If you are a non-resident and planning to return to India, there are many questions that worry you.
What about your assets acquired abroad? Can you hold them or do you have to sell those? What about your NRO, NRE and FCNR accounts and deposits? Can you continue holding such deposits or do you have to convert them to resident accounts? What will be the tax implications? And there are many more.
Moreover, there is compliance with FEMA (Foreign Exchange Management Act) and the Income Tax Act to be taken care of. I can’t cover all the questions in a single post. In this post, I will limit the discussion to bank accounts. What happens to your NRI accounts (NRO, NRE, and FCNR) when you return to India? Do note the post is about NRIs who have returned to India with an intention to stay back (and not for a temporary stay).
What happens to my NRO, NRE and FCNR accounts?
Whether you can hold an NRO, NRE or FCNR accounts is decided as per provisions of FEMA. As per FEMA, you are resident from day 1 of return. Therefore, you cannot make investments as an NRI (person resident outside India). Similarly, you cannot hold bank accounts that only an NRI can own. Therefore, you must
You must inform your bank about the change in your residential status.
NRO Account/deposit must be re-designated as resident rupee account (savings account or fixed deposit).
NRE savings account will be re-designated as a resident rupee account.
FCNR and NRE deposits can be closed immediately or can be allowed to run up to maturity. However, you must re-designate your NRE FD as a resident FD. If you choose to continue till maturity, you will get the contracted rate of interest until maturity. Premature withdrawals/closure will attract penalty as per terms of the deposit.
For FCNR deposits and NRE account/deposit, you also have an option to transfer the balance to a Resident Foreign Currency Account (RFC). No penalty is payable for premature withdrawal of NRE/FCNR accounts in such cases.
Read: Mutual Fund Taxation for NRIs (How are NRI MF investments taxed?
Read: How can NRIs invest in Mutual Funds in India?
How will my existing NRI accounts be taxed?
Interest on the NRO account was taxable even when you were an NRI. It remains taxable on your return.
Interest on NRE accounts/deposits (re-designated as resident rupee account/deposit) becomes taxable on your return. If you transfer the balance to RFC account, the interest income will become taxable or exempt as per rules for RFC account. There is some confusion among investors that interest on NRE fixed deposits is always exempt from tax. Therefore, they somehow want to continue their NRE deposits. However, this is a misplaced belief. As per Section 10 (clause 4(ii)) of the Income Tax Act, NRE interest is exempt from tax only for those who qualify as NRI as per FEMA. Since, as per FEMA, you become resident from day 1 of permanent return, you cannot hold NRE deposits. Even if you continue holding such deposits, the interest on such NRE deposits is taxable. Therefore, there is no point in continuing those NRE accounts.
The interest on FCNR deposit will remain tax-free if the returning NRI remains RNOR (Resident but not Ordinarily Resident). As and when you become ROR (Resident and Ordinarily Resident), even interest on FCNR deposit is taxable.
Interest on RFC account/deposit is exempt from tax as long as you are RNOR.
More on ROR and RNOR status later in this post.
Read: You don’t have to break your NRE Fixed Deposit on return to India
What is a Resident Foreign Currency Account?
An RFC Account can be maintained by a resident in Foreign Currency. This account can be useful for those NRIs who are returning to India.
Please understand RFC account, under discussion, are different from RFC (Domestic) accounts that can be opened by residents. RFC(D) accounts are non-interest bearing accounts and are different from RFC accounts under discussion. The focus of this post shall be returning NRIs.
Who can open RFC account?
Persons who have been NRI for a continuous period of not less than 1 year and have become persons resident in India (as per FEMA and not Income Tax Act) on or after April 18, 1992 can open RFC account. RFC accounts can be denominated in any freely convertible foreign currency.
RFC Accounts can be held in the form of savings, current and term deposits accounts.
Do note there is a difference in the definition of non-resident as per FEMA and as per Income Tax Act. As per FEMA, you become Resident from day one if you have returned with an intention to stay in India for an uncertain period.
