When Indian expatriates come back to India it’s crucial for them to be aware of certain norms before resuming their financial activities.
Non Resident Indians (NRIs) often have inquiries about their non resident bank accounts, like NRE accounts, to ensure they can still carry out transactions from their home country. Here are some questions that NRIs commonly ask when returning to their homeland.
1. Do NRIs have to close their NRE accounts when moving back to India?
According to Dixit Jain, the Managing Director of The Tax Experts DMCC, a tax advisory firm based in Dubai Indian regulations, under FEMA state that if you return to India without plans to go back you must inform the banks and convert your NRE account into a resident account. This means that upon your arrival you officially achieve status. Consequently you cannot maintain NRI bank accounts or enjoy tax benefits on NRI investments. It’s essential to convert, redesignate or close your NRE account shortly after your return.
If you don’t switch your NRE account within three months of returning, Jain mentioned that it could be seen as a violation of the Foreign Exchange Management Act (FEMA) and may lead to a penalty.
2. What if Non Resident Indians are hesitant to go back abroad after moving to India?
If you’re an NRI considering returning to your country for good, even with a valid visa from abroad, it’s important to inform the bank right away about your plans not to return.
3. Is there a period for NRIs residing in India, too?
Here’s another scenario; what if you’re unsure about going back abroad but still hold a valid overseas visa? What steps should you take next?
Jain explained that you can keep the NRO and NRE accounts for up to 120 days or 183 days, respectively, if you’re uncertain before switching to a resident account. If you intend to stay in India, make sure to notify the bank or tax authorities promptly.
When you return to India your residency is officially recognized as being an Indian citizen. If a Non Resident Indian spends more time in their home country than allowed to retain NRI status they must report the change in status according to the law. This applies to financial transactions within the country. The government needs to track the source of funds and determine if the income is taxable.
Regarding the duration of tax exemption on interest from NRE accounts after bringing it back to India NRIs often wonder how long the interest earned in NRE accounts remains tax free upon returning and whether they can still keep their NRE account.
As per regulations interest from NRE accounts is tax exempt only for non residents. Once you come back to India, any interest accrued in your NRE account will be subject to taxes. Experts recommend transferring funds from your NRE account to an RFC account after returning.
4. What happens to investments made using the NRE account?
Tax specialists based in Dubai always recommend notifying your bank, investment firm and insurance provider about your change in residency status from non resident to resident. This applies regardless of the types of investments you may have accumulated over time.
Once you establish residency in India you’ll be subject to the same tax regulations that govern ‘Resident Indian’ individuals. The tax rules from previous years will remain unchanged.
Non resident Indians (NRIs) have the opportunity to invest in funds, insurance products like ULIPs (linked insurance plans) and regular monthly savings schemes such as SIPs (Systematic Investment Plans) in India. However they must comply with regulations concerning taxes and foreign exchange.
5. What is the duration of validity for NRI tax exemptions?
Moreover tax experts point out that an NRI who has previously utilized tax exemptions for non residents in their investments is not eligible for those tax benefits even if they acquire citizenship after five years.
Inform your investment company about the change in NRI status and reach out to the issuing company to understand the tax implications or liabilities. However you won’t be subject to double taxation. In essence NRIs have the opportunity to invest and save in the country while adhering to guidelines. Under FEMA they cannot maintain accounts similar to those of Indian residents.
Main points to remember
NRIs returning to India should inform their bank about their change in residency status. This may involve providing a written declaration or filling out a form to update their account designation. NRIs can choose between converting their existing NRE account into a resident savings account or switching it to a Resident Foreign Currency Account (RFC) to hold foreign currency with repatriation benefits.
Tax experts suggest that this option may be advantageous for Indians if they become non residents again as funds in an RFC account can be easily transferred to any NRE account. It’s important to note that different banks may have procedures.
Some may require customers to visit the branch in person to complete the account closure process while others might choose to close existing accounts and open new savings accounts or simply rename the accounts as resident accounts. Therefore, it’s advisable to consult with your bank regarding the specific steps they follow.
