There is a large segment of professionals who leave the shores for better opportunities but long to returning back to their motherland. While there are a host of things involved from packing all the stuff to searching for good schooling back in India, the financial gamut of things is something that is most complex and because of its complexity, people fail to properly plan out and leave the financial matters as it is, for the worse.
In this article, I’ve tried to list out something of a financial checklist which you can tick off and in my view, it can greatly facilitate the “financial” aspect of your return to India, in a much more smooth and organised way.
#1: Decide on the timing of return to India:
The Indian tax law determines residential status and tax liability with reference to the physical stay in India, unlike US which employs a mix of physical stay and citizenship criteria. If your residential status for a particular financial year is resident and ordinarily resident (ROR), you’ll be taxed on your global income. As against this, if you qualify as a non-resident (NR) or a resident and not ordinarily resident (RNOR) for that year, your tax liability will be limited to the income which is earned/received in India. Also, income tax residential rules differ for a person coming for a visit to India as compared to the one who is returning to India permanently. A lot of people returning India do not realise that a slight effort in planning and timing their return to India can do wonders in terms of reducing their tax liability. Hence, even if you are returning to India in a particular year, time your return in such a way that you still qualify as an NR/RNOR. A good chartered accountant/tax advisor can help you in this regard.
#2: Decide on your accumulated investments abroad: to shift to India or not:
FEMA regulations expressly allows a resident to hold the assets abroad provided they were purchased when the person was a non-resident or received as a gift/inheritance from a person resident outside India. For those of you who have pensions abroad (especially the UK pensions), you can maintain it there itself or you can check with the employer/pensions provider whether it can be transferred back to India, for e.g. the UK pensions can be easily transferred to a qualifying recognised overseas pension scheme (QROPS) & there are quite a few such schemes available in India as well.
The most important question to ask yourself in this context is: whether you’ll retire back in India or do you have plans to move out of India. The reason is: if you have a plan to settle in India, then keeping funds out of India does not make a lot of sense in view of the currency risk involved (exception is a small amount for geographical diversification purpose). Conversely, if you’re planning to go back and settle in a country like US, there’s a point in keeping max. investments in US itself so that the currency risk does not impact you in retirement.
Whatever be your decision, do remember to update the contact and nomination details in the investment. Also, you’ll have to understand the implications of Black Money Act which requires a resident and ordinarily resident to disclose all foreign assets held abroad in the income tax return, else there are hefty penalties and even imprisonment (will cover this in a separate post).
#3: Have enough cash flow for initial few months after return to India:
Your monthly cash flow pattern will, in most likelihood, undergo a sea change once you’re back in India. And when you’re out of India, it is very difficult to predict what will be the expenses like back in India. If you’ve got a job, then atleast you get some indication of the take home pay.
Also, there will be big chunks of expenditure in the initial months on house rent deposit, relocation expense and the donation/admission fee for children’s education. You can check some idea on these expenses by checking with your friends & relatives back in India or with your investment advisor in India.
Apart from the above, to be on the safer side, you should budget atleast 6 months of your projected monthly household expenses as a contingency fund. You can decide to keep this money parked in your NRE/NRO bank account back in India, or even consider a liquid mutual fund.
#4: Surrender unspent foreign exchange once back in India:
As per FEMA regulations, if you’ve returned to India with an intention of settling down permanently, you can keep a max. limit of USD 2,000 in the form of foreign currency notes, travellers cheques etc. (no limit on foreign coins). If you have any excess foreign currency lying with you after your return to India, it is better to surrender to the authorised dealer and get a receipt for the same. It is a violation of FEMA law to hold foreign currency more than what is permitted and may invite needless penalties.
#5: Re-designate/close the bank & demat accounts:
FEMA regulations require that on return to India for permanent settlement, you need to re-designate the accounts to resident accounts within a “reasonable time”. What is reasonable time however has not been mentioned. As regards demat account, you cannot continue with your existing demat under the Portfolio Investment Scheme (PIS). You need to close the account, and transfer your holdings to a new “resident” demat account. As regards bank accounts, you can however continue to run the FCNR & NRE fixed deposits till maturity. Note that the interest on NRE fixed deposit will start getting taxable from your date of return to India. As for FCNR, it will remain tax free till the time you retain your RNOR status. If you do not want to permanently settle in India, it’s a good idea to protect your earnings from foreign currency fluctuations and shift a portion of your funds lying in NRE & FCNR accounts to something called as a Resident Foreign Currency (RFC) account. This account is denominated in foreign currency & earns a measly 1-3% interest which is tax free till you hold a Resident and Not Ordinarily Resident (RNOR) status. However, there is a TDS implication of 30.90%. After you become an ordinarily resident (ROR), it will be taxable as any other income.
#6: Perform fresh KYC in mutual funds
On return to India, get your fresh KYC done before redeeming any of your mutual fund investments. Reason is: though you return to India, if the status is non-resident in the MF folios, a TDS of 30.90% shall be deducted unless they are equity mutual funds where 1 year holding period has got over.
To do the same, there is a standard “KYC change form” which you can fill and submit at CAMS office. If you have invested in only 1-2 schemes, you can directly contact the Asset Management Company (AMC) but in case you’ve invested in many schemes, contacting the RTAs i.e. CAMS, Karvy & FT will be better. The new residential status as per KYC will then get propagated in all folios.
#7: Update your address in insurance policies, PAN, NPS etc.:
If you already have an insurance policy in India/outside, inform the insurer that you’ve moved back to India and update the address on record, so that you don’t face issues getting renewal notice or other reminders. Similar changes should be made in the Permanent Account Number (PAN) – can be done online on the NSDL website, National Pension Scheme (NPS) etc.
Last but not the least: Engage a professional investment advisor back in India
If you can do all of the above yourself, well and good. If you don’t have the time and expertise to do so, while you’ll manage the non-financial aspects of transition, consider hiring a investment advisor who specialises in the needs of returning NRI/PIO families for a fee, who can help you manage the financial transition of your investments to India in a tax efficient way. When looking for an investment advisor, look out for the following points:
- is registered with SEBI
- possesses sound knowledge of NRI taxation and financial advisory aspects for returning India clients
- works on a purely fee-only basis (does not earn commissions from recommending you financial products!)
- clicks with you i.e. you don’t feel restricted while sharing your personal finance challenges etc. with him/her.
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