Income Tax Planning for an NRI planning to return to India
Income Tax Planning for an NRI planning to return to India .It might so happen that one fine day you decide to pack your bags and come back home. When you do,there are a few things that Income Tax planning must take special care of. For starters, your investments and tax implications. In general, the tax laws for NRIs returning to the country are fairly generous. However, youmust not be complacent.
A bit of careful planning will ensure that you do not run into any surprises when you come to India, as far as your overseas income and investment are concerned.Tax Resident Status Your tax liability on the income largely depends on your residential status. The FEMA (Foreign Exchange Management Act) and the Income Tax Act govern all these tax rules and regulations. The FEMA keeps a track of all the transactions taking place outside the country for Indian residents. These transactions include foreign bank accounts,money transfers, remittances, lending, gifting, etc. Any investment in real estate or mutual funds is also taken care of by the FEMA. The income tax act on the other hand, looks after the tax liability arising out of such investments. As per the FEMA guidelines, an NRI is someone who currently stays out of India but either is a citizen of
India or a person of Indian origin. They must meet either of the following conditions to become a PIO or a person of Indian origin.
– Has held an Indian passport anytime during their lifetime.
– Has a spouse of Indian origin.
– Was a citizen of India or has grandparents or parents who are Indian citizens.
Foreign Assets
The FEMA offers strict and clear guidelines for foreign assets. As per the law, an NRI has the liberty to own, transfer, hold or invest in assets that are outside the country. However, this only comes into the picture if the person bought the asset during their stay abroad or if they have inherited the assets. And not otherwise.
Indian Assets
Should a person choose, they can hold on to their Indian assets during their stay in other countries. These include bank accounts, investments, assets etc. however, there are special accounts to hold these. Usually, the two bank account types available for NRIs are FCNR or Foreign Currency Non-Resident and
NRE or Non-Resident External Rupee. You can use these accounts to deposit any earnings from outside the country to your local bank accounts.
Income Tax Act
The income tax act has clauses with the help of which NRIs can save taxes on their global income for as many as three fiscal years. On coming back to the country, they must convert their NRE or FCNR accounts to RFC accounts. Any interests earned on FCNR and NRE accounts are exempted for NRIs and RNORs.
If an individual was residing in foreign country ordinarily, and brings in money to India, the same is exempted from taxes up to a period of seven consecutive assessment years. The only condition being that the wealth tax exemption is not applicable to income tax and assets which are brought during the stay in India.
For NRIs who receive their pension from former employer post moving to India may be taxable. Of course, if there is any double taxation agreement between both the countries, it would govern the taxes.
NRIs who are moving back to India permanently, need to consider the above points. Being aware of applicable tax laws and proper planning would ensure a smoother transition phase and allows users to benefit from tax breaks. Since returning NRIs have quite a few tax breaks available for them.
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