NRIs returning to India can hold investments abroad

I am a non-resident Indian (NRI) and plan to return to India very soon. At present, I am employed abroad and have investments in the country that I am staying in. I want to know can an NRI returning to India continue to hold her foreign earnings overseas and gradually bring the money back to India as and when it is required? What are the tax implications on bringing the money back into India?

—Charlie

There is no compulsion for a returning Indian to transfer all her overseas investments to India. As an NRI returning to India, you can continue to hold your foreign earnings, foreign securities or any immovable property that is situated outside India if it was acquired when you were a resident outside India. The income from such investments can also be retained outside India.

As an NRI returning to India, you would be a resident but not ordinarily resident for two years for income tax purposes and you would be liable to tax only in respect of your Indian income.

Thereafter you would become a resident and ordinarily resident in which case your worldwide income is liable to tax in India.

You will, however, be entitled to the benefits, if any, under the double tax avoidance agreement (DTAA) entered into by India and the country in which your income arises, including credit for taxes paid in that country.

As an NRI returning to India, you can also open a resident foreign currency (RFC) account to transfer balances held in non-resident external (NRE) or foreign currency non-resident (FCNR) accounts.

Proceeds of assets held outside India at the time of return can also be credited to RFC account. The funds in RFC accounts are free from all restrictions regarding utilization of foreign currency balances including any restriction on investment in any form outside India. Interest paid on RFC accounts is exempt from tax as long as you remain a resident but not ordinarily resident for income tax purposes.

There are no specific tax implications at the time of remitting money to India. However, if foreign income is received in India, it is taxable in India subject to DTAA relief.

Also do keep in mind that when this money is invested in India, the income arising from the same would be liable to tax as per the prevailing domestic tax laws in the country.

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