INCOME-TAX ACT, 1961 (THE “ACT”)
- Under the Indian Tax Laws overseas income is liable to Tax in India only if the assessee is an ordinarily resident.
- A returning Indian who has been a Non Resident for 9 years or more, then for 2 successive years he shall be a resident but not ordinarily resident.
- Interest on NRE A/c and FCNR A/c is exempt in the hands of a person who is a Person Resident outside India as per FEMA laws.
- Interest paid by scheduled banks to NRI or an RNOR on RFC deposits is exempt from tax.
- Pension from NRI’s former employer after return to India may be liable to tax in India subject to provisions of the Double Taxation Avoidance Agreement between India and the country from which the NRI is receiving such amount.
FOREIGN EXCHANGE MANAGEMENT ACT, 1999 (FEMA) A) OVERSEAS ASSETS HELD BY THE NRI
All kind of Foreign exchange / overseas assets such as properties, bank deposits, stocks and securities, life insurance policies, loans, company deposits, debentures, bonds etc. acquired, held or owned by an NRI while he was abroad can be continued to be so held and deal in any manner even after the NRIs return to India for permanent settlement. B) INDIAN ASSETS HELD BY THE NRII. BANK ACCOUNTS:
A returning NRI upon his return to India has to deal with his various accounts in India in the following manner:
|Type of Bank account||Re-designation upon Returning to India|
|Non-Resident Ordinary Bank Account (NRO a/c) ||Re-designate to Resident account|
|Non-Resident External Bank Account (NRE a/c) ||Re-designate to Resident account OR transfer balance to Resident Foreign Currency Account (RFC a/c).|
|Foreign Currency Non-Resident (FCNR a/c)||Hold up to maturity; Upon maturity should be converted into Rupee account or RFC a/c.|
Resident foreign currency account (RFC a/c)
II.SHARES SECURITIES ETC:
- Returning NRIs on becoming residents can open RFC accounts which are fully repatriable and denominated in forex.
- Funds in RFC A/c can be remitted outside India for any bonafide purpose of the account holder or his/her dependents.
- Interest on RFC A/c will be exempt from income tax till the NRI’s residential status under the Indian Income-tax laws is NR or RNOR.
- Funds in RFC A/c can be withdrawn freely for local payments in rupees.
Returning NRI is required to inform all the companies, funds, the Depository Participant etc. as to change of his/her residential status from NRI to Resident.
All kind of assets in India such as properties, bank deposits, stocks and securities, life insurance policies, loans, company deposits, debentures, bonds etc. acquired, held or owned by an NRI while he was in India can be continued to be so held and deal in any manner even after the NRIs leave India for permanent settlement.
Persons who have left India recently for business / employment abroad are required to complete certain formalities as below:A.
- Banking Accounts: Your resident savings bank account has to be re-designated to Non Resident Ordinary (NRO) savings Bank account.
- NRE / (FCNR) Deposit account can be opened only after becoming an Non Resident Indian (NRI).
- Shares, Debentures, Mutual Funds and other Securities: The companies, Depository participants, mutual fund houses, Brokers etc. needs to be informed regarding the change of residential status.
- Existing business in India: NRIs are allowed to invest in any Proprietary or Partnership concerns in India subject to the provision of FEMA. However, it should not be engaged in any agricultural/plantation activity or real estate business or print media.
- Repatriation: NRIs are eligible to repatriate Income earned in India from rupee assets held in India.
- Other Transactions: Any receipt or payment of funds from / to a Resident including providing guarantee to any person/taking loans from any person/acquisition of shares and securities/granting loans and advances should be in accordance with the provisions of FEMA.
- DTAA: An NRI can take the benefit of DTAA provisions entered into between India and the home country which can give the benefit of tax credit or exempts the income from taxation or the withholding tax rate for a particular lower.
While filing the Return of Income in India with the Income Tax Department, heshall have to change his residential status accordingly.C.
He should inform any other payer (Tenants, etc.) in India that his residential status has changed as tax is required to be then deducted at the rates applicable for an NRI.D.
He may opt to give a general / specific Power of Attorney (POA) to a close relative to do things on his behalf while he is outside India.