Permanent Return of Non-resident Indians to India: Essential Preparation Guide for NRIs Planning Permanent Residence
In this article, we delve into the key aspects that Indian diaspora need to consider when returning to their homeland, focusing on the process of regaining Indian citizenship, managing foreign assets, and navigating the complexities of banking and taxation.
Regaining Indian Citizenship
For an Indian-origin US citizen, the process of renouncing US citizenship and applying to regain Indian citizenship is a formal procedure. It involves renouncing US citizenship, making an application to the Indian Ministry of Home Affairs, fulfilling residency requirements (11 years in the last 14 years, including at least 12 months right before applying), and proving Indian origin through documents like voter ID, birth certificate, or parent's Indian passport.
It is important to note that India does not allow dual citizenship; to regain Indian citizenship, one must give up their US citizenship. The Overseas Citizenship of India (OCI) scheme is an alternative, offering long-term visa rights but not restoring Indian citizenship or conferring political rights.
Managing Foreign Assets and Banking
NRIs returning to India permanently face financial challenges, particularly in terms of taxation implications on bank account earnings, mutual funds, stock investments, and properties. If you have foreign bank accounts and investments abroad, you can continue holding them as a resident Indian, but it's important to ensure the country's tax laws allow you to continue holding those foreign assets.
NRIs should update KYC details in all Indian bank accounts with a new residential status. Neglecting the transition from RNOR to OR status can lead to heavy tax burdens on global income in India. It is crucial to inform banks, financial institutions, and the IT Department of your resident status under FEMA or Income Tax norms.
The four major financial areas that NRIs need to address after returning to India are bank accounts, foreign investments, residency status, and taxation. NRIs are initially given a Not Ordinarily Resident (NOR) status upon returning to India, which is eventually converted to Ordinarily Resident (OR) status.
Taxation Implications
Understanding taxation implications on various financial assets is crucial for NRIs returning to India. NRIs are liable to pay taxes if their income in India exceeds the basic threshold limits. RNORs are not required to declare foreign assets in Schedule FA of the ITR. However, upon becoming ORs, they will be required to disclose all foreign assets.
Nishant Kohli, Founder of NRI Nivesh, advises that many returning NRIs are usually unaware of the benefits of RNOR status and do not plan the transition well. Neglecting this transition can lead to potential non-compliance with FEMA rules and incorrect taxation or exemption of income.
In conclusion, the process of regaining Indian citizenship, managing foreign assets, and navigating the complexities of banking and taxation require careful planning and adherence to regulations. It is advisable to seek professional advice to ensure a smooth transition and compliance with all relevant laws.
References:
- India Today
- The Indian Express
- The Hindu
- Ministry of Home Affairs
- Upon regaining Indian citizenship, it's imperative to acknowledge the country's regulation against dual citizenship, requiring the renunciation of US citizenship.
- Navigating the complexities of banking and taxation for NRIs returning to India involves managing foreign assets, updating KYC details in Indian bank accounts, and addressing the transition from RNOR to OR status to avoid heavy tax burdens on global income.
- Understanding the taxation implications on various financial assets is essential for NRIs returning to India, as failure to comply with FEMA rules and incorrect taxation or exemption of income could lead to potential non-compliance.
