Returning Indians (RI) are those Non-resident Indians (NRIs) who are likely to return to India for good from the country where they are resident.

Returning NRI may be earning income and holding assets/liabilities both in India as well as outside India. Such assets and income will have implications under both Foreign Exchange Management Act, 1999 (‘FEMA’) and Income-tax Act, 1961(‘the IT Act’) when they return to India. 

 

A RI should know and understand various aspects of FEMA, Indian Taxation and Banking Regulations in order to rearrange his/her financial affairs in India and outside India

FOREIGN EXCHANGE MANAGEMENT ACT, 1999

Any non-resident returning to India for good is required to declare date/month/year of his intention and final decision confirming that now he has decided to settle in India.  Although the timeline is not prescribed but one need to convey as soon as one has decided to settle in India.

 

Such declaration can be a standard communication to the following authorities:

 

· Authorized Dealers i.e. all Banks, where one is holding banking accounts (NRO, NRE,  FCNR, etc.)

· Depositories where securities/ investments are held

· Mutual Funds houses

 

The above authorities/institutions shall make/record changes as to holdings as Resident from Non-resident holder.

 

1.    IMPACT ON ASSETS HELD: The assets held in India and overseas will have impact under FEMA as under:

 

A.   Overseas Assets:

 

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 a NRI while he was abroad can be continued to be so held and dealt in any manner even after the NRIs return to India for permanent settlement. 

 

B.   Indian Assets:

 

i. Bank Accounts: A returning NRI upon his/her return to India has to inform the AD Bank about the change in RS and deal with various accounts in India in the following manner: 

 

Bank Account	Treatment to be given
Non-Resident Ordinary (NRO) A/c	Re-designate to Resident A/c
Foreign Currency  Non-  Resident (FCNR) A/c	Hold upto maturity; Upon maturity should be converted into   Rupee Account or RFC A/c
Non-Resident External (NRE) A/c	Re-designate to Resident A/c or transfer balance to RFC A/c

 

Resident Foreign Currency (RFC) Account 

o Returning NRIs, on becoming residentsare free to open and maintain such accounts        with authorized dealers. 

o The funds held in RFC A/c are fully repatriable and also denominated in forex. 

o Funds in RFC A/c can be remitted outside India for any bonafide purpose of the account holder or his/her dependents. 

o Interest on RFC A/c will be exempt from Income tax under Section 10(15)(iv)(fa) of the IT Act as long as  residential status  under the IT Act is  “Non-Resident” or “RNOR”. 

o Funds in RFC accounts can be withdrawn freely for local payments in rupees. 

o Returning Indian desiring to go outside India again for employment, business or vocation (on becoming non-resident) can repatriate abroad or transfer his funds in RFC A/c to NRE / FCNR accounts. 

o Term deposits in RFC A/c can be renewed by the RFC account holder any number of  times.

ii.  Shares, Securities, etc.: Returning NRI is required to inform all the companies, funds etc. as to change of his/her residential status from NRI to Resident.

 

iii. Immovable Property: Returning NRI can continue to hold immovable property in India and deal with it in any manner, as required.  

 

2.    CHANGE IN REPATRIATION LIMIT:

NRI is allowed to repatriate from balances held in the NRO account upto USD One Million per Financial Year. However, a Returning NRI shall become a person resident in India and accordingly, he/she shall be allowed to repatriate only upto USD 2,50,000/- per Financial Year under the Liberalized Remittance Scheme.  

 

3.    REPORTING REQUIREMENT TO RBI:

 

· RI is not required to report about change in residential status to RBI

 

· RI 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 ACT, 1961 (“the IT Act”)

1.    IMPACT ON INCOME OF RI OUTSIDE INDIA

 

The scope of taxable income for a Financial Year (FY) would depend upon the Residential Status (RS) of RI under the IT Act. The residential status in turn depends on the physical presence of the RI in India during the FY and prior 10 FYs.

 

A RI needs to know that:

 

· if his RS is as a Non-Resident (NR) in the year of return to India, then income earned outside India shall not be taxable in India in that year.

 

· if his RS is as a Resident but not Ordinarily resident (RNOR) then income earned outside India shall not be taxable in India (except for business/profession set up outside India and controlled from India) as long as his 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)

 

· if his RS is as a resident and ordinarily resident (ROR) in the year of return to India then income earned in India and outside India shall be taxable in India the year of return.

RI should carefully plan his 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.

