Tax Planning & Tax Rules for NRIs Returning to India

After building a successful career in a foreign country, you decide that now is the right time to get back to your motherland. But it takes a lot of preparation and planning for the NRIs to plan their return to India, especially when they are planning to return for good.One of the most important considerations before making a move is that of taxation. As you are planning to settle in India, it is very important to know about the tax laws that would apply to you. Some of the most important ones are as follows-

Foreign investment and taxation of NRIs returning to India are governed by the ITA (Income Tax Act) and FEMA (Foreign Exchange Management Act). Under ITA, the residency status and taxation depend on the number of days an NRI spends in India.Based on this, it is decided whether an NRI is an RNOR (Resident but Not Ordinarily Resident) or ROR (Resident and Ordinarily Resident) for the taxation purpose. On the other hand, FEMA focuses on the intent of the NRI. If an NRI is returning to India and plans to settle here, FEMA treats him/her as a resident Indian.

Under ITA, NRIs settling in India are allowed to save taxes for up to 3 years on their global income if they have RNOR status. Even the FCNR and NRE accounts of such RNORs are tax-free. The assets and money brought to India by such NRIs are exempt from any wealth tax for up to 7 assessment years.Under FEMA, NRIs who return to India can own, hold, invest, or transfer their assets not located in India. But this is only applicable if the assets were acquired when the NRI was outside India. FEMA also allows NRIs to make transactions and even earn foreign income through EEFCA (Exchange Earners Foreign Currency Account) and RFC (Resident Foreign Currency) accounts.

When an NRI is in a foreign country, he/she can hold investments, assets, and even bank accounts in India. Most NRIs generally prefer opening NRE (Non-Resident External), or FCNR (Foreign Currency Non-Resident) accounts for this purpose.But when an NRI returns to India with an intent to settle, he/she should redesignate such accounts to RFC accounts. The residency status change should also be informed to companies where an NRI holds shares, partnerships, or other interests.

Tax-planning is one of the most important considerations for NRIs wanting to return to India for good.Keep the points mentioned above in mind while planning your taxes so that you can make use of all the different provisions and facilities available for returning NRIs.

Tax planning for NRI is a must. Soon as you become an Indian resident, you will no longer be eligible for the same tax savings as an NRI. Instead, you will pay taxes in accordance with your residency status, either ROR (resident & ordinarily resident) or you can be RNOR (resident but not ordinarily resident).Here is an instance for you, when you become a resident Indian, any income derived from a property abroad or through a pension from assets like 401K (pertaining to the US) is subject to tax in India. ROR : You shall be regarded as ROR if you have spent at least 60 days in one FY and at least 365 days in the four prior FYs, and at least 182 days in India in one financial year (FY). You must disclose all overseas assets in your income-tax reports since, as a ROR, your worldwide income is taxed in India according to the tax slabs (ITR). The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, allow for legal action to be taken against you if you fail to reveal any income. RNOR : If you were an NRI in nine out of the previous ten FYs or spent no more than 729 days in India during those seven FYs, then you will fall into this category. Except if you get it in India, then your foreign income won't be taxed. Any FCNR deposit will continue to be tax-exempt because it is an RNOR.

We are all aware that the Indian economy is based on taxes the populace pays. The Indian Income Tax Act, 1961, known as NRI taxes , relates to people who make money outside their residence. They have significantly different income tax laws and privileges than permanent Indians have.According to the income mentioned above tax regulations, an NRI's income taxes in India will depend on his/her residency status for the tax year. Your international income is subject to tax in India if your status is "resident." Your revenue in India is taxable if your status is "NRI."Pay earned in India or wages for services done there, income from a house property located there, capital gains on the sale of an asset situated there, revenue from fixed deposits, and interest on a savings bank account are a few examples of income gained or accumulated in India. Taxes must be paid by an NRI on these profits.Indian tax laws do not apply to income obtained outside of the country. Taxes are not applied to interest earned on FCNR & NRE accounts. In the hands of an NRI, interest on NRO accounts is taxed.
Any individual irrespective of NRI or not, earning over Rs. 2,50,000 should compulsorily file an income tax return in India.

