Financial Steps For a NRI Returning to India

The COVID-19 pandemic has led many Indians and Non-Resident Indians (NRIs) living abroad to return to their homeland, seeking safety and stability during these uncertain times. For NRIs making the move back to India, managing finances is a critical aspect of the transition. It is essential to understand the Indian financial landscape, including banking, taxation, insurance, and investments. This guide provides a comprehensive overview of the financial steps NRIs need to take immediately upon returning to India.

Types of NRI Accounts

As an NRI, you may have maintained one or more of the following types of accounts with an Indian bank:

• Foreign Currency Non-Resident (Banks) [FCNR(B)] Account: This is a term deposit account for specific foreign currencies such as US dollars, Australian dollars, Canadian dollars, British pounds, Japanese yen, and the Euro. It is a repatriable account, meaning funds can be transferred back to the country of residence, and the interest earned is tax-free as long as you maintain NRI status.
  
  

• Non-Resident External (NRE) Account: A rupee-denominated account used for savings, current, or fixed deposits. It is primarily used for inward remittances, i.e., transferring foreign earnings to India, and it is fully repatriable.
  
  

• Non-Resident Ordinary (NRO) Account: Another rupee-denominated account that allows NRIs to manage income earned in India, such as rent, dividends, pension, and interest. Unlike NRE accounts, repatriation from NRO accounts is subject to certain limits.
   

Converting Accounts Upon Returning to India

Once you return to India permanently, it is necessary to convert your existing NRE/NRO savings accounts and deposits into resident savings accounts and deposits. If you have an FCNR deposit, you can maintain it until maturity. After that, you have the option to convert it into a Resident Foreign Currency (RFC) account if you wish to continue holding foreign currency.

Opening a Resident Savings Account

A quick and convenient way to open a savings bank account in India is through HDFC Bank’s InstaAccount, which allows you to open an account digitally within minutes from the comfort of your home. You will receive your account number and customer ID immediately, enabling you to start managing your finances right away. The InstaAccount also comes with NetBanking and MobileBanking features, allowing you to conduct banking transactions without visiting a branch.

Liquidating Foreign Assets

If you are returning to India permanently, it may be wise to liquidate your foreign assets, especially physical ones like property. It’s important to note that any income earned from assets abroad, including property and investments, will be taxed in India once you become a resident.

Building a Diverse Investment Portfolio

After returning to India, consider building a diversified investment portfolio. Some of the profitable investment options include mutual funds, gold ETFs, and gold bonds, though it’s advisable to consult a financial advisor as market conditions change.

If you have existing investments in mutual funds or stocks under NRI status, you must update your residential status with your bank and other financial institutions. Specifically, if you have invested in stocks under a Portfolio Investment Scheme (PIS) account, you need to close this account and open a standard brokerage or Demat account as a resident Indian.

Tax Implications Upon Becoming a Resident Indian

When you become a resident Indian, you will no longer be eligible for the tax benefits that NRIs enjoy. Instead, your tax liability will be determined based on your residential status:

• Resident and Ordinarily Resident (ROR): You will be classified as ROR if you have spent 182 days or more in India in a financial year (FY) or have stayed in India for 60 days or more in one FY and 365 days or more in the preceding four FYs. As an ROR, your global income is taxable according to Indian tax slabs. This means you must report all foreign assets in your Income Tax Return (ITR). Failing to disclose any income can lead to legal action under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

• Resident but Not Ordinarily Resident (RNOR): You will fall under this category if you have been an NRI in nine out of the preceding ten FYs or have stayed in India for 729 days or less in the last seven FYs. As an RNOR, only the income you receive in India is taxable. Foreign income remains tax-exempt unless it is received in India. Additionally, any FCNR deposit you hold will continue to be tax-exempt.

Health and Life Insurance in India

Upon returning to India, your foreign insurance policies will no longer provide coverage. It is crucial to secure health and life insurance policies in India to protect yourself and your family. Given the ongoing COVID-19 pandemic, having comprehensive health insurance is more important than ever. Additionally, consider a term life insurance plan that offers maximum coverage to ensure financial security for your loved ones.