2.    IMPACT ON ASSET and LIABILITY OF RI

 

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 - AL is a Schedule of the Return of Income (ROI) which is required to be mandatorily filled by Individuals and HUFs, if their total income exceeds Rs. 50,00,000/- in a FY. The said Schedule requires reporting of specified Assets and corresponding Liabilities at the end of the FY. Thus, RI will need to comply with such reporting requirements if their income exceeds Rs. 50,00,000/- in a FY.

 

· Foreign Asset (FA) reporting schedule - As per the FA schedule provided in the ROI, the Foreign Assets held as a Legal owner / Beneficial owner / Beneficiary are to be reported by all RORs. Thus, RI upon becoming ROR would need to comply with such reporting requirements in relation to the FA held during the FY.

 

3.    IMPACT ON TAXABILITY OF CERTAIN TYPICAL INCOME - in the hands of RI

 

RI while being outside India mostly qualify as NR as per the IT Act and are eligible for exemption / concessional rate of tax on certain category of income. Upon returning to India, as you may note above, RI is required to re-designate the bank accounts as per the FEMA law. Further, the taxability of any income depends upon the RS under the IT Act. The impact on taxability of such accounts in case of RI shall be as under:

 

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 under section 10(15)(iv)(fa) of the IT Act till the time the RI qualifies as RNOR as per the IT Act.

 

Interest income on NRO A/c – Returning Indians, upon return to India for good will have to re-designate such NRO account to resident rupee account and interest income earned on such rupee account shall be taxable (no change in the tax treatment).

 

Interest income on NRE A/c - The interest income from NRE A/c is exempt as per section 10(4) of the IT Act, provided the person is resident outside India as per FEMA. As the RI (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.

 

Thus RI may convert his NRE deposit A/c to RFC deposits and extend his status of RNOR to avail the above 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 RI as per section 10(15)(iv)(fa) of the IT Act till the time the RI is NR or RNOR.

 

Concessional rate of tax on foreign exchange assets - NRIs are taxed at concessional rate on certain specified assets subject to specified conditions (Refer section 115C to 115I of IT Act). The RI 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.

 

4.    Requirement of PAN and Aadhaar:

· Returning Indian may be required to obtain PAN (in case not obtained earlier) in order to file ROI and comply with other necessary compliances in India.

 

· Resident Indians are mandatorily required to quote Aadhar Number/ Enrolment ID of Aadhar in ROI in India and hence must obtain the same before the due date for filing the ROI.

 

5.    Important aspects to be kept in mind by a RI are explained below:

 

· RI may hold 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.

 

· RI needs to appropriately redesignate the bank accounts and deposits held and also inform the appropriate authorities for change in the residential status. RI is required to obtain Aadhar number upon becoming a Resident.

 

· RI needs 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.

 

· RI upon becoming resident need to ensure that his RS is correctly reported in his Return of Income and income and assets are appropriately disclosed to avoid any penalty and prosecution.

 

· 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.

 

· RI should consider certain beneficial provisions that may still be applicable along with any tax treaty benefits to avoid double taxation of income.

 

Updated 10/2023

Recent Immigrant is a person who leaves India to settle permanently in another country. It is suggested that the documents like Tax Residency Certificate of the immigrating Country recognising immigrant as Tax resident of the said Country, employment Visa, “business setup”, Green Card or any other similar document shall help such a person to confirm and establish with the Indian Tax authorities and Reserve Bank of India that he is an Immigrant from particular date/year.

Further, Recent Immigrant:

· May earn income and hold assets/liabilities both in India as well as outside India.

· Such assets and income will have implications under both Foreign Exchange Management Act, 1999 (FEMA) and Income-tax Act, 1961 (‘the IT Act’) when they leave India.

 

Accordingly, a Recent Immigrant should know and understand various aspects of FEMA, the IT Act and Banking Regulations in order to rearrange his/her financial affairs while leaving India.

FOREIGN EXCHANGE MANAGEMENT ACT, 1999

 

Recent Immigrants are not required to report about their change in Residential Status from Resident to Non-Resident to RBI. However, any Indian citizen leaving India is required to declare date/month/year of his intention of leaving India and final decision confirming that now he has decided to settle in outside India to different authorities in India as mentioned below:

· Authorized Dealers i.e. all Banks, where one is holding banking accounts

· Depositories where securities/ investments are held

· Mutual Funds houses

· Any other investment authority as applicable 

Such declaration can be a standard communication. The above authorities/institutions shall make/record changes as to holdings as Non-Resident from Resident holder. Further, the timeline is not prescribed but one needs to convey as soon as one has decided to settle abroad.

