Returning Indian - Key Aspects

CA Ankita Shethia

By: CA Ankita Shethia (ankitaamitshethia0@gmail.com)

Returning Indian is a person who comes back to India for various reasons like employment, business, relocation etc. Returning to India involves navigating various compliance requirements, from tax matters and banking procedures to assets ownership and residency status and Foreign Exchange Management Act, 1999 provisions ("FEMA"). In this article we will try to navigate through applicable FEMA provisions in cases where a person return back to India.

Understanding Resident Status under FEMA

Returning migrants or NRIs moving back to India are subject to FEMA provisions concerning their Overseas Assets. FEMA governs the Cross Border Transaction involving foreign exchange inflow / outflow by Resident Indians. As per Section 2 of FEMA, an Individual is considered a Resident upon return based on their intent to stay for employment, business, or vocation in India.

For FEMA purpose, just as an individual leaving India for employment becomes a non-resident on the day he leaves India, a person returning to India for employment is considered a resident from the date of arrival in India. This interpretation holds even if the individual was not physically present in India for more than 182 days in the preceding Financial Year. Under FEMA, the intention to stay in India is more significant than physical presence. The condition for physical presence is a secondary condition and usually applicable for the foreign nationals (other than Overseas Citizens of India) who come to India for purpose other than employment, business or vocation and when they desire to purchase immovable property (residential or commercial property).

Foreign Assets After Returning to India

Section 6(4) of FEMA grants general permission to returning NRIs to continue holding their Foreign assets upon becoming residents of India. As stated in the section: "A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India".

Foreign Assets will include Foreign Currency, Foreign Immovable Property and Foreign Security etc. and also other assets such as balances in foreign bank accounts, investment in businesses, jewellery, paintings etc.

RBI Circular No. 90 Clarifications

A.P. (DIR Series) Circular No. 90, issued by the Reserve Bank of India (RBI) on January 9, 2014, provides clarifications regarding the provisions under Section 6(4). The circular clarified regarding nature of transactions that get covered under Section 6(4) includes:

  • Foreign currency accounts opened as a non-resident
  • Income earned abroad during that period or from related investments/gifts, and inherited foreign exchange

Such assets, along with their income or sale proceeds, can be used for international payments or investments without prior RBI approval, provided the funds originate solely from these qualifying sources and adhere to FEMA regulations.

The circular aimed to confirm that returning NRIs could retain and utilize their foreign assets upon returning to India.

Remittance Facilities Available After Returning to Resident Status

Liberalised Remittance Scheme ("LRS") is a facility under FEMA that allows resident individuals in India to send up to USD 250,000 per financial year abroad for any permissible current or capital account transactions. This includes uses like education, travel, medical expenses, investments, or gifting, provided all other LRS rules and guidelines are met.

Understanding LRS Transactions

The LRS limit can be used for permissible capital and current account transactions.

Capital Account Transactions

Capital account transactions are those that alter the assets or liabilities outside India of a person resident in India and vice-versa. These transactions are generally prohibited unless specifically permitted. Under LRS, individuals are permitted to undertake the following capital account transactions:

  • Opening a Bank Account in foreign currency abroad
  • Acquisition of immovable property abroad
  • Overseas Direct Investment (ODI) and Overseas Portfolio Investment (OPI) governed in accordance with the provisions of the Foreign Exchange Management (Overseas Investment) Rules, 2022 and the Foreign Exchange Management (Overseas Investment) Directions, 2022
  • Providing loans in Indian Rupees to NRI relatives

Current Account Transactions

Current account transactions are defined as all transactions that are not capital account transactions, meaning they don't alter a person's assets or liabilities outside India. These transactions are generally permitted unless specifically prohibited. Permissible current account transactions include:

  • Private visits, gifts/donations, employment or emigration
  • Maintenance of relatives abroad
  • Business trips
  • Medical treatment abroad
  • Overseas studies

An investor under LRS can keep reinvesting earnings from investments. Any unused or un-invested foreign exchange must be brought back and submitted to an authorized person within 180 days of receipt or return to India.

