INCOME-TAX ACT, 1961 (THE “ACT”)
- Under the Indian Tax Laws overseas income is liable to Tax in India only if the assessee is an ordinarily resident.
- A returning Indian who has been a Non Resident for 9 years or more, then for 2 successive years he shall be a resident but not ordinarily resident.
- Interest on NRE A/c and FCNR A/c is exempt in the hands of a person who is a Person Resident outside India as per FEMA laws.
- Interest paid by scheduled banks to NRI or an RNOR on RFC deposits is exempt from tax.
- Pension from NRI’s former employer after return to India may be liable to tax in India subject to provisions of the Double Taxation Avoidance Agreement between India and the country from which the NRI is receiving such amount.
FOREIGN EXCHANGE MANAGEMENT ACT, 1999 (FEMA)
A) OVERSEAS ASSETS HELD BY THE NRI
All kind of Foreign exchange / overseas assets such as properties, bank deposits, stocks and securities, life insurance policies, loans, company deposits, debentures, bonds etc. acquired, held or owned by an NRI while he was abroad can be continued to be so held and deal in any manner even after the NRIs return to India for permanent settlement.
B) INDIAN ASSETS HELD BY THE NRI
I. BANK ACCOUNTS:
A returning NRI upon his return to India has to deal with his various accounts in India in the following manner:
|Type of Bank account||Re-designation upon Returning to India|
|Non-Resident Ordinary Bank Account (NRO a/c)||Re-designate to Resident account|
|Non-Resident External Bank Account (NRE a/c)||Re-designate to Resident account OR transfer balance to Resident Foreign Currency Account (RFC a/c).|
|Foreign Currency Non-Resident (FCNR a/c)||Hold up to maturity; Upon maturity should be converted into Rupee account or RFC a/c.|
Resident foreign currency account (RFC a/c)
- Returning NRIs on becoming residents can open RFC accounts which are fully repatriable and denominated in forex.
- Funds in RFC A/c can be remitted outside India for any bonafide purpose of the account holder or his/her dependents.
- Interest on RFC A/c will be exempt from income tax till the NRI’s residential status under the Indian Income-tax laws is NR or RNOR.
- Funds in RFC A/c can be withdrawn freely for local payments in rupees.
II.SHARES SECURITIES ETC:
Returning NRI is required to inform all the companies, funds, the Depository Participant etc. as to change of his/her residential status from NRI to Resident.