The top #3 things to keep in mind if you are returning to India in this Tax financial year 2019-20
For a non-resident Indian, who lived in another country for many years, the decision of returning to India permanently is never an easy one. There are a lot of considerations to be made for this transition, specifically on financial matters. To avoid financial loss during transition, Investments, transfer of assets most importantly, taxation process and planning needs to be done thoroughly. Tax Here are the three most important things to keep in mind for NRIs returning to India in this financial year.
Understand your tax status and tax implications
As you return to India permanently, your tax liability for the financial year largely depends on your tax status for the year. You are considered as Non-Resident Indian (NRI)if you satisfy any of the below conditions.
- Your total stay in India is less than 182 days during the financial year. Or,
- You are not present in India for 60 days or more and 365 days or more in the four financial years prior to the relevant tax year.
If your tax status is NRI for the year, your income earned outside India is not taxable. Only, income earned in India are taxable for the year.
There is another category of NRI called ‘Resident but Not Ordinarily Resident’ (RNOR).You can become RNOR, if your stay in India in the seven financial years immediately preceding the relevant financial year is less than 729 days or if you have been Non-Resident Indian (NRI) in nine out of ten financial years preceding the relevant tax year.
If you are returning to India, you can keep your RNOR status for up to three financial years after your return to India. You can benefit hugely out of this as your income earned in India is only taxed not the global income. With RNOR status, you can enjoy many tax benefits on various incomes. Here are some of them.
- Pensions from pension scheme held overseas
- Capital gains from sale of properties and shares held overseas
- Interest income from Resident Foreign Currency (RFC) and Foreign Currency Non-Resident (FCNR) deposits
- Interest on deposits held overseas
- Dividends earned on securities held overseas
- Rental income from properties held overseas
Once you lose RNOR status, you will become ordinary resident of India and then your global income will be taxed in India. If your overseas income is taxed abroad, then you can claim tax benefits under Double Taxation Avoidance Agreement (DTAA).
Act oninvestments and assets held overseas
Firstly, you need to jot down list of investments and assets held overseas. This can help you plan properly. If you are planning to dispose overseas investment and assets, you need to plan for transfer of proceeds. If you plan to hold the investments and assets as it is overseas, reporting of such assets for the taxation purpose overseas need to be planned carefully. In order to avoid double taxation, experts recommend to dispose foreign assets and investments and get the proceeds transferred to India when you are an NRI or RNOR.
Re-plan your financials
As you close your overseas bank accounts, investments and get the assets transferred to India, it becomes necessary to re-work on your financials. As you return to India, your bank accounts held in non-resident status needs to be re-designated as resident accounts. However, your Resident Foreign Currency (RFC) account and Foreign Currency Non-Resident (FCNR) accounts can be held till maturity. Similarly, all your investments in India needs to be updated with the change in status. Not just there will be change in your investments, assets and tax implications on them, but also there can be change in your income and expenses. Hence, re-planning your finances need to be kept in mind while returning to India.
To ensure smoother transition, every aspect needs to be well thought out and planned. You can take help of tax experts and financial planners to experience easy transition and for better financial decisions.