Returning NRIs Taxation, RBI FEMA Laws Implications

Background

Indian Citizens go abroad for employment (Non-Resident Indians ‘NRI’). Many of them obtain foreign citizenship also (Person of Indian Origin ‘PIO’). Many of these NRIs, OCIs, PIOs or their children, due to their roots in India or various other reasons, plan to come back to India. Also, many foreign citizens come to India for business or employment also. In these circumstances, it is important for them to know and understand the Indian regulations with regard to Income Tax as well Foregin Exchange Laws.

Residential Status

Residential status determination is most crucial aspect for taxation of a person in India specifically Returning Indians. As per Income Tax Act, on the basis of number of days stay in India, residential status of a person can be categorised into three categories i.e. Ordinarily Resident (ROR), Not Ordinarily Resident (NOR) and Non-Resident (NR). Firstly, one need to know Resident Vs Non-Resident. A person is categorised as Resident if in a financial year his stay in India is

  • 182 days or more or
  • 60 days or more concerned financial year and 365 days or more in 4 years preceding concerned financial year.

If above conditions are not fulfilled then that person will be categorised as Non-Resident.

Further, a Resident can be categorised as ROR or NOR. For ROR, two conditions cumulatively need to be fulfilled as under:

  • Resident in 2 years out of continuous 10 years preceding the concerned financial year and
  • Stay in India for 730 days or more in 7 years preceding concerned financial year.

If any of above two conditions are not fulfilled then a Resident will be categorised as NOR.

In case of a Returning NRI or Expatriate, who comes to India, there is a possibility that NRI is returning after many years to India. In that case, though that NRI/Expatriate will become Resident in India by virtue of Resident Status conditions, however, he/she will remain NOR for 2-3 years due to non-fulfilment of both/either of conditions of Ordinarily Resident. Hence, it is possible that a Returning NRI remains Not Ordinarily Resident for 2-3 years after returning back to India.

To read more on Residential Status, please refer below links:

Residential Status In India

2020 India Budget Changes on Residential Status

Scope of Taxability of Income In India

An income is taxed in India according to Residential Status of a person. There are 3 categories of Residential status as per explanations in above para. Taxability in India arise as under:

Residential Status Taxability
ROR Global Income Is Taxable In India
NOR Income Earned And/Or Received In India Is Taxable In India*
Non-Resident Income Earned And/Or Received In India Is Taxable In India

* Income earned or received outside India is taxable in India if it is from a business or profession controlled/set up from/in India.

Hence, for Returning NRIs, who may be NOR in India for 2-3 years, the good thing is that their foreign income may not be taxable in India for 2-3 years.

Taxability of Returning NRIs, OCIs, PIOs And Foreign Citizens Coming To India For Employment or Otherwise

From the above, it is clear that how the taxability of a person is determined in India. Hence, important to determine is the Residential status of the Returning Indian as well the Foreign Citizen who is migrating to India for employment or other purposes. Determination of Residential Status is a subjective and technical matter. It should not be calculated on the plain wording of the law, and a proper advise must be sought for same. A very clear picture of Residential Status is base of computaton of tax in India. Certain doubts arises to the mind of these persons are:

  • Whether rule 60 days (in relevant FY) + 365 days (preceding 4 Fys) will apply to them or 182 days or more (in relevant FY) rule will apply?
  • Till what time Returning NRIs, Foreign citizens can maintain their status as NOR and avoid taxation on their foreign income?
  • Whether they need to disclose their foreing income and assets in Indian ITR?
  • Which date they should plan to migrate/return India to take maximum benefit under the provisions of taxation?

Disclosure of Foreign Assets To Indian Tax Authorities Vs Returning NRIs/Expatriates

As per Indian ITR Form Rules, there is a requirement to disclose foreign assets in the Indian ITR. Information sought in the ITR Form is as under:

 Foreign Assets and Income Details To Be Submitted In Schedule FA Of ITR Form
Assets Disclosure Requirements
Foreign Bank Accounts Bank Name, Country, Date of Bank Account Opening, Balance and Income Earned During The Year
Financial Interest In Foreign Entity Entity Name, Country, Date, Investment Amount and Income Details
Immovable Property Outside India Property Details, Address, Country, Purchase Price, Year of Purchase, Income From Property etc.
Foreign Equity And Debt Interest Entity Name, Country, Date, Investment Amount and Income Details, Redemption details etc
Other Capital Asset Abroad Nature of asset, Date, Investment Amount, Income Details etc
Trusts (Where Person is Trustee, Beneficiary) Country, Name, Name & Address of Trusts Benefiiaries, Settlor, Income Details and Taxability etc
Any Foreign Income Details (not covered above) Details of all foreign income which is not covered in above. Details to be provided are name & address of person from whom income is derived, nature and amount of income, taxability etc.

