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Money tips for NRIs returning to India

Last updated on: June 19, 2009 16:54 IST
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You have decided to move back to India after a stint abroad. You want to bring over not only your family but also your money to India.

However, while bringing over your money to India you should take care to ensure it is done in such a way so as to reduce your tax liability and let you repatriate it back to your residence abroad, should you opt to move back.

Also you need to take care of tax issues, if your annual income in a current financial year includes your earnings abroad. Besides, investments are another issue that need to be considered. Here is how you should tackle these issues.

Open a suitable bank account: As an NRI, you can choose from various types of accounts, designed for NRIs. Non-Resident Ordinary (NRO) Savings Account, Non-Resident External (NRE) Savings Account and Foreign Currency Non-Resident (FCNR) Deposit Account are some types of bank accounts available to NRIs.

Before deciding on which account is suitable for you, take into account the following points:

  • What are the sources of the funds for depositing in the bank account? Are these funds obtained from Indian sources or repatriated (brought back home) from overseas?
  • In which currency you want to maintain the account?
  • Do you plan to repatriate (restore) the currency into the foreign currency, in order to take it abroad?
  • How will this money be taxed in India?

If you want to maintain the account in rupees, then NRE account is suitable for you. Your funds in foreign currency are converted into Indian rupees, at the existing foreign exchange rates prevalent at the time of depositing the money in the account. You cannot use this account to deposit your income earned in India.

The principle as well as the interest is completely repatriable(can be restored) and non-taxable in India. In case of joint accounts, you must have only other NRIs as account holders.

If you want an account to repatriate (restore) your foreign funds as well as Indian earnings, NRO account is suitable for you. The interest earned by the funds in this account is taxed in India and there is an upper limit of $1 million on the repatriation of funds from this account. This account can be held jointly with other NRIs or resident Indians.

If you want to eliminate the risk of foreign currency conversion and repatriate (bring back) the funds in your account without paying any taxes, then FCNR account is suitable for you. However just as with NRE account, you cannot deposit your Indian earnings in this account and cannot hold it jointly with resident Indians but only with other NRIs.

So if you plan to repatriate your funds to your country of residence without paying any taxes, then NRE and FCNR accounts are appropriate for you. But if you plan to reside in India permanently, then NRO account can help.

Income tax liability: Of course, once you settle down in India, you will be working and earning income here. It means you will have to pay tax on your earnings for the entire year. But what happens if you have already paid tax on the portion of your income while you were working abroad? It is not fair to pay tax on the same amount twice.

Hence you should take benefit of the double taxation treaty signed between India and other countries. You have to submit the Residency Certificate given by the income tax department of your resident country, at the time opening a bank account or subsequently.

It will help you get tax credit for the amount on which you have already paid tax, or you may not have to pay the tax, thereby reducing your tax bill.

Watch out for taxes on Investments: An NRI must give careful thought to his investments in India. While mutual fund investments are not taxed in India, you may have to pay tax if you decide to go back to your native country. Also if you redeem your mutual fund investments, before one year, you end up paying short term capital gains.

Similarly, your investments in income funds, over Rs 1,00,000 are heavily taxed. So it advisable to limit your investments in these funds up to Rs 1,00,000. Invest the remaining surplus amount in growth scheme of equity funds. Similarly if you get a dividend from your investment in Indian stocks, remember it will be taxed, as it is regarded as the income originated in India.

So try to limit your exposure to direct stock market investment.

To relocate successfully from your original country to India, start by opening the correct account that meets your requirements, taking care of your tax liability and preparing a proper investment plan, so that you benefit from the high returns offered by Indian stock markets, while reducing your tax liability.

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