Banking and Financial Accounts Checklist for Returning NRIs

  • Convert NRE/NRO Accounts: Re-designate existing NRE and NRO accounts to Resident Savings Accounts upon return, as per RBI guidelines
  • Close Unnecessary NRE/NRO accounts: Review and close any redundant non-resident accounts no longer needed
  • FCNR(B) accounts: Can be continued to be held upto its maturity. Post maturity the proceeds need to be transferred to resident savings account or RFC account
  • Open RFC Accounts (if needed): Consider opening a Resident Foreign Currency (RFC) Accounts to hold foreign currency earnings in India without converting them to INR. The RFC account provides hedge against currency fluctuations which protects you from potential depreciation of Indian Rupee. You can convert your foreign currency to Indian Rupees (INR) only when the exchange rate is favourable or when you need the funds
  • Update KYC: Ensure KYC details are updated with all Indian banks to reflect your new resident status

Investments and Mutual Fund Checklist for Returning NRIs

  • Convert Demat & Trading Accounts: Reclassify NRI Demat and trading accounts to resident status as per RBI and SEBI regulations. If the same cannot be re-classified than open new demat accounts and transfer all holdings to the same
  • Update KYC with Fund Houses: Inform all mutual funds AMCs of your change in residential status and update KYC records accordingly
  • Review and Rebalance Portfolio: Reassess your investment portfolio in light of your new tax residency and consider realigning asset allocation based on Indian tax implications and financial goals

Taxation and Compliance Checklist for Returning NRIs

  • Update PAN Records: Notify the Income Tax Department of your change in residential status by updating PAN details accordingly
  • File ITR as a Resident: Begin filing your Income Tax Return (ITR) as a resident from the relevant assessment year following your return
  • Disclose Foreign Assets and Income: Report all foreign assets and income in your ITR to ensure full compliance with Indian tax laws
  • Review DTAA Applicability: Assess whether the Double Taxation Avoidance Agreement (DTAA) applies to any ongoing foreign income
  • Obtain TRC (if needed): Secure a Tax Residency Certificate (TRC) from the relevant foreign country to claim DTAA benefits, if applicable

Property and Real Estate Checklist for Returning NRIs

  • Update Address Records: Ensure your Indian address is updated in all property documents, utility bills, and Aadhaar Records
  • Assess Capital Gains on Foreign Property: Review capital gains tax implications if you plan to sell property overseas before returning
  • Declare Rental Income Abroad: If returning and renting out property overseas, check tax obligations under Indian and foreign tax laws
  • Repatriation Sales Proceeds (if applicable): If selling property, consider repatriating funds to India in line with FEMA regulations

Insurance and Loans Checklist for Returning NRIs

  • Update insurance Policies: Inform insurers and update your residential status in all life and health insurance policies
  • Review Health Coverage: Consider converting international health insurance to an appropriate Indian Plan, if required
  • Evaluate Loans and Liabilities: Reassess your home loans, personal loans, and credit card dues in both India and abroad to manage repayments and restructuring efficiently

PAN and Aadhaar Updates Checklist for Returning NRIs

  • PAN & Aadhaar: Ensure all family members have updated documents (passports, Aadhaar, PAN, etc)
  • PAN Link with Aadhaar: Ensure your Pan is linked with Aadhaar for Tax Compliances
  • Address: Update address and contact details linked to PAN & Aadhaar

Foreign Assets and Repatriation Checklist for Returning NRIs

  • Plan the repatriation of foreign earnings: Through legal channels adhering to the LRS limits and FEMA Regulations
  • Understand FEMA Limits: For remittance and reporting requirements
  • Consult for significant overseas assets: Consult a financial planner for tax-efficient transfer
  • Ensure Compliance with capital gains tax rules: In both the countries - Check Double Taxations Avoidance Agreements (DTAA) & Foreign Tax Credit (FTC)
  • Close foreign Bank Accounts: If not needed

Estate and Will Planning Checklist for Returning NRIs

  • Update Nominee Details: Ensure that all bank accounts, investments, and insurance policies have current nominee information
  • Modify or Create a New Will: Review and update your Will which reflects your change in residency and asset locations. It is advisable to have separate will for each country's assets
  • Ensure Compliance with Indian Succession Laws: For Foreign Assets

Social Security and Retirement Checklist for Returning NRIs

  • Review eligibility for pension: Check for eligibility for pension, withdrawals or transfer from any overseas retirement funds or employer-sponsored plans
  • Understand your entitlements: Under foreign social security systems (e.g., U.S. Social Security) and check if you can receive payments while residing in India
  • Build or realign your retirement plans: In India by contributing to local schemes like EPF, PPF, or the National Pension System (NPS) based on your residency and income

Conclusion

Returning Indians must carefully navigate the transition from non-resident to resident status under the Foreign Exchange Management Act (FEMA), 1999, ensuring full compliance with regulations governing overseas and Indian assets. A comprehensive review of banking, investments, taxation, property, insurance, and compliance matters—including account conversions, KYC updates, asset disclosures, and portfolio realignment—is essential to ensure smooth financial reintegration and adherence to Indian regulatory requirements. Proper planning and timely updates to documentation, wills, and retirement arrangements will help returning Indians manage their global and domestic obligations efficiently while optimizing financial and tax outcomes.