A.    Impact on Indian Assets:

Recent Immigrant can continue to hold, own, invest or transfer any kind of Indian assets such as immovable property, bank deposits, shares, life insurance policies, debentures, bonds etc., which was acquired, held or owned by him/her when he/she was residing in India or if it was inherited by him/her. This also includes/cover accretion of income and appreciation of assets stated above.

·   Recent Immigrant is not required to take any permission from RBI for retaining his/her Indian assets after moving abroad.

·   Further, Recent Immigrant upon leaving India is required to declare about change in Residential Status and his intention to stay abroad. Such declaration can be a simple communication and may be shared with different authorities as mentioned above. The authorities shall make record of change in Residential status from Resident to Non-Resident and accordingly, deal with Indian bank accounts/assets as under:

Asset	Treatment to be given
Resident Savings Bank a/c	Re-designate to NRO Savings a/c
Resident Current a/c	Re-designate to NRO Current a/c
Resident Fixed Deposit (FD)	Re-designate the Resident FD to NRO FD.   Further it is to be noted that depending on Bank’s policy and procedures, FD may be directly designated to NRO FD or may be pre-matured and then a new NRO FD may be opened.
Shares, Debentures, Bonds, Units of Mutual Funds, etc.	Can continue to hold these investments. However, need to inform all companies, funds, Brokers etc. as to change of residential status from Resident to “Non- Resident”
Immovable Property (Commercial/Residential/Agricultural Land/Plantation etc.)	Can continue to hold and deal in whatsoever manner upon becoming Non-Resident

 

B.    Impact on Overseas Assets:

If a Resident Indian had made any investments in assets like listed shares, immovable property outside India under Liberalised Remittance Scheme (LRS), it is considered that, a person leaving India can continue his/her existing investments made outside India under the LRS Scheme. However, RBI has not prescribed any regulation on this aspect, and it is advised to obtain advice from a professional.

C.    Impact on existing business activity in India and outside India:

Business set up in India: In general, it is suggested that, a person leaving India can continue his/her business operations in India and continue to be a proprietor, partner, director, trustee etc in any organisation in India. However, considering the complexity in relation to compliances and permissibility/non permissibility of certain transactions, it is advised to obtain advice from a professional.

Business set up outside India: With respect to eligibility for Recent Immigrant to continue business set up outside India under the Overseas Direct Investment (ODI) route, RBI has not prescribed any regulation on this aspect. However, in general, it may be considered that, a person leaving India can continue his/her business operations outside India set up under ODI route. However, considering the complexity in relation to compliances/reporting to RBI and permissibility/non permissibility of certain transactions, it is advised to obtain advice from a professional.

D.   Eligibility to open Non-Resident bank accounts:

·      Recent Immigrant upon becoming Non-Resident has an option to open and maintain NRO account, NRE account or FCNR(B) account in India

  NRO and NRE account can be opened in the form of Savings, Current, Recurring, Fixed Deposit. However, FCNR (B) account can be opened only in the form of term deposit with specific maturity period.

·      Interest income earned such Non-Resident accounts is explained in the table below.  

E.    Change in Repatriation limit:

The Recent Immigrant is not considered as a resident in India under FEMA and accordingly he is not eligible to repatriate under LRS.

However, such persons are eligible to repatriate up to USD 1 million every FY, out of any funds held in NRO account. Funds held in NRE account are freely repatriable without any restriction/limitation. 

INCOME TAX ACT, 1961 (“IT Act”)

 

A.    Income Tax Authorities

·  A person leaving India for good is required to make an application to the Indian Income Tax Department before leaving India for Tax Clearance Certificate/ No Objection Certificate. The type of form and related documents differ based on whether the individual is domiciled in India or not.

 

o Individual domiciled in India	-	Form 30C should be filed along with necessary supporting documents
o Individual not domiciled in India	-	Form 30A should be filed along with necessary supporting documents

However, practically, we note that any person leaving India for good is not obtaining tax clearance certificate as prescribed under the provisions of the IT Act. In view of this, It is suggested that one should take advice from his professional advisor and do the needful.

· A Recent Immigrant on becoming a NRI within the meaning of the IT Act should change his status from Resident to NRI while filing his/her Return of Income. This may serve as an intimation to the Income Tax Authorities of such change in Residential status.

