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Returns NRI
NRI who return to India for good, should know various aspects of Foreign Exchange Regulations
(FEMA), Indian Taxation and Banking Regulations in order to rearrange his financial affairs in
India and outside India.
Detailed information covering important aspects for such arrangement is explained here.
FOREIGN EXCHANE MANAGEMENT ACT (FEMA)
A) OVERSEAS ASSETS
1. Foreign exchange / Overseas assets acquired, held or owned by an NRI while he was
abroad can be continued to be so held and owned even after the NRI's return to India for
permanent settlement.
If required, such assets can be repatriated to India.
B) INDIAN ASSETS
I. BANK ACCOUNTS. (In India)
1. Returning NRIs, upon his return to India, is required to redesignate all his banking
accounts as Resident Accounts.
2. Resident Foreign Currency Account (RFC Account)
--- A Returning NRIs, on becoming residents are free to open and maintain such
accounts with authorized dealers.
--- The funds held in RFC accounts are fully repatriable and also denominated in
Forex.
--- Also, the Interest on RFC Account will be exempt from the Income Tax in the
hands of person whose status under the Income Tax Act is either NRI (Non-
Resident) or RNOR (Resident but Not Ordinary Resident).
II. SHARES, SECURITIES ETC (In India).
Returning NRI is required to inform all the companies, funds etc. as regarding change of status
from Non-resident to Resident.
INCOME TAX
--1. Under the Indian Tax Laws overseas income is liable to Tax in India only if the assessee is an
ordinarily resident.
--2. A returning Indian who has been a Non Resident for consecutive 9 years or more, then for 2
successive years he shall be a resident but not ordinarily resident (RNOR) AND
--a. All income earned in India shall be taxable in India.
--b. Income which accrues or arise outside India will not be liable to tax in India
unless it is derived from business controlled or profession set up in India.
--3. Interest on Non Resident External Account (NRE) and Foreign Currency.
Non-Resident Account (FCNR) [Section 10(4)(ii)] is exempt in the hands of a person who is --a
Person Resident outside India as per section 2(w) of FEMA, 1999 and definition of 'Non-Resident'
under Income Tax is not relevant for this sub section.
--4. Income in respect of Interest, premium on redemption, other payment on notified securities,
bonds, certificates and deposits are exempt u/s 10(15)(i) which covers:
--c. Interest on India millennium Deposits(IMDs)/Resurgent India Bonds(RIBs) issued
by State Bank Of India (The exemption from tax continues even if the NRI
becomes a resident and is also available to the nominee or the survivor of the
NRI or to a donee to whom the bonds have been gifted by the NRI.).
--d. Interest on NRNR Rupee Deposits Scheme. The exemption is available to Non
Resident only and therefore, interest on NRNR deposit is not exempt from
income tax when a person becomes Resident but Not Ordinary Resident or
Ordinary resident.
--5. Interest paid by schedule banks to Non-resident or to a person who is not ordinarily resident on
RBI approved foreign currency deposits (i.e. RFC deposits) is exempt (S. 10 (15) (iv)(fa)). The
exemption, in respect of RFC account, continues till such time as the account holder continues to
be "Resident but Not Ordinarily Resident"
--6. NRIs have been offered a separate concessional tax regime in respect of certain types of income
under Chapter XIIA comprising section 115C to 115I. As per section 115E, concessional tax of 20 %
is available in respect of investment income and 10% in respect of long term capital gains from the
specified assets which are acquired out of convertible foreign exchange. The benefit of concessional
tax treatment under chapter XIIA continues even after NRI becomes a resident.
WEALTH TAX
--i. Assets located outside India of Non-resident(NRI) /Resident but Not Ordinary
Resident(RNOR) are exempt from Wealth Tax.
--ii. If NRI return to India with the intention of permanently residing in India, the assets
brought by him and within one year after his return, will be exempt. This exemption is
available to NRI for a period of seven years after his return to India. [sec. 5(1)(v)
PIO CARDS
The Government has announced a scheme for issuance of Persons of Indian Origin (PIO) Cards
for Persons of Indian Origin living abroad and having foreign passports. The PIO cards, which
would be extended to Persons of Indian Origin settled in countries other than Pakistan,
Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan besides introducing a visa
free regime, also confer some special economic, educational, financial and cultural benefits to the
holders of these Cards.
The following facilities shall be extended to the PIO Card holders:
--a. Visa free entry to India.
--b. For PIO Card holders the requirement for registration with Foreigners Regional
Registration Office has been done away with for continuous stay not exceeding 180 days.
All future benefits that would extended to NRIs would also be available to the PIO Card holders.
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