Benefits of Resident Foreign Currency (RFC) Account
- Funds in the RFC accounts can be freely utilized for any bona fide remittance outside India through normal banking channel.
- Balance in RFC account is fully repatriable. Both principal and interest are fully repatriable.
- Both principal and interest are payable in foreign currency. Hence, there is no exchange risk.
- Interest rates on RFC accounts or deposits are deregulated and will vary across banks
- RFC accounts/ deposits are typically available in freely convertible currencies such as USD, GBP, Euro, AUD and CAD. However, not every bank will offer RFC account in all currencies.
- Funds in the RFC account can be freely remitted abroad or credited to fresh NRE/FCNR account if you regain non-resident status
Eligible Credits to RFC account
- Proceeds from the sale of Eligible Assets outside India
- Transfer from other RFC/NRE/FCNR accounts
- Remittance of funds from bank accounts outside India, which qualify as an Eligible Asset
- Pension/other monetary from an employer outside India
- Income such as dividend, interest, profit, rent etc earned on Eligible Assets.
- Interest earned on RFC account
Eligible Assets are assets acquired by the person abroad while the person was a non-resident. Such assets would include deposits in banks outside India, investments in foreign currency, shares or securities or immovable properties outside India, investment in business and foreign exchange earnings through employment, business or vocation.
Eligible Debits to RFC Account
- Transfer to NRE/FCNR accounts while regaining NRI status
- Any bona fide remittance outside India through normal banking channel including for investments abroad.
- For local payments in INR in India
Interest on the RFC account is taxable. However, if you qualify as RNOR (Resident but not Ordinarily Resident), then you are exempt from paying tax on interest income from RFC account.
Who is RNOR (Resident but not Ordinarily Resident)?
RNOR status is essentially a transition phase from being non-resident to being a resident (ROR).
As per Section 6 of the Income Tax Act, there can be two types of residents.
- Resident and Ordinarily Resident (ROR)
- Resident but not Ordinarily Resident (RNOR)
You are RNOR if you satisfy any of the following two four conditions:
- You have been a non-resident (NRI) in 9 out of 10 previous years preceding that year.
From FY2021 (from April 1, 2020),this condition will be relaxed. From FY2021, for you to qualify for RNOE status, you must be NRI in 7 (and not 9) out of 10 previous years. This was introduced in Budget 2020. The condition has been relaxed. As we would see later, RNOR status has a few tax benefits. With this change, you will be able to retain RNOR status for more number of years.OR - You have, during the previous 7 years preceding that year, been in India for a period of 729 days or less. OR
- If you are an Indian Citizen AND are not a tax-resident in any other country AND your Indian Income (income other than income from a foreign source) exceeds Rs 15 lacs. This is a new condition and has been added through the Finance Bill, 2020. You can see this condition has no linkage to the number of days of stay in India. As I understand, this is to bring High Networth individuals who are planning their stays to avoid paying taxes anywhere under the tax bracket. This condition has been added through the Finance Bill, 2020 and will be applicable from FY2021. OR
- You are a citizen of India or Person of Indian Origin (PIO) AND your Indian Income exceeds Rs 15 lacs in the previous year AND your period of stay in India in the previous year ranges from 120 days to 181 days.This condition has been added through the Finance Bill, 2020 and will be applicable from FY2021.
As per Finance Bill, 2020, “Income from foreign sources” means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).
So, essentially, you first determine whether you are a resident or non-resident. If you are a resident, you must determine whether you are ROR or RNOR.
FEMA has only two classifications: Resident and Non-Resident (Resident outside India).
Income Tax Act has three classifications: ROR, RNOR and NRI.
Does RNOR status affect taxation?
Very much. RNOR are almost treated like NRIs when it comes to taxation.
Your income earned outside of India is not taxed in India as long as you retain your RNOR status.
