Checklist For Returning Indian NRI -What to Do Before Moving Back

Are you a Non-Resident Indian (NRI) moving back to the country after living abroad for many years? Whether you are returning for family, work, or retirement, it is essential to plan taxes, finances, and regulatory matters.

India’s tax rules for returning NRIs are different from those for regular residents. Here is a checklist of key things Non-Resident Indian (NRIs) should take care of before returning.

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Key Takeaways

• Understand Tax Residency: Your residential status (NRI, RNOR, ROR) affects how your global income is taxed in India—plan your return to maximize RNOR benefits.
• Manage Finances & Accounts: Convert NRE/NRO accounts, restructure foreign investments, and update KYC details after changing residency.
• Review Insurance & Pensions: Secure health insurance in India and understand how your foreign pensions or social security will be treated post-return.
• Legal & Documentation Checklist: Update wills, obtain Aadhaar and PAN, handle OCI for family, and declare foreign assets if you become ROR.

Tax Planning and Residential Status for Non-Resident Indian (NRI)

Before moving back to India, it is important to understand how your tax status will change. Knowing your residential status helps you understand what income will be taxed. With good planning, you can reduce your tax burden and make the transition smoother.

Understand Your Residential Status

Your residential status under Indian tax law is what determines how much of your income will be taxed in India. This is governed by Section 6 of the Income Tax Act.

Basic Conditions (Section 6(1))

You are considered a resident in India if either of the following applies:

• You are in India for 182 days or more during the relevant financial year, OR
• You are in India for 60 days or more in the financial year and have stayed in India for 365 days or more during the preceding 4 years.

If neither condition is met, you are classified as a Non-Resident (NRI) for tax purposes.

Importance of RNOR status for returning NRIs

Once you are considered a resident, there are two sub-categories:

1. Resident and Ordinarily Resident (ROR)

You qualify as ROR if both of the following apply:

• You were a resident in at least 2 out of the last 10 years.
• You stayed in India for 730 days or more in the last 7 years.

RORs are taxed on their global income in India. This means all your income, whether earned in India or abroad, is fully taxable in India.

2. Resident but Not Ordinarily Resident (RNOR)

You qualify as RNOR if you are a resident, but do not meet the above additional conditions.

RNORs enjoy some important tax benefits:

• Only Indian income and income earned from business or profession controlled from India is taxed.
• Most foreign income (like overseas salary, pension, dividends, capital gains) is not taxed in India while you are RNOR.

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How to Optimise RNOR Benefits?

By timing your return to India strategically (e.g., arriving late in the financial year), you may:

• Limit your days in India, helping you stay NRI or RNOR for longer
• Extend the RNOR period (typically up to 2-3 years), which gives you more time to reorganise your foreign income and investments before your global income becomes fully taxable in India.

How to Assess Tax Liability As a Non-Resident Indian (NRI)?

The next step is to understand what income you will be taxed on after moving back to India.

Identify global income sources

Make a list of all the income you earn outside India, such as:

• Rental income from overseas property
• Dividends from foreign stocks or mutual funds
• Pension payments from previous employment abroad
• Interest income from foreign bank accounts
• Capital gains from selling investments like shares or real estate abroad

Determine tax treatment in India

Here’s how this works:

• If you are an NRI or RNOR, most of your foreign income is not taxed in India. You will only be taxed on income earned within India or from a business or profession controlled from India.
• Once you become an ROR (Resident and Ordinarily Resident), your entire global income becomes taxable in India. This includes foreign salary, rent, dividends, interest, pensions and capital gains.

You can check if India has a Double Taxation Avoidance Agreement (DTAA) with the country where your income originates. This helps ensure you don’t pay tax twice on the same income.

Consider special cases

• NRE/FCNR Account Interest
• Interest from NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) accounts is tax-free in India while you are an NRI or RNOR.
• Once you become an ROR, this interest becomes taxable.

Offshore Investment

Selling foreign shares, ETFs or property may lead to capital gains, which become taxable in India once you are an ROR. That’s why it is wise to plan ahead and consider selling or restructuring such assets while you still hold RNOR status, if possible.

Bank Accounts and Finances

When you move back to India and your status changes from NRI to Resident, you need to update your bank accounts, KYC details and look into your foreign assets. Here’s what to do:

Convert NRE/NRO/FCNR Accounts

• NRE/NRO accounts: You must convert or re-designate your NRE and NRO accounts to Resident Savings Accounts once you become a resident in India.
• FCNR deposits: You can keep your FCNR deposits until they mature. After that, convert them into resident accounts or reinvest as per resident rules.

Update KYC

Keep your accounts compliant with Indian regulations. Here’s how you can do it:

• Inform your bank that your residency status has changed (from NRI to resident).
• Update your PAN, Aadhaar, address and any other necessary documents.

Foreign Assets Declaration (if you are ROR)

• Suppose you become a Resident and Ordinarily Resident (ROR). In that case, you must declare any foreign bank accounts, property or investments in your Indian Income Tax Return (ITR) under Schedule FA (Foreign Assets).
• Consider whether you want to keep or close overseas accounts. Some countries don’t allow non-residents to hold accounts or investments.

