Dubai: When Indian expats move back to their home country, there are a number of norms to keep in mind ahead of resuming your routine financial undertakings.
In order to continue transacting back home, there have often been queries among Non-Resident Indians (NRIs) surrounding their non-resident bank accounts, particularly their NRE accounts.
On the other hand, an NRI can also make use of an NRO (Non-Resident Ordinary) account, which is a bank account opened in India in the name of an NRI, to manage the income earned by him in India.
Frequently-Asked Questions (FAQs) among NRIs returning home
Do NRIs have to mandatorily close their NRE accounts after moving to India?
“As per Indian norms (FEMA or Foreign Exchange Management Act), the moment you go back to India with an intention of not coming back, you should inform the relevant banks and re-designate the NRE account to normal resident account,” said Dixit Jain, Managing Director at The Tax Experts DMCC, a Dubai-based tax advisory firm.
Technically speaking, you become a resident Indian on the day you return. This is why you can no longer maintain NRI bank accounts or avail the tax-related benefits on NRI investments and why you should convert or re-designate or close your NRE account after the return, on a priority basis.
If you fail to convert your NRE account within three months of the return, Jain added that it will be considered as a violation of Foreign Exchange Management Act (FEMA) and can possibly attract a penalty.
What if NRIs are unsure of returning back overseas after moving to India?
As an NRI, let’s say you decide to move back home permanently, but you still hold a valid overseas visa. Are you liable to inform the bank immediately that you don’t intend to go back?
Additionally, is there a grace period for NRIs staying in India? Here’s another likely scenario: What if you’re unsure you intend to return back overseas and still hold a valid overseas visa? What to do then?
“If you are unsure, then you can keep the NRO and NRE until you finish 120 days or 183 days as per the eligibility criteria, and then you can convert to resident account,” Jain explained. “If your intention is to be in India, then you’re liable to let the bank or tax authorities know immediately.”
This is because since the day you return back to India, you’re residence in the country is recorded officially as a person residing in India. If the number of days a NRI stays in his or her home country surpasses the number of days the non-resident is eligible to reside as an NRI, you are required by law to report your change in status.
If you are unsure, then you can keep the NRO and NRE until you finish 120 days or 183 days as per the eligibility criteria, and then you can convert to a resident account
This includes money-related transactions in the country, as the government is required to record the source of funds that are used in the country, and gauge whether or not the income is liable to be taxed.
How long will NRE account interest remain tax-free after repatriating?
The interest earned is tax-free for NRE accounts, so another common query among NRIs is how long the interest will remain tax-free after returning back to India, if he or she can hold the NRE account?
As per regulations, interest earned from NRE account is tax-free only for non-residents. As soon as you return to India, any interest earned on NRE account will be taxable.
Experts opine how you can however opt for transferring your funds in NRE account to the RFC (Resident Foreign Currency) account upon the return.
These accounts are especially useful for Non Resident Indians (NRI) who return to India and would like to bring back foreign currency from their overseas bank accounts.
What about my past investments made through my NRE account?
Regardless of the type of investments you have amassed over the years, Dubai-based tax experts always recommend informing your bank, fund house and associated insurance company about the change in residential status from non-resident status.
Once you become an Indian resident, the regular tax laws as applicable for ‘Resident Indian’ will apply. There will not be any change in tax laws for previous years.
NRIs can invest in mutual funds, insurance schemes (like ULIPs or unit-linked insurance products) or periodical monthly deposit schemes (like SIPs or Systematic Investment Plans) in India, although they are subject to certain special rules when it comes to tax and foreign exchange.
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If you sell the funds after holding for more than 12 months (from the date of purchase), such gains is taxable at 10 per cent to gains over exempted Rs100,000 (about Dh5,000). However, for sale within 12 months of purchase of the investments, tax on profits is levied at 15 per cent.
Several platforms allow NRIs to invest in India from their country of residence, however, some fund houses do not take fund applications from the US or Canada because of the paperwork involved under the FATCA (Foreign Account Tax Compliance Act).
How long are NRI tax exemptions valid?
Additionally, tax experts further note that if an NRI has made investments previously with tax exemption benefits specific for non-residents, he or she cannot make use of those levies even after becoming an Indian citizen say after 5 years.
Inform your investment house about the change in NRI status and check with the issuing company to understand the tax-related cost or implications. In any case, you would not be liable for any double taxation.
To put it simply, while NRIs are permitted to bank and invest here, there are certain rules and regulations in place. Under the Foreign Exchange Management Act (FEMA), they cannot have accounts similar to what Indians have.
Key takeaways
For NRIs returning to India, you are required to inform the bank about the change of your residency status. The bank may ask for a declaration in writing or ask to fill up a form for the re-designation of accounts.
The existing NRE account can be re-designated to a resident savings account or the NRI also has an option to convert the existing NRE account to Resident Foreign Currency Account (RFC, explained above), wherein an NRI can maintain funds in foreign currency with full repatriation benefits.
Tax experts add that this may help an NRI in case his residency status changes back to NRI and the funds in the RFC account can be easily transferred to any NRE account without any issues.
It is important to note that the process of each bank may vary a bit. Some banks may require an in-person visit to the bank for the closure process.
Some banks may close the existing bank accounts and open a new savings account while some may re-designate the same accounts to resident accounts. Thus, it would be best to approach your bank for guidance to know the exact process followed at their end.