As per Section 10(15)(iv)(fa) of the Income Tax Act, the interest on foreign currency deposits in Indian Banks is exempt for non-residents and RNOR.
Hence, interest on FCNR deposits will continue to be exempt from tax as long as you remain RNOR. Similarly, interest earned on RFC account will be exempt from income tax as long as you are RNOR.
Since RNOR get favourable tax treatment (as compared to ROR), you can time your return in a way that you stay RNOR for as long as possible.
Illustration: RNOR Status
If you are returning after being NRI for 5 continuous years or less, you become a resident (ROR) immediately (as per Income Tax Act).
If you are returning to India after being NRI for 6 continuous years, you can become RNOR for one year. Subsequently, you become ROR.
If you are returning to India after being NRI for say 20 continuous years, you can become RNOR for two years. Subsequently, you become ROR.
In extreme cases, if you are returning after being NRI for 5 years or more (and didn’t visit India during those years) and return to India after April 2, you can be RNOR for maximum three years.
Please understand there are specific numbers involved in determining residential status.
This is best understood with the help of an example. I consider only conditions 1 and 2 while determining the status.
You have been staying abroad for 20 years and didn’t come to visit India even once during those 20 years. You return to India on June 1, 2015. You would obviously qualify as NRI for the last 10 years from FY2006 to FY2015.
FY2016 (ending March 31, 2016): Since you have been in India for more than 182 days (305 days), you qualify as a Resident for FY2016. But which type of resident? You were non-resident for all 10 previous years (FY2006 to FY2015) preceding that year (FY2016). Hence, you are RNOR.
FY2017 (ending March 31, 2017): Since you have been in India for more than 182 days (365 days), you qualify as a Resident for FY2017. You were non-resident for 9 out of 10 previous years (FY2007 to FY2016) preceding that year (FY2017). Hence, you are RNOR.
FY2018 (ending March 31, 2018): Since you have been in India for more than 182 days (365 days), you qualify as a Resident for FY2018. But which type of resident? You were non-resident for 8 out of 10 previous years (FY2008 to FY2017) preceding that year (FY2018). The condition is not met. However, there is an additional condition. During 7 previous years (FY2011 to FY2017), you were in India for 670 days (305 in FY2016 + 365 in FY2017), which is less than 729 days. Hence, you are RNOR. (With the new rule introduced in Budget 2020, you will qualify as RNOR for this year too since you have to NRI for just 7 out of 10 previous years. You have been NRI in 8 out of 10 previous years)
FY2019 (ending March 31, 2019): Since you have been in India for more than 182 days (365 days), you qualify as a Resident for FY2019. But which type of resident? You were non-resident for 7 out of 10 previous years (FY2009 to FY2018) preceding that year (FY2019). The condition is not met. However, there is an additional condition. During 7 previous years (FY2012 to FY2018), you were in India for 1,035 days (305 in FY2016 + 365 in FY2017 + 365 in FY2018), which is more than 729 days. Hence, you are ROR. (With the rule change introduced in Budget 2020, you will qualify as RNOR for this year too since you have to NRI for just 7 out of 10 years. You have been NRI in 7 out of 10 previous years).
FY2020 (ending March 31, 2020): Since you have been in India for more than 182 days (365 days), you qualify as a Resident for FY2020. But which type of resident? You were non-resident for 6 out of 10 previous years (FY2010 to FY2019) preceding that year (FY2020). The condition (under old or new rule) is not met. However, there is an additional condition. During 7 previous years (FY2013 to FY2019), you were in India for 1,400 days (305 in FY2016 + 365 in FY2017 + 365 in FY2018 + 365 in FY2019), which is more than 729 days. Hence, you are ROR (under both new and old rule)
You can be RNOR for a maximum of three years. With the rule change introduced in Budget 2020, you can hold RNOR status for 4 years. Do through this article in Mint for more clarity on RNOR status. For more on determining the residential status of an individual, you can refer to Section 6 of the Income Tax Act.
