An Indian citizen spending more than 183 days abroad is categorized as a Non-Resident Indian (NRI). However, after having spent a substantial amount of time abroad when this NRI decides to return to India he has to address some pertinent tasks to ensure a smooth transition. This is particularly true when reorganizing and appropriately managing one's financial arrangements.
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Here are some money management tips for NRIs returning to India.
As an NRI, one can operate FCNR (Foreign Currency Non-Resident) accounts, NRE (Non-Resident External Rupee) account or an NRO (Non-Resident Ordinary) account. On returning to India the accounts need to be re-designated as domestic resident accounts. The balance in NRE/FCNR accounts may be transferred to RFC (Resident Foreign Currency) accounts, if desired. FCNR accounts can continue till maturity date and can subsequently be converted to RFC accounts.
These accounts need to be converted immediately when an NRI becomes a resident in India. However, a reasonable grace period is allowed which amounts to being 3 months. If continued, the interest earned on these accounts is taxable.
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Point to be remembered, all records with insurers, mutual funds and depository service providers should be updated in a timely manner.
Given that the financial year in India is from April to March, taxation there needs to be addressed accordingly. It is important to ascertain whether one falls under the ROR (resident and ordinary resident) or the RNOR (Resident but not ordinary resident) category. In the case of the former, worldwide income is taxable and in the case of the latter tax is applicable only on Indian sourced income. FEMA (Foreign Exchange Management Act) governs investments of NRIs and ITA (Income Tax Act) governs Indian taxation regulations.
An NRI returning to India is free to hold, own, transfer or invest in assets situated outside India. However, the provision is only applicable if the asset was acquired when the individual was a resident outside India or the asset was inherited from a person outside India. Tax on global income can be saved for up to 3 FYs under RNOR status. Indian sourced income would still be taxable.
Since the applicable norms of finance to expenses, income and investments will change with the change in country of residence, it is essential to rework and reorganize the financial plan. This has to be worked out in detail, setting long term and short term goals. In fact, it would be wise to set up an integrated investment strategy.
Once you have managed your money wisely, maybe with the added help of a financial planner, you can sit back and enjoy the varied employment and investment opportunities that India has to offer.