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Income tax rules for NRI returning to India

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Divya Singhvi

Income Tax
Income Tax for NRI
Resident Status

Under Indian tax provisions, NRI is an individual who is an Indian citizen or person of Indian Origin who is not a resident in India. RBI issues guidelines on varied matters relating to an NRI individual. These guidelines relate to opening and maintaining of bank accounts in India as well as for investments in and outside India. Income Tax for NRI will depend upon his Residential Status for the year. It is important to determine the residential status of an individual before determining their taxability.

Who is NRI?

As per Income Tax Act, an individual is considered as a Resident in India, if the individual meets either of the “basic conditions” of presence in India as below:

If neither of these two conditions is satisfied, the individual would be treated as an NRI. The tax year is calculated from April 1 to March 31. Further, there is another category of non resident Indians, known as ‘Not Ordinarily Resident’ (NOR). You can become an NOR either if your stay in India:

Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
Explore
Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
Explore

Tax Implications for NRI Returning to India

The taxability of your income outside India (such as rental income from property outside India, capital gains, bank interest, dividends, etc.) arising out of your assets (such as bank accounts, stocks/securities, residential properties, etc.) shall majorly depend on your residential status in India.

While returning to India you may sell your overseas assets in capacity of a NOR or NRI. In such cases if you sell any overseas assets and receive the sale proceeds outside India, you do not have to pay any taxes in India. Further, you can first receive the sale proceeds in an overseas bank account and thereafter remit part or whole of the proceeds back to India without creating any Indian tax liability.

ITR for NRIs & Foreign Nationals
CA Assisted Income Tax Return filing for Non-Resident Indian Individuals having taxable income in India.
[Rated 4.8 stars by customers like you]
ITR for NRIs & Foreign Nationals
CA Assisted Income Tax Return filing for Non-Resident Indian Individuals having taxable income in India.
[Rated 4.8 stars by customers like you]

Tax Liabilities for NRI Returning to India

Taxability in India is dependent on whether an individual qualifies as a Resident, NOR or Non-Resident. For income which accrues or arises outside India and received outside India during the preceding previous years and remitted to India during the previous year is not taxable to NOR/ NRI.

For income received or deemed to be received or accrues or arises in India during the previous year, is fully taxable for NOR/ NRI. However they can take the benefit of DTAA (Double Tax Avoidance Agreement) between the two countries for the doubly taxed income. This can help avoid paying tax on the same income twice.

The income which accrues or arises outside India and received outside India in the previous year from any other source is not taxable for NOR/ NRI.

Other Considerations while Returning to India

ITR for Residents with Foreign Income
CA Assisted Income Tax Return filing plan for resident individuals having foreign income.
[Rated 4.8 stars by customers like you]
ITR for Residents with Foreign Income
CA Assisted Income Tax Return filing plan for resident individuals having foreign income.
[Rated 4.8 stars by customers like you]

FAQ

Can a resident continue to maintain an account outside India, which was opened by him when he was a non-resident?

A person resident in India might maintain a foreign currency account outside India if he had opened it when he was resident outside India or inherited it from a person resident outside India.

What is RFC Account? What are the types of individual RFC accounts that a returning NRI can open?

An RFC (Resident Foreign Currency) Savings Account is a savings account maintained in foreign currencies for NRIs who have returned to India and hold funds in foreign currency. The types of RFC accounts are: Savings Bank, Current account and Term Deposits.

What will be the status of bank accounts of NRIs returning to India permanently?

Non-resident accounts will be re-designated to resident accounts in India on the return of the account holder to India and consequently becoming resident in India.

Can NRI continue with resident savings account?

Most individuals make a mistake of continuing a resident savings account even after becoming an NRI but the law does not allow it. Or in simple words, it is illegal to hold resident savings bank account for NRIs and it will attract hefty penalties.

Got Questions? Ask Away!

  1. An NRI is an Indian National who does not fulfill the following conditions:

    • lived in India for 120 days during the financial year
    • 60 days or more during the financial year or more than 365 days in last 4 financial years

    Refer the image below