Useful Posts for NRIs
- The definition of NRI as per Income Tax Act and as per FEMA
- Beginners’ Guide: What are NRE, NRO and FCNR(B) deposits?
- Income Tax and TDS rates for NRIs
- Capital Gains Tax for NRIs in India
- NRIs have to close their PPF accounts
- Aadhaar card is not mandatory for NRIs
- How can NRIs invest in mutual funds in India?
- How can NRIs invest in equity markets?
- You don’t have to break your NRE Fixed Deposit on return to India
- Interest rate arbitrage is not without risk
Additional Read
- Resident Foreign Currency Account circular by Reserve Bank of India
- SBI RFC Account
- ICICI Bank RFC Account
- Book: In the Wonderland of Investments for NRIs: by A.N. Shanbhag/Sandeep Shanbhag
Disclaimer: This is a very simplistic representation of FEMA and Income Tax Act. Many aspects have not been included to keep the post simple. You are advised to consult a tax advisor before making any decisions. The post is based on my interpretation of FEMA and Income Tax Act. If you don’t agree with any of the points, do leave your observations in the comments section.
408 thoughts on “Returning NRI: What happens to your NRO, NRE and FCNR accounts?”
A very detailed and educative article.
Thanks Deepesh
Thanks Nandan. Glad you liked the post.
Hi SIR,
I am a returned NRI .
I came on June 17th back to India.
I had worked for 6 years in Singapore.
But I visited India more than 40 times during this period.
Now I am settled in India.
How much of amount can I deposite in my India savings account.
I had no NRI account ,I am only maintaining my India Savings account .
Can You please suggest me if possible!
Or provide me ur email address Sir!
Mine is m.prakashbabu@yahoo.co.in
When NRI returns India, his NRE account will be automatically converted to NRO or request to be submitted to bank for conversion.. Fixed deposit in NRE account if not withdrawn after return to India ,will it be taxable and how long.
Hi Ajit,
NRE/NRO accounts are not converted automatically. You have to inform the bank.
NRE interest is taxable from day of your return.
Better to contact a god Chartered Accountant for your tax related queries.
Deepesh,
Thanks for your wonderful posts and detailed explanation.
What should one do with NRE RD? what will happen to the already existing Recurring deposits? should one close and transfer the RD to Normal account on return from abroad?
Please advise.
Thanks,
Dan
Dan,
Treatment should be same, whether it is a fixed deposit or Recurring deposits.
Residents, as per FEMA, can’t hold Non-resident accounts.
These have to be either closed or converted to resident accounts.
Thank you for your valuable comments: I am planning to retire from Gulf after my 30 years of service in a private Company. I need to know the status of my savings (FD’s in our Indian banks) which are generated by my NRE income only. What are the tax criteria for this amount? Waiting for an expert comment from you.
You are welcome.
Interest on NRE deposits won’t be taxed so long as you are NRI (person outside India as per FEMA). Do note you have to be NRI as per FEMA (and not income tax).
However, if you are returning permanently, you are a resident (as per FEMA) from day 1 of return. So, not much relief to you.
https://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
That the deposits were made from income earned abroad is immaterial.
Hello Sir,
I came on student visa in 2012 (for my studies) ad have sent some amount with regards to my educational bank loan. I came to india in 2014.#
I was in India from Jan-2014 to Sep-2016.
Last year my wife got admission so we both came back to UK.
Questions I would like are:
1) if I transfer the money from UK to my residential bank account wil it be taxable (not interest only actual amount)
2) what about my savings and FDs in India?
3)if I come back to india in 2019 as I am supposed to and go to some other country for next couple of years (after waiting for 2 years in India) what account should I open?
Hi Mayur,
1. Principal is not taxed. Only the income on your investment is subject to taxation.
2. Change status to NRI. Savings account will become NRO accounts.
3. When you return to India, change account status to Resident. When you go back abroad, change back to NRI. If the visit to India is temporary, then you can continue with NRI accounts (many ifs and buts here).
