Returning to India After Living Abroad: What Are the Tax and FEMA Implications for NRIs?

Returning to India does not necessarily mean you must close all your overseas bank accounts or sell foreign investments. However, your Indian tax treatment can change when your residential status changes.

If you become Resident and Ordinarily Resident, foreign income may become taxable in India, subject to applicable provisions and relief under a tax treaty where relevant. Overseas assets may also need to be disclosed in the appropriate schedules of your Indian income tax return.

The RNOR period can make a difference, but its duration depends on your residence history and the relevant statutory tests. I would suggest getting a year-by-year tax review if you have substantial overseas investments, foreign property, stock compensation or retirement accounts.

If you return to India to live here permanently or for an indefinite period, you should inform your authorised bank and have your accounts reviewed under FEMA.

RBI guidance states that NRE accounts should be redesignated as resident accounts or eligible balances transferred to an RFC account, depending on the circumstances and your eligibility. NRO accounts may be redesignated as resident accounts when your residential status changes. FCNR(B) deposits may generally continue until maturity under the applicable conditions.

Do not assume that your accounts can continue indefinitely under their old NRI classifications simply because they were opened while you lived abroad. Contact each bank and ask what forms and supporting documents it needs.

The year you return can be important because Indian tax residency is determined separately for each tax year. Depending on your days in India and your residence history, you may be classified as a non-resident, Resident but Not Ordinarily Resident (RNOR), or Resident and Ordinarily Resident (ROR).

RNOR status can limit the extent to which certain foreign income is taxable in India. However, it does not mean that all income is automatically tax-free. Indian-source income generally remains taxable where applicable, and foreign income connected with a business controlled from India or a profession set up in India can also require attention.

Before estimating your tax, calculate your days in India and review your residential status for the relevant tax year. The Income Tax Department’s guidance explains the applicable tests.