However, above information need to be submitted by ROR only. Non-Resident (NR) and NOR need not to submit above details. Hence, this provision relieves many (specifically foreign citizens and those who are unsure of their stay in India) as these Indians/Foreign Citizens need not to submit their foreign assets to the tax authorities till the time their status is Non-Resident or NOR. Also, Returning NRIs, who may be NOR for initial few years, reporting foreign assets is not required for initial NOR years.

Bank Accounts/Deposits In India – RBI Regulations and Tax Implications

Bank Account RBI Laws (FEMA) Income Tax Provisions
NRO Deposits Need to be converted into Resident Accounts. Taxable. Under NRO status TDS was applicable as NRI and now it will be as per Resident. Hence, less TDS on conversion.
NRE Deposits On Returning back, NRE Accounts need to be converted either into Resident Account or funds can be transferred to RFC. Taxable {Sec 10(4)(ii)} as the account cannot be maintained as per RBI guidelines

 

FCNR Deposits Can be maintained till the maturity of deposits. Thereafter, either needs to be converted to Resident or RFC. Exempt till the Returning NRI is Non-resident or NOR {Sec 10(15)(fa)}
Resident Foreign Currency Account (RFC) NRE Deposits, FCNR Deposits, Foreign inward remittances can be received in this account. It’s a foreign currency account and freely repatriable money. Interest income is Exempt till Non-resident/NOR residential status {Sec 10(15)(fa)}

Assets Outside India – RBI Regulations and Tax Implications

Bank Account RBI Laws (FEMA) Income Tax Provisions
Immovable Property Outside India Returning NRI may hold it, if it was acquired during the period of NRI status. Rental/other income from this property is not taxable in India till the NR or NOR status. There is no requirement of reporting it in ITR till NOR status.
Foreign Security (Shares etc) Returning NRI may hold it, if it was acquired during the period of NRI status. Dividend/Capital Gain Income from this asset is not taxable in India till the NR or NOR status. Also, this asset need no reporting in ITR form till NOR status.

Usefulness Of Above Information

Above information can be helpful to Returning NRIs, Expatriates, NRIs/OCIs/PIOs visiting India for a short period. It helps them in relation to their various doubts about Indian Tax Laws and FEMA Regulations such as:

  • I am an NRI living abroad. I am planning to come back to India. What are the tax and other provisions applicable on me? What will be tax impact on me?
  • I am an OCI living abroad. I am planning to visit India for some time (may be 2-3 years). What are the Indian Laws in this regard? How will Indian Laws impact my foreign income and assets till I am in India?
  • I am a foreign citizen/NRI. Due to Covid I am staying in India since last 1-2 years. Though my employment is outside India. What will be my tax liability in relation to my foreign income and assets?
  • What are the Indian Tax and Forex Regulations in relation to Expatriates?
  • What are the Indian RBI Laws in relation to NRO/NRE/FCNR Bank accounts for Returning NRIs? What is RFC account and what is taxability of this account for Returning NRIs?
  • What is NOR ROR status and how does it impact taxation of Returning NRIs/Expatriates?

NRI Tax Service Company Consultancy Services/Advisory – Returning NRIs, Expatriates, NRIs/OCIs/PIOS Staying In India For Some time, Foreign Citizens Stuck In India Due To Illness/Covid/Other Reasons

  • NRI Tax Service Consultancy Company have offices across India ie Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Punjab, Dehradun, Chandigarh, Pune, Ahmedabad, Ludhiana, Noida, Other Major Cities.
  • RBI Laws (FEMA Provisions) Advisory Consultancy To NRIs, Expatriates, Others
  • Opinions On Tax Provisions, FEMA Regulations To Returning NRIs/Expatriates/Others
  • Advising, Preparation & Filing Approval/Clarification Applications With RBI
  • Planning and advising of appropriate tax effective and law abiding Structuring
  • Value Services for advising bank accounts maintenance
  • Returning NRIs/Expatriates Tax and FEMA Advisory & Structuring
  • Power of Attorney Services To Execute On Behalf of Returning NRIs, Expats and Other Non-Residents Wrt Indian Transactions
  • Structuring and Tax Planning For Foreign Assets & Income

NRIs/OCIs/Foreign Citizens/Expatriates Related Information/Topics - By NRI Tax Service Non Resident International Tax Team

  • Can NRI, OCI, Foreign Citizens Buy Agriculture Property In India?
  • Immovable Property Sale In India By NRIs, OCIs, Foreign Citizens – What to do for Capital Gain Tax Planning and Exemptions?
  • How Can NRI, Foreign Citizens Reduce TDS Rate on Property Sale? How to apply NRI Nil/Lower TDS Certificate (Form 13)?
  • How Can NRIs, Foreign Citizens Repatriate their money from NRO account? How to file Form 15CA, 15CB?
  • Whether NRIs, Other Non-Residents Should File Income Tax Return In India? What are the consequences of not filing ITR?
  • What is Annual Information Statement (AIS) launched recently by Income Tax Department? What is AIS Impact on Non Residents (NRIs, Foreign Citizens)
  • How Can NRIs/Non-residents file ITR in India for past years and claim refund?