Hi Sir,
My name is Ramesh DOB 12/08/57. Worked In Lagos, Nigeria from March 1991 to Oct 2005 and March 2007 to April 2013. I came back to India and settled.I visited India almost every year with my family. I have only NRE a/c with a reputed bank for almost 15 years. I have not opened any NRO or RFC etc a/c.
1. I have 14.75 Lakhs in NRE Fixed deposits(5 years term) and matured on Jan 2018. I am getting interest every 3 months credited in to the same NRE savings a/c for domestic use.
2. I invested around 15 Lakhs in various Mutual Funds using the same NRE a/c. The values of these MF is 22 lakhs as on today.
Now I am in India since April 2013 and I did not get any chance to go back to Nigeria.
Sir, please let me know what I should do now? what a/c I have to open, what happen to my NRE a/c and Fixed deposits. I did not tell the bank about my
return. They are asking me to fill KYC to submit. I am filing I.Tax returns for the last 10 years but not mentioning the NRE FDs and my Qtrly interest credit.
Please advise.
Regards
Dear Pramesh,
Can’t help if you are hiding information from income tax department.
You should have updated your residential status when you returned to India.
You could have easily continued with MF investments without any problem.
Now that the bank is asking for KYC, update your residential status.
Suggest you explain your case to the bank and seek their inputs on the matter.
Seek services of good CA too.
A quality informative website.
Have a few queries regarding the above piece:
When NRE and NRO accounts are converted to Resident accounts; can future proceeds of maturing NRE FDs or FCNRs be deposited in the Resident account?
Or, will an RFC account have to be opened? If RFC, will the (Indian rupee) NRE FD have to be converted into foreign exchange?
Thanks John.
NRE can’t be continued as NRE account if you return to India. You can convert it to resident account and transfer money to RFC account.
If you continue NRE as resident account, you can’t take the maturity proceed to RFC account.
If you transfer money to RFC account (you need to open RFC for that) after coming back, you will have to convert NRE rupee amount into foreign currency.
Thank you.
What happens when a NRE FD expires and NRE & NRO savings account have been closed. Can the customer request the bank to transfer the proceeds to his Ordinary savings account?
You are welcome.
I assume you are talking about a returning NRI.
As I understand, the moment you return to India permanently, NRE FD no longer exists. You continue it as a Resident FD only (though the same rate will apply). So, if you are continuing as resident FD, it goes only to ordinary savings account on maturity.
I hope I got your question right.
I now see that the interest income generated from NRE deposits will be included for tax calculation even if I am RONR (unless I move the funds to RFC).
I would not like to convert my NRE deposits to RFC as they earn lower rate of interest and also have run a fx risk. Further I would prefer to keep my NRE deposits untouched as there is no TDS on interest earned which will give me better return. I a aware that there will be tax to be paid.
My question is..
Am I allowed to keep the NRE deposits in that status till maturity on my return?
Answered the question in your other comment.
No, you can’t.
I have a different take on this. Continuation of contracted rate is applied till maturity for NRE FDs, even when one returns to India. However, the interest on this is taxable. Now our banks work processes in their computer system are not set up for returning Indians (may be they all have assumed that no one ever returns). Due to this, it is allowed to continue it as NRE FDs. (Even RBI site shows that it may be allowed to continue till maturity, but IT rules state that the interest are taxable). So the banks follow their own procedures, as all of them are set up for non deduction of tax from NRE deposits and Resident Indians cannot have NRE accounts (contradiction). Banks like HDFC take it in the background and get an undertaking that the depositor takes full responsibility for the taxation and they continue to treat it as NRE FD. Banks like SBI, if the officer is alert enough transfers it to resident account department,, while calling it still as NRE FD, and manually calculate the 10% tax once in a year as TDS and transfer it to the IT department, of course with the undertaking from the deposit holder on his tax liability. ICICI insists on closure of the NRE FDs and reopening at a new contracted rate. So simply put, the banks are not set up to handle returning NRIs vis-a-vis their FDs
Hi Mani,
I agree completely.
