A Tax Checklist For The Returning NRIs
Posted on October 01 2020
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India remains as one of the fastest growing economies in the world. For those who are planning to return back and settle down in India and wish to build an attracted investment portfolio, there is no better time. Therefore, suitable care has to be taken to make sure that your hard-earned wealth is properly varied to minimise the risk which is tax profitable and is compliant in all the ways with the extant legal framework.
Close/re-designate accounts
If you have returned back to India with the intention to stay back make sure that you have informed your bank about the change in your residential status in their records and re-designate your existing Non Resident Ordinary (NRO) account to Resident Savings account. As well as your existing NRI demat account under the Portfolio Investment Scheme (PIS) cannot be continued anymore and a separate Resident demat account should be opened and the shares/units in that account should be transferred to the new account. Your Foreign Currency Non-Resident (FCNR) deposits can run till the maturity but your earnings in the Non Resident External (NRE) savings account will have to be transferred to the Resident savings account or you can even transfer it to the Resident Foreign Currency (RFC) account.
Open RFC account
The account is a safe way to park your foreign exchange earnings in India. As per the existence RBI regulations, you are allowed to open a Resident Foreign Currency (RFC) Account and acknowledge your foreign exchange earnings. Persons of Indian Origin (PIO) who is residing outside India for not less than a year and have become the resident on or after the 18th of April, 1992, are qualified to open an account. Persons who have returned back to India former to 18th of April, 1992 after residing outside India for not less than one year provided they are holding Returning Indians Foreign Exchange Entitlement (RIFEE) permission are qualified as well. Interest is taxable and there is a penalty on early foreclosure of the RFC deposit. Repatriation is allowed and both funds and interest thereon is free from all the restrictions and can be transferred to the NRE/FCNR accounts or investment outside India.
Reducing tax liability
As per the Indian income tax law, the moment you become a Resident Indian (the income tax rules generally happens a couple of years after you have returned back to India), you start getting taxed on your global income. Of course, the benefit of Double Taxation Avoidance Agreements or DTAA, can be availed if the overseas income is even getting taxed locally. One good way that you can hold the global tax liability is to plan your stay in India in such a way as to try to maintain the Resident and Not Ordinary Resident (RNOR) status for the maximum possible time. In such a scenario, except for some incomes, the rest of your foreign incomes will remain exempt from tax.
As per the RBI norms, you are free to hold, own and transfer assets outside India if such assets were accomplished by such a person when he was a resident outside India or inherited it from a person who resides outside India. Therefore, if you are planning to sell those assets after becoming a resident Indian then there can be a capital gains tax liability under the Indian tax laws. To avoid such thing, it is better to explore the possibility of determining off those assets before you earn Indian resident status. Even note that the Supreme Court has clarified in a case that any income received outside India and are remitted to India will not be considered 'receipt' and shall not be taxed in India.
As per the RBI norms, you are free to hold, own and transfer assets outside India if such assets were accomplished by such a person when he was a resident outside India or inherited it from a person who resides outside India. Therefore, if you are planning to sell those assets after becoming a resident Indian then there can be a capital gains tax liability under the Indian tax laws. To avoid such thing, it is better to explore the possibility of determining off those assets before you earn Indian resident status. Even note that the Supreme Court has clarified in a case that any income received outside India and are remitted to India will not be considered 'receipt' and shall not be taxed in India.
Some more ways to reduce tax liability on your return to India are:
·Spreading income through gifting the assets to parents/major children.
· Creating a separate tax file for Hindu Undivided Family (HUF) and taking the advantage of separate exemption limit available to the HUF.
·Investing in tax-free bond issues broadcasted from time to time.
Other points to remember
·Inform the respective companies from where you have purchased the insurance or the investments in India for the change in your status and the new communication address. This will help the company to stop deducting the mandatory Tax Deduction at Source (TDS) on the payouts at the rate of 30.9 % and there will be no mishaps at the time of the services.
· If your income is above the exemption limit then you will have to file your income tax returns. In case you hold the foreign assets, you are required to disclose all the details in your income tax returns. Note that the Undisclosed Foreign Income and Assets (Imposition of New Tax) Bill, 2015 levies severe penalties for not doing so.
·Look at your portfolio afresh, including the insurance needs. Think before buying a residential house as it can lock a major portion of your savings towards retirement.
Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.
With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.
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