NRI returning to India must take immediate financial steps.
Many Indians and NRIs (Non-Resident Indians) who had settled abroad have been urged to return and start a new life as a result of the current pandemic. There's no better place to feel safe and welcomed than your own country during times like these. Managing your finances is an important task to cross off your homecoming checklist, especially in light of the changing environment. It is critical that you become familiar with Indian banking, insurance, taxation, and investment laws. So, to assist you, here's a quick crash course.
1. Transferring funds between bank accounts
You may have any of the following accounts with an Indian bank as an NRI:
FCNR [B] (Foreign Currency Non-Resident (Banks)) account
Non-Resident Ordinary (NRO) or Non-Resident External (NRE) account
FCNR(B) accounts are designed for term deposits in specific currencies, such as US, Australian, and Canadian dollars, Sterling pounds, Yen, and the Euro, for periods ranging from one to five years. As long as your resident status is that of a 'NRI,' it is a repatriable account with tax-free interest income. You can keep an FCNR deposit until it matures if you have one. If you want to keep the foreign currency after that, you'll need to convert it into a resident rupee deposit account or a resident foreign currency (RFC) account.
NRE & NRO accounts are rupee-denominated savings, current, and fixed deposit accounts. NRIs can use NRO accounts to manage income earned in India, such as rent, dividends, pensions, and interest. NRE accounts are ideal for inbound remittances (foreign earnings) because they are freely repatriable.
You will, however, need to convert your existing NRO / NRE savings account and deposits into resident savings account and deposits once you return to India permanently. You can also convert funds in NRE accounts/deposits into RFC accounts/deposits.
2. Financial commitments
It's a good idea to liquidate your foreign assets, especially physical ones, if you're moving to India permanently. Also keep in mind that once you become a resident Indian, any income you earn from a foreign property or investments will be taxed in India.
Depending on your financial goals, you may want to consider diversifying your portfolio when you return. Mutual funds, gold ETFs, and gold bonds are currently some of the more profitable investment options. (subject to alteration)
If you have already invested in mutual funds in India, you must notify your bank of the change in your residency status once you become a resident Indian. You must also close your portfolio investment services (PIS) account and open a regular brokerage or Demat account if you have invested in stocks while on NRI status.
3. Imposition of taxes
You won't get the same tax breaks as an NRI once you become a resident Indian. Instead, you'll be taxed according to your residency status: ROR (resident and ordinarily resident) or RNOR (resident and not ordinarily resident) (resident but not ordinarily resident). For example, any income from a foreign property or a pension from investments such as a 401K (in the United States) is taxable in India once you become a resident Indian.
ROR: If you spend 182 days or more in India in one financial year (FY), or if you stay for 60 days or more in one FY and 365 days or more in the preceding four FYs, you will be considered ROR. Because your worldwide income as a ROR is taxable in India according to tax slabs, you must report all foreign assets in your income tax returns (ITR). Legal action may be taken against you if you fail to report any income under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
RNOR: If you were an NRI in nine of the previous ten fiscal years or stayed in India for less than 729 days in the previous seven fiscal years, you will fall into this category. Your foreign income, on the other hand, will not be taxed unless you received it in India. Furthermore, as an RNOR, any FCNR deposit will remain tax-free.
4. Coverage
Keep in mind that any previous insurance policy you purchased in another country will not cover you in India. So, when you get back, get yourself and your family a good health and life insurance policy. Following the COVID-19 pandemic, it has become critical to have comprehensive health insurance coverage. When it comes to life insurance, choose a term plan with the most coverage.
Your homecoming journey will be smooth if you plan ahead of time and do enough research on the best steps to take and products to buy.
1. Transferring funds between bank accounts
You may have any of the following accounts with an Indian bank as an NRI:
FCNR [B] (Foreign Currency Non-Resident (Banks)) account
Non-Resident Ordinary (NRO) or Non-Resident External (NRE) account
FCNR(B) accounts are designed for term deposits in specific currencies, such as US, Australian, and Canadian dollars, Sterling pounds, Yen, and the Euro, for periods ranging from one to five years. As long as your resident status is that of a 'NRI,' it is a repatriable account with tax-free interest income. You can keep an FCNR deposit until it matures if you have one. If you want to keep the foreign currency after that, you'll need to convert it into a resident rupee deposit account or a resident foreign currency (RFC) account.
NRE & NRO accounts are rupee-denominated savings, current, and fixed deposit accounts. NRIs can use NRO accounts to manage income earned in India, such as rent, dividends, pensions, and interest. NRE accounts are ideal for inbound remittances (foreign earnings) because they are freely repatriable.
You will, however, need to convert your existing NRO / NRE savings account and deposits into resident savings account and deposits once you return to India permanently. You can also convert funds in NRE accounts/deposits into RFC accounts/deposits.
2. Financial commitments
It's a good idea to liquidate your foreign assets, especially physical ones, if you're moving to India permanently. Also keep in mind that once you become a resident Indian, any income you earn from a foreign property or investments will be taxed in India.
Depending on your financial goals, you may want to consider diversifying your portfolio when you return. Mutual funds, gold ETFs, and gold bonds are currently some of the more profitable investment options. (subject to alteration)
If you have already invested in mutual funds in India, you must notify your bank of the change in your residency status once you become a resident Indian. You must also close your portfolio investment services (PIS) account and open a regular brokerage or Demat account if you have invested in stocks while on NRI status.
3. Imposition of taxes
You won't get the same tax breaks as an NRI once you become a resident Indian. Instead, you'll be taxed according to your residency status: ROR (resident and ordinarily resident) or RNOR (resident and not ordinarily resident) (resident but not ordinarily resident). For example, any income from a foreign property or a pension from investments such as a 401K (in the United States) is taxable in India once you become a resident Indian.
ROR: If you spend 182 days or more in India in one financial year (FY), or if you stay for 60 days or more in one FY and 365 days or more in the preceding four FYs, you will be considered ROR. Because your worldwide income as a ROR is taxable in India according to tax slabs, you must report all foreign assets in your income tax returns (ITR). Legal action may be taken against you if you fail to report any income under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
RNOR: If you were an NRI in nine of the previous ten fiscal years or stayed in India for less than 729 days in the previous seven fiscal years, you will fall into this category. Your foreign income, on the other hand, will not be taxed unless you received it in India. Furthermore, as an RNOR, any FCNR deposit will remain tax-free.
4. Coverage
Keep in mind that any previous insurance policy you purchased in another country will not cover you in India. So, when you get back, get yourself and your family a good health and life insurance policy. Following the COVID-19 pandemic, it has become critical to have comprehensive health insurance coverage. When it comes to life insurance, choose a term plan with the most coverage.
Your homecoming journey will be smooth if you plan ahead of time and do enough research on the best steps to take and products to buy.