There are clearly a few technical issues for sure as you mentioned. Lack of knowledge at branch level is also responsible.
Btw, the issue is not just limited to NRE deposits. For NRO deposits too, this thing happens (there is no tax relief for NRO accounts)
Have shared a reader’s experience in this matter.
http://www.personalfinanceplan.in/opinion/nri-corner-you-do-not-have-to-break-your-nre-fd-on-return/
Would love to hear your views on the post.
Yes, a returning NRI.
My bank converted my NRE SB into Resident SB but didn’t convert my FDs into Resident FDs. They now seem to be struggling to transfer the proceeds of a matured NRE FD into my SB a/c :).
Appreciate your detailed answer.
Haha. Brilliant. What are they proposing to do?
As I understand, you can continue NRE FD as resident FD. I mean those are treated as resident FDs.
It is their mistake. You can’t be resident for savings account or NRI for fixed deposit. 🙂
Which bank?
Don’t want to single out the bank. Am finding other banks including the leading public and private sector banks (at least in the area), are equally fuzzy. So, all I will say is that it’s a mid size private sector bank headquartered in a small city known for banking & finance (esp’ for chit funds). A local church is affiliated with the bank.
Think I got the bank name.
You are right. You can face these operational issues anywhere.
Hello John and Deepesh.
I am in similar situation now. My NRE account was closed by bank but not the NRE FD accounts. Now I have resident savings account and bank is having issues now with closing NRE FDs and transferring amount to resident savings account.
Bank is saying now that these FD accounts will need be closed prematurely and I will lose all the interest earned. Is this true or if there is any way out?
Hi Sameer,
NRE FD won’t earn you any interest if you close before 1 year.
How old are your FDs?
I am at now working in iraq oil and gas field at last 3 years and at last 4.5 years in gulf countrys but now my iraq visa is going to finesh on 10 may 2016 and no longer working in this field i will serch new job. It mienss i have no job after may 2016., So my question is….
I have to pay incomm tex in india.
I have to NRE account and FD’s transfer to normel saving account.
If i have to pay tex in india., how to save maximum incomtex.
I am waiting for your you fevorabel respons.
Thanks and best regards
Viru..
Hi Viru,
Yes, you will have to pay income tax in India. You will get all the tax benefits that residents get.
Your non-resident accounts will have to be redesignated as resident accounts.
Thanks
Witch is the bast option to save tax.
Bast regards
Viru
Hi
Could i request to you Please late me know bast servarel option for tax saving. I have 1200000/ year incom in india.
I want to invest maximum amount in best tax savings options.
Regards
Rakesh
Dear Rakesh,
There are many posts on tax saving on my website. Please go through those posts.
You will get an idea.
Hi mr.Deepesh
I have funds in Singapore bank account
Can imcontinue to operate on my return to India for good and if so for how long
Hi Mohan,
You can continue the account as long as you want.
Thanks for this great post Deepesh. Wanted to ask you about a 10-year NRE FD that is kept as “cumulative”, so interest and principal only get paid out at the end of the 10th year. By which time, I would not be an NRI anymore (or RNOR etc.). How will I be taxed then? The entire cumulative interest is taxed at the end of 10-years? Will I be better off not using the cumulative option? Thanks
Dear Mike,
You are welcome!!!
You will have to pay tax on accrual basis (just like residents pay on interest income on fixed deposits) on your return.
On return, you also have an option to transfer NRE balance to RFC account too. The taxation in that case shall be governed by rules of taxation for RFC account.
Cumulative or interest payout, both are same. I assume you will use interest from NRE deposit to open another NRE deposit only.
Also consider how interest income fron NRE deposits is taxed in your country of residence.
Do note definition of NRI is different in FEMA and Income Tax Act.
