Financial Tips for an NRI Returning to India

The decision to return to India after years abroad evokes mixed feelings. While you might look forward to the excitement of heading back to your roots, the pull of family or retirement, there is a sense of anxiety in navigating the transition of financial assets. This requires careful planning and coordination given the multiple geographies involved.

Convert Your Existing Bank Accounts

As per existing regulations, you cannot continue to hold your NRI accounts once you become a resident. The following are the options you have for your existing NRI account types:

NRO (Non-resident Ordinary) account: Either convert it to a resident savings account or close the account.
NRE (Non-resident External) account: Either convert it to a resident savings accounts or transfer the funds in your NRE account to an RFC (Resident foreign currency) account.
FCNR (B) deposit: Foreign Currency Non-Resident (Banks) can be continued until maturity. Upon maturity, transfer the funds to a resident savings account or an RFC account, if you wish to retain the deposits in foreign currency.
International bank accounts: Can be retained as per RBI rules. However, foreign country regulations may differ.

Key decisions during transition:

Decide whether to maintain foreign currency exposure through RFC accounts or simplify by converting to rupee accounts.
Prepare documentation for multiple jurisdictions and their varying compliance standards.

Review Your Investment Accounts

Below mentioned are the actions needed in relation to your investment accounts:

Overhaul your DEMAT account:

Open a fresh resident DEMAT account and transfer all your existing securities from the NRE/NRO DEMAT to resident DEMAT accounts. Close your existing NRE/NRO DEMAT account(s).
Close your NRE/NRO Portfolio Investment Scheme accounts.
Complete a fresh KYC and update your Foreign Account Tax Compliance Act (FATCA)/Common Reporting Standard (CRS) declarations, if applicable.

Mutual fund administrative changes:

Notify Asset Management Companies about change in your residency status.
Update your resident bank account details across your mutual fund investments.
Update your KYC and FATCA/CRS status across different fund houses.

Fixed deposit transitions:

Convert NRE/NRO classifications to resident FD accounts.
Interest earnings will continue but will be taxed as per Indian regulations.

What Happens to Overseas Assets and Insurance?

Overseas Assets and Investments:

Foreign Exchange Management Act regulations permit the retention of overseas assets acquired during your NRI status.

Insurance Policies:

Indian insurance policies purchased during NRI status can be continued, if desired.
Notify your insurer of your changed residency status.
Update your linked bank account and documentation with the insurer.
Foreign insurance policies may no longer be valid upon your return to India.

Tax Implications for NRIs Returning To India

The transition of an NRI to a normal Resident India may take any of the following routes:

NRI -> Resident but not ordinarily resident (RNOR) -> Ordinary Resident (OR)
NRI -> Ordinary Resident (OR)

Understanding the tax journey: Once you return to India, you will be considered a Resident if you satisfy any one of the following conditions:

Stayed in India for 182 days or more in the previous financial year (This 182 days becomes 120 days if the income earned in India by the individual is more than ₹15 lakh).
Stayed in India for 60 days or more in the previous financial year and 365 days in 4 years immediately preceding it.

NRIs who become Residents can either by classified as Resident – but not ordinarily resident (RNOR) or Ordinary Resident (OR). An NRI will be considered an RNOR if:

He/she has been an NRI in at least 9 of the 10 years preceding the current FY OR
He/she has stayed in India for 729 days or less in the 7 years immediately preceding the previous FY

The reason this assumes significance is because RNORs and ORs are taxed differently as shown below:

Income	ROR	RNOR	NR
Income received in India	✔	✔	✔
Income deemed to be received in India	✔	✔	✔
Income accruing or arising in India	✔	✔	✔
Income deemed to accrue or arise in India	✔	✔	✔
Income received/ accrued outside India from a business in India	✔	✔	✖
Income received/ accrued outside India from a business controlled outside India	✔	✖	✖

Conclusion

While the entire journey from a Non-resident to a Resident involves a lot of changes, it is important that you take all the necessary steps to stay in compliance with Indian laws. Get in touch with your bank and/or tax expert to know more details.

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Mutual Fund investments are subject to market risks read all scheme related documents carefully before investing.