Many returning NRIs are not completely aware of the rules in India with regards to change in residential status, banking, taxation, forex and investments. Here is a financial checklist you as a returning NRI should bear in mind to ensure a smooth transition in finances.
Re-designate existing bank accounts: On return to India for permanent settlement, you need to inform the Indian banks about your status change. As per FEMA regulations, you need to compulsorily convert your existing NRO/NRE accounts to resident savings account. The Foreign Currency Non-Resident (FCNR) and Non-Rupee bank deposits can however be held till maturity. You can also open a Resident Foreign Currency (RFC) account if you want to repatriate your forex earnings to India. Further, to avoid the risk of foreign currency fluctuations, it is prudent to transfer your outstanding balances, if any, in existing NRE and FCNR accounts to RFC account. Prefer international banks which have online facilities for smooth transfer of funds.
Maintain sufficient cash flow: It would be difficult to predict what expenses will be like once you are back in India. Initially, there could be huge cash outflow in the form of house relocation, renovation expenses, school fees for children’s education, etc. You can get an idea about the big chunk of expenses by discussing with your relatives/friends in India. You can budget about 6 months of household expenses and the big-ticket costs and transfer the funds in advance to your account in India.
Review your Indian and foreign investments afresh: If you have been staying abroad for a long time and prefer to make India your base location, decide about your properties and investments abroad. You can choose to hold your foreign property as FEMA regulations allow it provided you were a non-resident or received a gift/inheritance from a person resident outside India. The only hitch is that there are strict rules to comply with upkeep of property abroad. It can become inconvenient to manage it sitting thousands of miles away.
If you decide to sell the house, it may take time depending upon location and market conditions. So keep some buffer time to sell the house & complete all formalities before you return to India.
Review how convenient it would be to manage your overseas investments from India. It is prudent to keep it simple and pare it down accordingly. Have a small exposure to foreign investments in your globally diversified portfolio.
In the case of Indian investments, if you have any existing shares, you would be required to close your Portfolio Investment Scheme (PIS) account and open a fresh trading account in India. You will have to inform your stock broker and depository participant about your status change in India.
Beware of the tax angle: The tax liability as per Indian tax laws is determined with reference to the residential status, i.e., physical stay in India. You will not immediately become resident on the day of landing in India. Your status will change from Non-Resident Indian (NRI) to Resident but Not Ordinarily Resident (RNoR). You will qualify as RNoR for 2 successive years if you return to India after staying abroad for a period of nine years or more. As a RNoR, you would not be taxed on your global income, if any, for 2 consecutive years. Also, any asset that you choose to bring along to India will be exempt from tax. You will be liable to pay tax only on the income earned in India. You will however continue to earn tax free interest from FCNR deposits. Ensure that you update your KYC for mutual fund investments and inform about the change in residential status. There will be no tax implications if you sell your equity fund holdings held for over a year.
It is prudent to consult a tax advisor for filing returns in the first year after moving to India. Also, ensure that you carry income tax statements of the returns filed in the foreign country of at least previous 3 years. You may require it for future reference in case of dispute.
Assess health insurance requirement: Update your KYC details for existing insurance policies, if any, in India. Updating the address and contact number will ensure you start getting regular reminders or other notices. If you do not have a health insurance policy after returning to India, ensure you buy adequate cover for self and family. Also, check if your health insurance policy bought abroad is valid in India.
Other points to remember:
As per FEMA regulations, an individual is permitted to retain with him foreign currency and traveler cheques up to a maximum limit of USD 2,000 on return to India. The unspent amount beyond this limit needs to be surrendered to an authorized person within 180 days from the date of return to India. It is a violation of law to hold foreign currency beyond the specified limit and may attract penalties.
If you are receiving or are eligible for pension abroad, you can either choose to maintain it there or check with your employer if it can be transferred to India.
To conclude, taking care of all the financial tasks after coming to India could be a lot to handle. If you do not have the time and expertise, it is better to hire an investment advisor who would guide you on the financial transition in a tax efficient way. You can also hire an expert advisor who specializes in serving returning NRI/PIO families for a fee.