Returning NRIs have a host of SOPs awaiting them-from tax breaks to exempt foreign income.
NRIs returning to India has to know the rules and regulation of FEMA and Income Tax Act before returning to India. FEMA governs the regulatory compliances, whereas the Income Tax Act will govern the tax aspect on the income earned. Here are some of the areas which we have given as glimpse that needs to be known for any NRI who is returning back to India.
Who are Returning Indians?
- Indians who have moved outside of India, made a name for themselves abroad, and are now looking forward to permanently settle in India might be curious as to what happens to their assets and income outside of India. The resources accessible to such returning Indians to hold their assets abroad as well as some of their other transactions are highlighted in this section.
Understand your residential status
- A person is categorized as Resident if in a financial year his stay in India is
- 182 days or more or
- 60 days or more concerned financial year and 365 days or more in 4 years preceding concerned financial year.
- If above conditions are not fulfilled, then that person will be categorized as Non-Resident.
- Further, a Resident can be categorized as ROR or NOR. For ROR, two conditions cumulatively need to be fulfilled as under:
- Resident in 2 years out of continuous 10 years preceding the concerned financial year and
- Stay in India for 730 days or more in 7 years preceding concerned financial year.
- If any of above two conditions are not fulfilled, then a Resident will be categorized as NOR.
Maintenance of Foreign currency accounts in India
- Convert FCNR, NRE accounts to RFC Account.
- Resident Foreign Currency (RFC) Account Scheme: RFC is a scheme approved by Reserve Bank permitting persons of Indian nationality or origin, who have returned to India for permanent settlement (Returning Indians) to open foreign currency accounts with banks in India for holding funds brought by them to India.
- No RBI permission is required to open RFC accounts with Authorized Dealers. RFC Accounts can be maintained in any convertible currency.
Guiding steps to returning Indian
- Go through the appropriate channel in the Customs enclosure.
- Make an honest and correct declaration.
- Make a voluntary and truthful declaration immediately upon landing if he intends to transship the baggage, or a portion of it, or to keep it with Customs for transshipment or storage. He’ll take it with him when he eventually leaves the country. If any of the items are permitted for reshipment or transhipment and thus in the custody of Customs, the Customs authorities must be contacted well in advance and all dues paid for the items to be ready for handover in time for departure.
- Keep handy purchase receipts for articles, especially major items like TV,electronic items etc. brought in as baggage.
- Foreign exchange, in the form of currency notes, bank notes or traveler’s cheques, exceeding in aggregate U.S. $ 10,000 (Value of currency notes not to exceed US $ 5,000) must be declared in writing in the Currency Declaration Form which should be countersigned by the concerned Customs Officer to facilitate re-export of the unutilized amount by the tourist.
Business outside India
- Although there is no clear wording in the law, if a person runs a proprietary business or is a partner in a firm outside India, the intention is to allow the business interests to continue. However, on returning to India, one must take care to route any income that arises abroad back to India just as soon as it is earned abroad. The general practice here is for a person to hold shares in a company through which business is conducted. Returning NRIs can continue to hold these shares without any RBI approval.
Import of Foreign Currency and INR
- As per FEMA, a person residing outside India who is not a citizen of Pakistan or Bangladesh, as well as a traveler coming from and going to Pakistan or Bangladesh and visiting India, may bring into the country currency notes issued by the Government of India and the Reserve Bank of India in an amount not exceeding Rs.25000/- per person
- Regulation 6 of FEMA allows a person entering India from abroad to bring unlimited amounts of foreign currency with him. However, if the total value of the foreign exchange brought into India in the form of currency notes, bank notes, or travelers cheques exceeds USD 10,000 or its equivalent, and/or the value of foreign currency alone exceeds USD 5,000 or its equivalent, it must be declared to Customs Authorities at the airport in the Currency Declaration Form (CDF) upon arrival in India.
Retention foreign assets
- Persons returning to India can repatriate the following assets to India and hold them separately in India if they so desire with authorized dealers under the Resident Foreign Currency Accounts Scheme.
- Foreign currency accounts opened and maintained by such a person when he was resident outside India
- Income from jobs, businesses, or vocations outside of India that were started or continued while the person was a resident outside of India, as well as income from investments made and gifts or inheritance received while the person was a resident outside of India.
- An Indian resident who inherited foreign currency from a foreign resident may hold it outside of India, including with any income derived from it and any conversion, replacement, or accretion to it.
- A person resident in India may freely utilize all their eligible assets abroad as well as income on such assets or sale proceeds thereof received after their return to India for making any payments or to make any fresh investments abroad without approval of Reserve Bank, provided the cost of such investments and/ or any subsequent payments received thereof are met exclusively out of funds forming part of eligible assets held by them and the transaction is not in contravention to extent FEMA provisions.
Liabilities incurred abroad
- These become a borrowing for the country, and so if the NRI has taken any loans abroad, he will need RBI approval to continue with it. For example, if the NRI has house property abroad that is on mortgage, the loan cannot be continued without RBI approval.
- Typically, if a resident earns income outside India, he is supposed to bring it back within a specified period. In the case of returning NRIs, however, the RBI has laid down that any income earned on assets held abroad can be retained outside India. The returning NRI can also sell any foreign assets held abroad and reinvest the proceeds overseas.
- There are two specific benefits that a returning NRI gets. One is a tax exemption on the interest earned in an RFC account. As long as a person is Not Ordinarily Resident (NOR), the interest on RFC deposits is tax-exempt.
- Once a person becomes Ordinary Resident, the interest, however, becomes taxable. This exemption is available for FCNR deposit interest as well, but not for interest earned on NRE accounts.
** This is not the comprehensive list of tasks on Emigrating Indians checklist. There could be many things that need to be taken care of in before and after returning to India. If you find things overwhelming, do not hesitate to take professional help from us