An individual chooses to stay outside India and work day and night away from family and social circle for years and decades. The intentions are to have better living standards by earning more, looking at opportunities available vis-a-vis in his own home country. The apparent intentions of a person looking to become Non-Resident Indian (NRI) is to have a better capability to deliver for family needs, education of children and have a good and comfortable post-retirement life.
After having lived for years outside India being NRI, the moment of thought is sure to pop up, thinking let us go back to India. It is the call of the motherland, to take a break from work and now to enjoy post retirement life.
The second thought triggers, is that there is a lot to be done before going back to India. The planning and preparations take a lot of energy and time, especially when they are planning for going back for good.
One of the points of consideration or botheration is taxation. It is essential to know and to be aware of the implications that would arise post moving back to India. The laws of the land, the compliances and concerns that are required to be addressed and all. That too, it is important when someone is planning to move back to India has had not complied to filing tax returns for years for reasons like no tax liability,
awareness, the requirement of the case, or having been used to living in countries having no direct tax liability as such on income earned like in UAE or other gulf countries. People out there are habitual because of the prevailing tax systems and being in their comfort zone.
The points that need to be assessed have been discussed in brief point by point:
1. Residential Status:
Taxation of an Individual in India is based on an assessment method followed looking upon the number of days stayed in India and outside India. There are two acts, which govern the taxation and investment provisions for NRIs, i.e. Income Tax Act, 1961 and Foreign Exchange Management Act, 1999.
As per the Income Tax Act, in all, there are three major classifications of the status of an individual, which define him are Resident, Non-Resident and Resident But Not Ordinary Resident (RNOR). Based on the status, taxation of various source of income is defined. The definition has been discussed in another article in-depth, available on the website for reference.
The taxability and levy of Income Tax in India, based on the residential status as discussed above, is further based on two concepts, i.e. Accrual of Income and Receipt of Income along with deemed concept.
The following table defines the status and taxation system:
| Sr No. | Particulars | Residential Status and Taxability of Income in India | ||
| ROR | RNOR | NR | ||
| 1. | Income received or deemed to be received in India | Yes | Yes | Yes |
| 2. | Income which accrues or arises or is deemed to accrue or arise in India | Yes | Yes | Yes |
| 3. | Income which accrues or arises outside India from | |||
| – Business controlled in India or Profession set up in India | Yes | Yes | No | |
| – Other Income | Yes | No | No | |
| 4. | Foreign Assets Disclosure Requirement | Yes | No | No |
So, looking at the mechanism a system prevailing, it is advisable to have a planned and calculated strategy in place with regards to the number of days to be stayed outside India before coming back to India. A day here and there can change the tax liability on the assessee having a direct monetary impact.
- Taxation of Foreign Income / Foreign Assets:
As referred in above mentioned table, the taxation of foreign income depends upon the residential status continued to be maintained. For NRI and RNOR, purely foreign income continue to be exempt. Once an individual becomes an Ordinary Resident of India, His or Her Global Income is Taxable. FCNR or NRE accounts are tax-free for RNOR. End of Service benefit would also be treated to be tax-free in similar lines.
Under FEMA, Non-Resident Indians who return to India can own, hold, invest, or transfer their assets not located in India. However, this is only applicable if the assets were acquired when the NRI was outside India. FEMA also allows NRIs to make transactions and even earn foreign income through EEFCA (Exchange Earners Foreign Currency Account) and RFC (Resident Foreign Currency) accounts.
- Bank Accounts:
Another set of big questions list comes upon what happens to the bank accounts opened like NRO, NRE, FCNR or Foreign Currency Bank Accounts, including salary account. Upon expiry of VISA and change in residency status, bank accounts have to be updated accordingly. Summing up in easy words:
NRO: Is converted back into regular resident saving account. Application needs to be done either online or offline to the concerned bank along with the submission of necessary documents.
NRE and FCNR: Can be converted into RFC, i.e. Resident Foreign Currency Account, where two categories of accounts can be maintained like saving account and fixed deposit account where an individual can continue holding foreign currency. It can be maintained in acceptable currencies like USD or GBP. However, observation has been few nationalised bank offer only in the form of FD account. Again subject to the documents and condition is individual should have been NRI in the past.
Foreign Bank Accounts: Can be continued, subject to holding VISA and complying with other country bank norms.
Crux: Be Tax-Planned Before Moving to India
Having a proper tax-planning is one of the most critical considerations for NRIs willing to come back to India for good and have a peaceful retirement life.
DISCLAIMER
The information contained herein is generic and is meant for educational purposes only. Nothing here is to be construed as an advice. Readers are advised to exercise discretion and should seek independent professional advice before making any decision.
The Author is available for further queries,
Email: ca.ajayvaswani@gmail.com or
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