· However, he/she will no longer be required to report his/her overseas assets in the Return of Income as Non-Resident.

 

B.    Tax Liability

The provisions of the IT Act would apply as applicable to Non-Resident individuals. Recent immigrant upon becoming Non-Resident under the IT Act will be liable to pay taxes in India only on his/her Indian source of income, subject to any relief under Double Tax Avoidance Agreement entered between India and tax resident country of Recent Immigrant.    

Further, upon becoming Non-Resident, if one receives any income from any person, tax is required to be deducted at source at a rate applicable to Non-Resident as provided in the IT Act. He/she should inform the payer that his/her residential status is that of a Non-resident.

The following are Tax and TDS rates applicable to Non-Resident individual:

Sr. No.		Type of Asset	Basic rate under the Act (excluding Cess and Surcharge)
			Income tax rate	TDS
i	Immovable Property
	a	Rent	Slab Rate	30%
	b	Long Term Capital Gains	20%	20%
	c	Short Term Capital Gains	Slab Rate	30%
ii	Bank Accounts / Fixed Deposits/ Public Provident Fund (PPF)/ Tax free bonds
	a	Interest on NRO a/c	Slab Rate	30%
	b	Interest on NRE a/c	Exempt	NIL
	c	Interest on FCNR Deposits	Exempt	NIL
	d	Interest on PPF a/c	Exempt	NIL
	e	Interest on Tax free bonds	Exempt	Nil
iii	Equity Shares - Listed (STT Paid both at the time of Purchase and Sale)
	a	Dividend	Exempt - Upto FY 2019-20	Nil
			20% - From FY 2020-21	20%
	b	LTCG (Period of Holding > 1 year)	10% (with Grandfathering) (upto Rs. 1,00,000/- exempt)	10%
	c	STCG (Period of Holding = 1 year)	15%	15%
iv	Equity Shares - Unlisted
	a	Dividend	Exempt - Upto FY 2019-20	Nil
			Slab Rate - From FY 2020-21	20%
	b	LTCG (Period of Holding > 2 years)	10% (without indexation and no benefit of foreign exchange fluctuation)	10%
	c	STCG (Period of Holding = 2 years)	Slab Rate	30%
v	Mutual Funds - Equity Oriented (STT Paid at the time of Sale) - Note 1
	a	Dividend	Exempt in India - Upto FY 2019-20	Nil
			*20%/ slab rate - From FY 2020-21	20%
	b	LTCG (Period of Holding > 1 year)	10% (with Grandfathering) (upto Rs. 1,00,000 exempt)	10%
	c	STCG (Period of Holding = 1 year)	15%	15%
vi	Mutual funds – Specified Mutual Funds
	a	Deemed STCG	From FY 2023-24 – Slab rate	30%
vii	Mutual Funds – (Others i.e Other than Equity oriented and Specified Mutual Funds) - Note 1
	a	LTCG (Period of Holding > 3 years)	20% (with indexation)	20%
	b	STCG (Period of Holding = 3 years)	Slab Rate	30%
viii	Salary		Slab Rate	30%

 

* As per Section 115A of the Income-tax Act, 1961, income received in respect of units of Mutual Funds purchased in foreign currency is taxable at the rate of 20%. In other cases, it may be taxed at slab rates.

 

Note 1:

 

Nature of Mutual Fund	Percentage of investment in Equity shares of domestic company by Mutual Fund
Specified MF	Less than or equal to 35%
Other MF	More than 35% but less than 65%
Equity oriented MF	More than or equal to 65%

 

Things to be kept in mind by a person leaving India.

i. Planning the date and month of departure out of India so as ensure minimum tax liability in the year of departure (i.e. April to March).

ii. Taxability of Income earned in and outside India in the year of departure and in the subsequent period.

iii. Advice/information on various aspects of FEMA in respect of holding of assets in and outside India.

iv. Filing ROI in India for subsequent years as “Non-Resident”.

v. Intimate his Bankers about the change in the banking accounts.

vi. He may opt for giving a general / specific POA to a close relative to do things on his behalf during his stay abroad.

vii. Intimate the companies, firms where he is a shareholder, partner, and deposit holder about the change in his status as “Non-Resident” under FEMA

viii. Make an application for Tax Residency Certificate (TRC) from country of new residence to claim Double Taxation Avoidance Treaty (DTAA) benefits between India and the country of residence, where applicable. This may help reduce his tax liability in India/outside India.

Updated 10/2023