Hi Deepesh,
Went thru your article, found it quite informative. I have a query.
I am RNOR this year and next year. My banks have permitted me to continue NRE FDs though NRE SBs were converted to resident ones. I want to know if interest income from NRE FDs will be taxable or not while I am RNOR. Thank you
Hi Krishna,
As I understand, your bank would have redesignated your NRE FD as resident FD and allowed you to continue at the contracted rate of interest. As RNOR, you will have to pay tax on those FDs.
hi Deepesh
i have 30 lake X 12 months in my NRE fix and every month im getting 2 lake as interest , on may 30th/05/2018 planing to come bake and set-til in India what will happen to my fix as every month one will be closed if i have to pay tax for what amount ? for interest ? , if i travel out of India for 182 days can i maintain my states ?
Dear Rathish,
NRE interest is taxable once you return permanently to India. This is because you become resident as per FEMA (on permanent return) from day 1 of return.
NRE interest is tax-free only for those who are NRIs as per FEMA.
However, only you know if you have returned permanently (unless you have picked up employment in India).
If you are travelling abroad consistently, the status becomes quite subjective.
Hi Deepesh,
Thanks for a very informative article. I have the following query, please share your view:
I have been an NRI for over 20 years, and last year obtained Canadian citizenship and Indian OCI. Unfortunately, my father passed away last year and now I am staying in India to look after my aged mother. I have an NRO account since 20 years, do I need to change it to resident account? I have consulted a CA and the bank but there is no clear answer. RBI guidelines only say if NRI/OCI has returned for uncertain period then it needs to be redesignated. If the visit is temporary – no specific mention if days – then there is no need. Seems that tax and banking define “resident” status differently.
Thanks for your time/
Krishan
I forgot to mention that I have no intention of permanently settling in India, and I do travel to Canada for personal tasks but my stay in India will exceed 182 days in a year. Thanks.
Hi Krishan,
I am sorry for your loss.
You are right. Income tax laws and FEMA define residential status differently.
FEMA governs whether you can hold NRO account or not.
Income Tax law merely governs the taxation.
Interest on NRO accounts is taxable in India. Hence, no real difference from the point of view of taxation.
Yes, FEMA is unclear. Depends on intention, which is difficult to ascertain for anybody other than you. So, you can choose to be resident outside India. However, since you are staying back to look after your mother, it may be construed as an intention to stay in India for an uncertain period.
About your stay in India for over 182 days:
As per point 9(b) of the NRO master circular (link provided), you can continue non-resident account if your stay is temporary.
https://www.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=8999#9
I am not an expert on this matter though.
Thanks. I am planning to send a query directly to RBI to see what they advise.
Sure. Do let me know what RBI says.
Hi Deepesh.
Firstly, congrats on this post, very well exampled.
Can we discuss a hypothetical situation.
Say Mr. A became a NRI in FY15-16. He has a resident visa of a Gulf country. He has NRE and NRO accounts in various Indian public and private banks. For FY1516, he is NRI as per definition in IT Act as such his salary income abroad are not taxed, only interest and local income are.
Starting from 1st of April,2016 to say 30th June,2016 he transfers Rs. 5 Lakh from abroad to his NRE A/cs. Unfortunately, he has to leave his job and return back to India in 1st week of July, 2016. He closes his account abroad and transfers INR equivalent of Rs. 2 Lakh. He however,intends to go back to the Gulf country as soon as possible.
What would be the implications :
1. For how long, he can keep NRE and NRO Accounts ?
2. If he fails to get a job abroad in FY1617, how is the transfer of Rs. 7 Lakh to be treated in FY1617 ( AY1718 ). As an taxable income or non-taxable income ?
Hi Vinay,
Thanks!!! Glad you liked the post.
FEMA (Foreign Exchange Management Act) decides whether you can open NRE/NRO accounts or not.
Income Tax Act merely decides the taxation. As per IT Act, interest on NRE accounts is not taxed. Interest on NRO is taxed.