Taxpayers whose total gross income is less than the exempt amount of Rs 2.5 Lakhs are exempt from filing an ITR. However, if a person's total income exceeds the maximum exemption level, then he/she must file a return of income.

1. A resident is required to file a tax return if their income exceeds the exemption threshold for the given fiscal year.
2. The highest exemption amounts are as follows: Rs. 2.5 Lakhs for individuals and Rs. 3 Lakhs for elderly citizens (age 60 years or more but less than 80 years).
3. Rs. 5 Lakhs for super senior citizens (age 80 years or more).

The fundamental exemption ceiling may be exceeded by your total gross income, but thanks to certain deductions, your taxable income may fall below the Rs. 2.50 Lakhs mark. Then there is no tax obligation.
You must still file a return even if your taxable income is less than the exemption threshold. A zero income-tax return is one such return (ITR). By filling it, you're telling the Income-Tax department that your income was so low you did not pay any taxes during that year.

• Interest on bonds or securities that have been notified and that are held by non-residents, including any income derived from the redemption of such bonds or, in the case of an individual, interest on a non-resident account kept in any Indian bank in accordance with the prescribed rules.
• Interest on notified Savings Certificates obtained in convertible foreign currency before January 6, 2002, and held by non-residents who are either Indian citizens or people of Indian ancestry.
• Tax due on royalties or fees for technical services rendered on behalf of a foreign corporation in accordance with a prior agreement.
• Tax on income other than wages, royalties, or fees for technical services that is due to the government or an Indian Concern on behalf of the non-registered person.
• Tax is due on revenue derived from leasing aircraft or similar property and is based on contracts or agreements made after 31/3/1997 but prior to 1/4/1999, or an agreement made after 31/3/2007 would be sufficient.
• Income received from foreign businesses for providing technical assistance in initiatives relating to India's security.
• Compensation or price that non-resident consultants got in exchange for rendering technical services in India as part of an authorized scheme. Included in this revenue are their family members' earnings and the salaries received by their employees from sources outside of India.
• Interest on any deposits from India that the Reserve Bank allows is paid to foreign banks. This clause applies only to payments made to a scheduled bank.
• Interest is paid by the government, financial institutions, etc., on loans or money obtained from outside.
• Payments made by the Indian government to lease an aircraft from a foreign government or business under a contract signed before January 1st, 2007.

NRIs can save tax in India with the help of Section 80C Tax Deductions The majority of Section 80C deductions are available to NRIs.The U/S 80C deductions that NRIs may claim are:

Payment of the Life Insurance Premium

The NRI or their spouse and children must be named on the life insurance policy, whichever is purchased. 10% less must be paid toward the policy's premium than the sum promised.

Payment of tuition for children

A waiver of taxes on any tuition costs paid for the full-time education of any two children at a school, university, college, or other educational institution located in India is subject to U/S 80C.

Principal Repayment of Home Equity Loan

The tax deduction can be claimed for paying back loans for residential and building projects. Stamp duty, registration fees, and other costs are deductible for the transfer of the real estate to an NRI.

Investing in ULIP

ULIPs provide both investment and insurance benefits. Section 80C of the Income Tax Act permits a tax credit for premiums paid toward a ULIP plan. Additionally, NRIs are eligible for a tax deduction on interest paid on investments under Section 10(10D) of the IT Act. Along with the benefit of life insurance, ULIP plans present a great chance to earn successful investment returns because a portion of the premium is invested in market funds in ULIP plans to increase returns.

Investing in ELSS

Given that Section 80C of the IT Act allows for a maximum deduction of Rs. 1.5 Lakh per year, ELSS is one of the most popular options for tax deductions for NRIs. The benefit of EEE, or exempt, exempt, and exempt, is provided through the ELSS program. Tax deductions are available for the ELSS contribution, interest income, and returns.Ready to make the most of your money? Start your tax planning journey now!

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.