Financial Steps For a NRI Returning to India
Financial steps NRIs returning to India must take right away
The current pandemic has urged many Indians and NRIs (Non-Resident Indians) who had settled abroad to return and begin a new future. During unpredictable times like these, there's no better place than your home country to feel safe and welcomed. Considering the changing environment, while you are settling in, managing your finances is an integral task to tick off on your homecoming checklist. It is important to familiarise yourself with the Indian laws relating to banking, insurance, taxation and investment. So, here's a quick crash course to help you out.
1. Changing bank accounts
As an NRI, you may be maintaining any of the following accounts with an Indian bank:
Foreign Currency Non-Resident (Banks) (FCNR [B]) account
Non-Resident External (NRE) account or Non-Resident Ordinary (NRO) account
FCNR(B) accounts are meant for term deposits over periods ranging from one year up to five years for specific currencies i.e. US, Australian and Canadian dollars, Sterling pounds, Yen and the Euro. It is a repatriable account, and the interest income is tax-free, as long as your resident status is that of an 'NRI'. If you have an FCNR deposit, you can maintain it until maturity. Post that, you will have to convert it into a resident rupee deposit account or a resident foreign currency (RFC) account if you wish to continue holding the foreign currency.
NRE & NRO accounts are rupee-denominated accounts that can be opened as a savings, current or Fixed Deposits. NRO accounts allow NRIs to manage income earned in India, in the form of rent, dividend, pension, interest etc. NRE accounts are ideal for inward remittances (foreign earnings) and freely repatriable.
However, upon your return to India permanently, you will have to convert your existing NRO / NRE savings account and deposits into resident savings account and deposits. You may also convert your funds in NRE account /deposits into resident foreign currency (RFC) account /deposits.
Opening a Savings Account in India easily and quickly
A quick and convenient way to open a savings bank account in India is via HDFC Bank's InstaAccount website or app. This provision allows you to digitally open a savings account from the comfort of your home within a few minutes. You will get your account number and customer ID immediately so that you can transfer money instantly. Besides, InstaAccount is enabled with NetBanking and MobileBanking to help you go about your banking transactions without going to a bank branch.
If you are moving to India permanently, liquidating your foreign assets, especially physical ones, is advisable. Also, note that any income that you earn from a property abroad or through investments will be taxed in India once you become a resident Indian.
Upon your return, based on your financial plans, you can consider building a diverse portfolio. Some of the more profitable investment options currently are mutual funds, gold ETFs and gold bonds. (subject to change)
If you have already invested in mutual funds in India, once you turn into a resident Indian, you must inform your bank about the change in your residential status. And if you have invested stocks under NRI status, you need to close your portfolio investment services (PIS) account and open a normal brokerage or Demat account.
Once you become a resident Indian, you will not get the same tax breaks an NRI enjoys. Instead, you will be taxed as per your residential status: ROR (resident and ordinarily resident), or RNOR (resident but not ordinarily resident). For instance, any income earned from a property abroad or through pension from investments like 401K (in the US), is taxable in India after you become a resident Indian.
ROR: You will be deemed as ROR if you have spent 182 days or more in India in one financial year (FY), or stayed for 60 days or more in one FY and 365 days or more in the preceding four FYs. As a ROR, your worldwide income is taxable as per tax slabs in India, so you are required to report all foreign assets in your income-tax returns (ITR). If you omit any income, legal action can be taken against you under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
RNOR: You will fall in this group if you have been an NRI in nine out of the preceding 10 FYs or stayed in India for 729 days or less in the seven FYs. However, your foreign income will not be taxed unless you received it in India. Also, as an RNOR, any FCNR deposit will continue to remain tax-exempt.
Remember, that your previous insurance policy, bought in a foreign country, will not cover you in India. So, once you return, sign up for a good health and life insurance policy for yourself and your family. In the wake of the COVID-19 pandemic, having a comprehensive health insurance cover has become vital. And when it comes to life insurance, opt for a term plan that provides maximum coverage.
By planning in advance and doing enough research on the right steps to take and products to choose, your homecoming journey will be a smooth one.