Four money changes NRIs need to make after returning to India

• They should assess their residential status for taxation purposes, besides looking at their investments
• As an NRI, you would have NRO, NRE or FCNR accounts. You will have to convert them after you cease to be one

The covid-19 crisis has pushed up unemployment rates across countries, hitting not only their own citizens but also the migrant population, including non-resident Indians (NRIs). According to news reports, several NRIs are now planning to return to India either because they are facing job losses or because they want to be with their families in these uncertain times.

If you are an NRI and are considering returning to India, remember that it may not be that simple. Apart from lifestyle changes, you will also have to deal with changes in your financial life. Here are four changes that you will need to make.

Change in taxation

There are certain tax breaks that you may enjoy as an NRI, but not as a resident Indian.

For instance, the global income of NRIs is not taxed in India. But after you come back to India and you lose the NRI status, the taxation of your income will depend on your residential status.

NRIs returning to India can be classified into two categories—resident and ordinarily resident (ROR) and resident but not ordinarily resident (RNOR). You will be an ROR if you stay in India for 182 days or more in that financial year (FY) or if you have stayed for 60 days or more in the FY and 365 days or more in the preceding four FYs. To qualify as an RNOR, you have to either retain the NRI status in nine out of 10 FYs preceding the relevant FY or stay in India for 729 days or less in the seven FYs preceding the relevant FY.

“An individual qualifying as ROR is taxable on his worldwide income in India and is required to report all foreign assets in the India income-tax return (ITR). After a person becomes resident Indian, any income earned from foreign assets in the relevant FY needs to be reported in the ITR under the relevant head of income," said Sonu Iyer, tax partner and people advisory services leader, EY India. “One has to be very careful in reporting foreign assets or income in the income-tax return. Any omission or inaccurate particulars may invite penal consequences under Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015," added Iyer.

An RNOR is not liable to tax in India on his foreign income unless received in India. “If the individual had limited past presence in India in the past 10 FYs, then he may qualify as an RNOR in India for the initial two-three years of returning to India depending on the number of days of past physical presence in India," said Iyer.

“Whenever an NRI returns to India for good, we check if he or she can qualify as an RNOR. This saves them from paying taxes on their foreign income. Also, if they have Foreign Currency Non-Resident (FCNR) deposits (fixed deposit in foreign currency), it continues to remain tax-exempt in India as long as they enjoy the RNOR status," said Naveen Julian Rego, a Mangaluru-based Sebi-registered investment adviser.

If possible, plan your return in a way that you can enjoy the NRI status for the maximum period. “If NRI clients, who have been staying abroad for a long time tell us that they are planning to come to India permanently, then we advise them to come post October, as that way they will be staying for less than 182 days in India in that FY and will qualify as NRIs for that year," said Rego.

If you qualify as a resident Indian, your worldwide income will be taxable in India.

change in banking

NRIs can’t hold regular bank accounts in India and have to open either a non-resident ordinary (NRO), non-resident external (NRE) or an FCNR. NRO account is used to manage income earned in India and the deposit is taxable and non-repatriable, while in case of NRE and FCNR accounts, the money is repatriable and tax-free. The accounts are used to transfer foreign income in India.

“Once you move back, you will have to convert your existing NRE and NRO accounts into resident savings account,typically, within a couple of months, else it would be considered a violation under the Foreign Exchange Management Act (Fema)," said Adhil Shetty, chief executive officer, Bankbazaar.com.

“If you have any FCNR deposits, you can continue with the same until maturity at the contracted rate of interest. However, post that, you need to convert them to resident rupee deposit accounts or a resident foreign currency (RFC) account if you wish to continue to hold foreign currency," he added. The interest rate earned on deposits in RFC accounts is not taxable until you enjoy the RNOR status, but becomes taxable, thereafter.

Change in investments

If you are coming back to India permanently, it is advisable to liquidate your foreign assets, especially physical ones. “They should liquidate the foreign property if they know that they are not going to go back again," said Arnav Pandya, founder, Moneyeduschool, a financial literacy initiative.

If you have property, you may decide to give it on rent, but managing it remotely can be an issue. “The manner in which the property can be managed is crucial to see whether this can be given on rent. If this is a problem and would cause tension and worry, then this is best avoided," said Pandya.

However, it might be difficult to liquidate assets such as 401K (retirement savings product offered by employers) of the US, as it might have cost implications and a lock-in period. “The management of 401k is a complex process because traditional 401k plans cannot be accessed until you are nearly 60 years old. If you leave early, there will be a tax hit plus a huge penalty on the amount withdrawn. This means that continuation of the investment is usually better," said Pandya.

Do keep in mind any income that you earn from a property abroad or through pension from investments like 401K will be taxable in India after you become a resident Indian.

Also, if you are an existing investor in a mutual fund in India, you will have to inform the fund house about the change in the residential status. “NRI investors need to change their residential status in mutual funds from NRI to resident Indian. This is a simple process and they must ensure that the linked bank account is not that of an NRI. For stocks, NRIs need to close their portfolio investment services (PIS) account and then open a normal brokerage and demat account with one of the brokerages in the country," said Pandya. NRIs are allowed to invest in Indian stocks through PIS accounts.

Change in insurance

The insurance policy that you may have bought in a foreign country will not cover you in India. So assess you life and health insurance needs on your return. Buy a health family floater as soon as you come to India. For life insurance, take a term plan, which provides maximum cover at a lower cost.

It is best to plan in advance. Take the help of experts to avoid any last-minute complication.

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