---|---|
Income accruing or arising, or which is deemed to accrue or arisein India. | Taxable | Taxable | Taxable |
Income received or is deemed to be receivedin India. | Taxable | Taxable | Taxable |
Income accrues or arisesoutside of India. | Non taxable | Non taxable | Taxable |
The key difference between the taxability of an RNOR and a non-resident is that income earned outside India will be subject to taxation for an RNOR only when it is derived from a business or profession that is controlled from India. On the other hand, NRIs are not liable to pay tax on such income.
Sameer continues to earn foreign income from his investments abroad. In FY23 and FY24, since he qualifies to be an RNOR, he will not be liable to pay tax on his foreign income in India. Here are some examples of foreign income on which he will not be liable to pay taxes in India:
- Rental income received in a foreign bank from a property situated abroad.
- Dividend or interest received in foreign banks from foreign shares and securities.
- Withdrawals from offshore retirement accounts.
- Gains derived from capital assets situated abroad.
- Interest earned on RFC and FCNR (B) accounts.
Starting in FY25, once Sameer attains ROR status, his foreign income will become taxable in India. However, if any of his foreign income is subject to double taxation, he will be eligible to claim benefits under the Double Taxation Avoidance Agreement (DTAA) between India and the country where the income originated.
Click hereto learn more about DTAA.
Your tax rates will be as per the prevailing income tax laws in India. You should consult a tax expert to determine your tax liability and understand the income tax rules for NRIs returning to India.
