Proper financial planning is important for NRIs who return to India. From restructuring investments to repatriating foreign assets and understanding the taxation rules of India, everything is important for a smooth transition. 

Start your planning early to optimise your wealth and avoid unnecessary tax implications. Read this financial guide for NRIs returning to India to get a clear roadmap to manage your NRE/NRO accounts effectively. 

Residential Status for NRI Returning to India Financial Planning

Residential status under income tax in India plays a vital role in determining the amount of tax applicable to an NRI. The Income Tax Act defines three different residential statuses:

Resident and Ordinarily Resident (ROR)

You become ROR if you are eligible as a resident and fulfil both additional conditions for ordinary residence. You are considered a resident if 

• You stay in India for 182 days or more in a financial year, or 

• You stay 60 days in a year + 365 days in the past 4 years.

Resident but Not Ordinarily Resident (RNOR)

You become RNOR if you become a resident, but 

• You were a non-resident in 9 out of 10 past years or

• You stayed in India for less than 730 days in the past 7 years. 

Managing Bank accounts: NRE, NRO, FCNR, RFC 

An NRI can convert the NRE, FCNR, and NRO accounts to resident status after returning to India. 

• FCNR(B) Accounts: FCNR deposits remain tax-free when you are an NRI. And on maturity, they should be moved to an RFC or a resident account. 

• NRE Accounts: NRE accounts are used for foreign remittances. You must convert this account to an RFC or a resident account after returning to India. 

• NRO Accounts: NRO accounts must be converted to a resident savings account to be used for Indian income. 

• RFC account: If an NRI wants to manage the foreign currency earnings in India, then they should opt for an RFC account. An RFC account allows returning NRIs to hold foreign currency in India and avoid immediate conversion, but exchange-rate risk still exists when funds are converted or repatriated later.

The documents NRI must have to use for these accounts in India are:

• Passport/OCI

• Visa entry stamp

• Travel ticket as proof of arrival

• PAN

• Address proofs

• Updated KYC forms.

Tax Rules for Foreign Income: How to Report and Claim Reliefs 

Tax compliance is important for NRIs, but smart NRI returning to India financial planning helps them to reduce tax burden. RNOR status allows exemption from Indian tax on foreign income depending on on prior residential history and day-count tests, but Indian-sourced income (includes NRO account interest) is fully taxable; interest earned on NRE/FCNR account is tax-free only if NRI status is maintained.

NRI Returning to India Permanently: Financial Planning for Investments

While NRI returns to India, they should review their investments and assets in India. The implications of the financial guide for NRI returning are given below:

• Demat/PIS: Inform your broker/bank of return, open a resident demat account, transfer securities, close PIS/NRI accounts, update the CRS/FATCA details, and complete the KYC for compliance. 

• Mutual funds: For mutual fund investment, you should inform the entity about your residency status through which you make the investment. 

• Overseas equities: For overseas equities, you should consider capital gains tax implications after returning to India. NRIs should also plan the sale timings according to the Indian tax year.

Overseas retirement & pensions: 401(k), UK pensions, social security 

These are the overseas retirement and pension options NRI should look at before large withdrawals or transfers to avoid high tax leakage:

401(k)/IRA: NRI withdrawals are taxable in the USA and India if you become a ROR. DTAA terms evaluate how FTC applies. 

UK pensions: Check the provider rules on drawdown restrictions, overseas residency, withholding, and remittance processes.

Social Security: Meet eligibility, claim windows, and country-specific totalisation agreements

Property Investments:

NRIs are subjected to the following capital gains tax rules in India: 

• For immovable property like real estate, LTCG for NRIs is taxed at 12.5% without indexation. 

• For properties acquired before July 23, 2024, the NRI can choose between the old LTCG rate of 20% with indexation or the new LTCG rate of 12.5% without indexation. 

• TDS of 12.5% is deducted on the entire sale value and not just on capital gains for LTCG. For STCG, TDS is 30%. 

• STCG (Short-Term Capital Gains) are taxed based on the income tax slab rate. 

Mutual Funds

• For equity funds, the new STCG of 20% applies (compared to the old 15%), and LTCG is 12.5% (plus surcharge and cess). 

• For debt mutual funds, the preferential LTCG regime is removed, both LTCG and STCG, and taxed at the investor’s applicable income-tax slab rate.

TDS is deducted at sale time, but if your actual tax is less, then you can apply for a lower TDS certificate under Section 197 and reduce upfront tax deduction.

FEMA, FATCA, CRS, Bank KYC: Compliance Checklist 

NRIs returning to India should update their compliance details. Here is the complete checklist 

• FEMA: NRI must re-designate their NRE/FCNR to resident accounts.

• FATCA & CRS: Update the foreign tax identifiers (TIN/SSN/NINO) with banks and avoid reporting mismatches

• KYC: Update Aadhaar, PAN, and address proofs with banks, demat brokers, and mutual fund houses as per SBI/ICICI guidelines

Timeline For Financial Guide For NRI Returning

NRIs can follow the checklist below and start planning before 6 to 12 months of returning to India:

Conclusion

NNRIs returning to India to start their new financial chapter should understand the financial guide for NRIs returning. Converting accounts, understanding taxes, and updating investments are important. Early planning and organising the documents ensures a smooth transition, and grows wealth in India. 

Want efficient tax planning when you return to India? Check out NRI banking and financial services offered by Rupeeflo.

FAQs

1. Can an NRI return to India?

Yes, an NRI can return to India at any time. For this, they can update the residential status for investments, banking, and taxation. 

2. Can I use NRE/NRO accounts after returns to India?

No, you cannot continue to use NRE/NRO accounts after returning to India, once you lose the NRI status. You should re-designate these accounts to a resident account or an RFC account if you want to hold foreign currency.

3. Is NRI income taxable after return to India?

Yes, the NRI income is taxable after becoming a resident in India. RNOR status allows tax exemption on foreign income for up to 3 assessment years, but all Indian income is fully taxable

4. Are insurance policies from abroad valid for NRIs in India?

No, the insurance policy from abroad is not valid in India. Your Indian insurance remains valid if premiums are paid and you inform the insurer about your residency change.