How to Manage Investments and Assets

1. Review Offshore Investments

When returning to India, check how your foreign investments (like stocks or mutual funds) will be taxed, especially capital gains and dividends. Consider selling some during your RNOR (Resident but Not Ordinarily Resident) phase for better tax treatment.

2. Indian Investments

Update your residency status with mutual fund companies and stockbrokers. If you were an NRI, you now need to switch to a Resident investor profile.

3. Property Management

If you are selling property abroad, ensure it follows FEMA rules and report any gains in India. Also, declare income from Indian property and list assets in your income tax return

Tips to Manage Social Security, Pension and Insurance

When moving back to India, it is crucial to understand how your U.S. Social Security, UK pensions or other international benefits will be affected. Additionally, securing appropriate health and life insurance in India is important.

Overseas Social Security

• U.S. Social Security: If you are eligible, the U.S. Social Security Administration (SSA) allows you to continue receiving your payments while living in India. Inform SSA of your new address and comply with any reporting requirements.
• UK Pension: You can receive your UK State Pension in India, but note that it won’t increase annually (no inflation adjustment) because India isn’t on the UK’s list of eligible countries for annual uprating. Check if benefits can be continued in India.
• Other Countries: If you have worked in other countries (like Canada, Australia, etc.), check whether those pension benefits can be paid in India and whether tax or reporting obligations apply.

It is wise to contact the relevant pension/social security offices before your move to confirm eligibility, payment options and any required documentation.

Indian Health and Life Insurance For NRIs

In India, most medical costs are paid by you unless you have insurance. If you are moving back as an NRI, it is important to get health insurance, especially if you plan to stay long term. Here are some points to keep in mind:

• Health Insurance for NRIs: Some insurers in India offer plans for NRIs with relaxed entry rules. These can be purchased before or shortly after returning.
• Pre-existing Conditions: These are health issues you had before buying a policy. Most insurers won’t cover treatment for pre-existing conditions right away.
• Waiting Periods: This is the time you must wait before certain claims (like for pre-existing conditions or specific diseases) can be made, typically 2-4 years in India. Emergency hospitalisation from accidents is usually covered from day one.

Legal and Documentation Essentials

As an NRI moving back to India, it is important to update your legal documents, sort out ID proofs like Aadhaar and PAN, and review visa or citizenship matters, especially if your family holds foreign passports. These steps will help you avoid issues with banking, investments and taxes after your return.

Legal Documents

• Review and update your Will, Power of Attorney, and Nominee details (in bank accounts, mutual funds, provident fund, etc.). Keeping these documents up to date is important as it can help avoid legal disputes or delays for your family in the future.
• If you have assets in both India and another country, you may need separate Wills for each jurisdiction. This is because a Will made in one country may not be valid or easily accepted in another due to different legal systems.

Aadhaar & PAN

• Apply for an Aadhaar Card once you return to India. You will need it for many services, including opening bank accounts, filing taxes and investing in things like mutual funds and stocks.
• Make sure your PAN (Permanent Account Number) is linked to Aadhaar, as it is mandatory for income tax filing and other financial transactions.

Visa and Citizenship Issues

• If your spouse or children are foreign citizens, ensure they have an OCI (Overseas Citizen of India) card. This allows them to live, study or work in India without a visa.
• Check if you need to pay taxes in both India and the country you are coming from. You may also have to report any income or property you own abroad, based on your residency status.

Lifestyle and Relocation Planning

Moving back to India involves more than just packing your bags. Here are some key things to plan for a smoother transition:

• Select a city: Choose a city that suits your lifestyle, work and family needs. Consider the cost of living, traffic, climate, healthcare and job opportunities.
• School admissions: If you have children, look into school options early. Many popular schools in India have limited seats and entrance tests, so applying in advance is important. Also, keep the following points in mind:
  • Indian school calendars usually start in April or June, so plan your move accordingly.
  • Decide between Indian boards (CBSE, ICSE) and international boards (IB, IGCSE) based on your child’s background and future plans.
• Shipping & Customs: If you are sending household goods to India, learn about customs rules, duties and paperwork in advance. Some items may be taxed or restricted.

Final Checklist for Indian NRIs Before Departure

Here are some important things to wrap up before you leave:

Inform your banks and investment platforms about your change in residency status (from NRI to Resident). This helps avoid issues with account access and ensures your taxes and investments are handled correctly. The following are some points to keep in mind:

• Consolidate foreign assets and accounts: Consolidate or close foreign accounts if not needed, and keep a track of any overseas income or assets. Managing fewer accounts makes things easier. Even after moving to India, you may still need to report your foreign bank accounts, investments or property to Indian tax authorities, especially if you are earning income from them.
• Plan RNOR tax window: Plan your RNOR (Resident but Not Ordinarily Resident) status for tax benefits during the first 2-3 years after returning. This status can help you avoid paying tax in India on certain foreign income during the transition period.
• Organise health coverage in India: Get health insurance in India, especially if you don’t have employer coverage. Medical costs can be high, and insurance gives you financial protection if something unexpected happens.

Plan For A Smooth Transition

Returning to India needs proper planning for a smooth transition. Ensure you utilise the RNOR status to reduce your tax liability, and consult with financial or legal experts if necessary. With the right preparation, your move back can be stress-free and help you stay financially secure as you start a new chapter in India.

FAQs

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