RETURNING INDIANS
Comprehensive guidance for Indians returning to India for good after living abroad as non-residents.
Learn MoreFEMA Regulations for Returning Indians
Impact on Assets Held
The assets held in India and overseas will have impact under FEMA as under:
Overseas Assets
A Returning Indian may continue to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such assets were acquired, held or owned by him/her when he/she was a non-resident or were inherited from a non-resident person.
Indian Assets
Upon return to India for good, Returning Indians must inform Authorised Dealer (AD) Bank about the change in residential status and handle bank accounts appropriately.
Non-Resident Bank Accounts
A Returning Indian, upon his/her return to India for good, have to inform Authorised Dealer (AD) Bank with whom he/she holds banking accounts, about the change in residential status and have to deal with such bank accounts in the following manner:
| Account Type | Action Required |
|---|---|
| Non-Resident Ordinary Bank Account (NRO a/c) | To be re-designated to Resident rupee account. |
| Non-Resident External Bank Account (NRE a/c) | To be re-designated to Resident rupee account or transfer the balance to Resident Foreign Currency Account (RFC a/c). |
| Foreign Currency Non-Resident Account (FCNR a/c) | Permissible to hold upto maturity and then to be converted into Resident rupee account or Resident Foreign Currency (RFC) a/c. |
Returning Indians are also required to inform all companies, funds, Depository Participant etc. as to change of residential status from non-resident to resident for shares and securities.
Impact on Liabilities
Returning Indians will continue to be liable for any liability including loan taken from overseas bank or person resident outside India. Repayment of liability and interest payable on such liabilities may be made out of funds held outside India.
Practical Experience:
From our practical experience, we are of the view that repayment of overseas liability can be made from funds held in India by obtaining Reserve Bank of India (RBI) approval.
RFC Account
- Returning Indians, on becoming residents can open RFC a/c, which is denominated in forex.
- Realisation proceeds received on sale of overseas assets can be credited to such account.
- The funds held in RFC a/c are fully repatriable and can be remitted outside India for any bonafide purpose of the account holder or his/her dependents.
- Funds in RFC A/c can be withdrawn freely for local payments in rupees.
- Interest on RFC A/c will be exempt from tax till his/her residential status under Income Tax Act, 1961 is ‘Non-Resident’ or ‘Resident but not and Ordinarily Resident’.
Reporting Requirement to RBI
- Returning Indian is not required to report about change in residential status to RBI.
- Returning Indian is neither required to take any permission from RBI for retaining his/her overseas assets after return to India nor he/she is required to report such overseas assets to RBI.
Income Tax Implications for Returning Indians
Impact on Income of Returning Indians Outside India
The scope of taxable income for a Financial Year (FY) would depend upon the Residential Status (RS) of Returning Indian under the Act. The residential status in turn depends on the physical presence of the Returning Indian in India during the FY and prior 10 FYs.
Non-Resident (NR)
If residential status is as a Non Resident in the year of return to India, then income earned outside India shall not be taxable in India in that year.
Resident but Not Ordinarily Resident (RNOR)
Income earned outside India shall not be taxable in India as long as RNOR status is achieved in the year of return and later years by restricting number of days stay in India (Generally one can achieve RNOR status for a period of two years subsequent to the year of return).
Resident and Ordinarily Resident (ROR)
If residential status is as a resident and ordinarily resident in the year of return to India then income earned in India and outside India shall be taxable in India the year of return.
Important Planning Tip:
Returning Indians should carefully plan their stay in India in the year of return and subsequent years to take the benefit of NR/RNOR status and protect the exposure to tax in India of the income outside India.
Impact on Asset and Liability of Returning Indians Outside India
Under the Indian Tax Laws, the specified overseas assets and liabilities held are required to be reported under two separate schedules:
Assets and Liability (AL) Schedule
Required to be mandatorily filled by Individuals and HUFs if their total income exceeds Rs. 50,00,000/- in a FY. The schedule requires reporting of specified Indian Assets and corresponding Liabilities at the end of the FY.
Foreign Asset (FA) Reporting Schedule
As per the FA schedule provided in the Return of Income (ROI), the Foreign Assets held as a Legal owner / Beneficial owner / Beneficiary are to be reported by all RORs.
Impact on Taxability of Certain Typical Income
Interest income on NRO A/c / term deposits in NRO A/c
There is no change in tax treatment on interest income earned in NRO A/c for a Returning Indian.
Interest income on NRE A/c/ term deposits in NRE A/c
The interest income from NRE A/c is exempt in the hands of person resident outside India as per FEMA. As the Returning Indian (person who has come to India for good) will no longer be person resident outside India as per FEMA, accordingly interest earned on NRE A/c and or deposits will be taxable from the year of return.
Interest income on RFC A/c
RFC A/c held in foreign currency can be maintained only by a person resident in India as per FEMA. Interest earned on RFC A/c deposits (approved by Reserve Bank of India) is exempt from taxes till the time the Returning Indian qualifies as RNOR as per the Act.
Strategy:
Returning Indians may convert their NRE deposit A/c to RFC deposits and extend their status of RNOR to avail the benefit of exemption on interest earned on RFC A/c.
Interest income on Foreign Currency Non-Resident Account (FCNR A/c)
Interest earned on FCNR deposit is exempt from tax in the hands of Returning Indian till the time the Returning Indian is NR or RNOR as per the Act. Upon becoming ROR, it shall be at the discretion of Returning Indians to avail the benefits of concessional rate of tax on meeting all the prescribed conditions.
Concessional rate of tax on foreign exchange assets
NRIs are taxed at concessional rate on certain specified assets subject to specified conditions. The Returning Indian may continue to get the benefit of such concessional tax rate till the transfer / conversion (otherwise than by transfer) into money of such assets i.e., on maturity or closure of the deposit by premature withdrawal.
Additional Registration
Resident Indians are mandatorily required to quote Aadhar Number/ Enrolment ID of Aadhar in Return of Income (ROI) in India and hence must obtain the same before the due date for filing the ROI.
Key Considerations for Returning Indians
Important Aspects to Keep in Mind
Overseas Assets
Returning Indians may continue to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India and also can dispose the liability out of funds outside India.
Bank Accounts
Returning Indians need to appropriately redesignate the bank accounts and deposits held and also inform the appropriate authorities for change in the residential status. Returning Indians are required to obtain Aadhar number upon becoming a Resident.
Stay Planning
Returning Indians need to appropriately plan the return to India and stay in immediately succeeding years in India to protect the taxability and reporting of overseas assets and income in India.
Compliance
Returning Indians upon becoming ROR need to ensure that the income and assets are appropriately reported to avoid any penalty and prosecution.
Tax Benefits
Returning Indians should consider certain beneficial provisions that may still be applicable along with any tax treaty benefits to avoid double taxation of income.