So, if you can manage to open a NRE account (to be decided as per FEMA). you won’t be taxed.
1. FEMA is silent on this. It mentions if you return for uncertain period, non-resident accounts must be redesignated as resident accounts. So, you can keep saying you want to return and not close the account. However, in this case, Mr. A has quit his job and come back to India and may go back in the future. In my opinion, this is return for uncertain period. Hence, Mr. A must close NRE/NRO accounts.
2. Transfer of money won’t be taxed. It is your money. Only the interest income on the principal may be taxed, depending on residential status (as per Income Tax Act).
Dear Deepesh,
My wife who is an NRI housewife has recently opened an NRE account.
I have transferred some amount to my wife’s NRE account and she has opened NRE FD. in future when we return to India will my wife’s interest income be clubbed with my interest income or will it be considered as separate income for taxation purpose.
Your wife’s income fron NRE account will be clubbed with your income even while you are NRI (and also after you become resident).
Unless it can be proved that it is pin money.
It is just that NRE interest is exempt from tax. Hence, it has no impact on your tax liability.
Dear Deepesh,
I am a NRI for last 21 years and planning to return to India permanently by 30th Sep 2016. I have following queries
As i have spent 182 days in year 2016-17 I retain the status of NRI till 31st March 2017?
When will my RNOR will start?
What happens to my Interest income on NRE Cumulative deposits which has maturity period starting from 2017 to 2019?
Will my RNOR status will entitle tax free income on NRE deposits?
Thanks in advance.
Dear Mr. Murthy,
Since you are returning permanently, you will have to get NRE deposits redesignated as resident deposits (as per FEMA).
You will have to pay income tax on interest income on such deposits. Hence, question of RNOR status does not matter in this case.
However, if you choose to transfer deposits to RFC accounts, then RNOR status will matter. Interest income on RFC account is exempt from tax till such time you maintain RNOR status.
You will be RNOR in FY2018 and FY2019.
Thank you very much for a prompt reply. So I retain NRI status for FY2016-2017 and becomes RNOR for 2017-2018 & 2018-2019……….right?
Thank you very much for a prompt reply. So I retain NRI status for FY2016-2017 and becomes RNOR for 2017-2018 & 2018-2019……….right?
Yes. If you plan your return in a way that you are an NRI in FY2017, you will be RNOR in FY2018 and FY2019.
Dear Deepesh
Thanks for your very detailed article about the confusing subject of NRE/NRO accounts etc.
Pl solve my query
I was NRI since 2009 and came back in January 2016. I am having one NRE Savings acct. I will again going abroad within next two years. What is advisable, to convert this NRE acct to NRO or to a normal savings account. I will need this money for use in India. From Tax angle which way i shd go.
Pl advise.
Thanks in advance,
Thanks Mr. Sharma.
Please understand I am not an expert on FEMA. You must also a person who is an expert in FEMA.
Definition of NRI is different as per FEMA and Income Tax Act.
Whether you can hold Non-resident accounts is decided as per FEMA.
Taxation of interest on those accounts is decided as per Income Tax Act.
If you can hold NRO account, you can also hold NRE account too.
If you are planning to go back abroad soon(and are not in India for uncertain period), you can continue NRE accounts.
Interest on NRE account won’t be taxed in India.
Taxation of savings bank interest and NRO interest is same. So, NRO or savings bank account does not make any difference as far as income tax laws are concerned.
Do NRIs need to declare their forex funds available in the bank in their working countries when they return back to India.
Regards
I guess you are talking about income tax authorities.
As I understand, you have to disclose your foreign assets to Income Tax Authorities.
Advise you to contact a chartered accountant.
Thanks Deepesh for excellent piece of info. Helping decision making easier. Indeed, very useful website and value added contents. Appreciate the efforts and services.
I have NRI status since last 8 years from Apr-2008 till Mar-2016, maintaining single NRE A/C and concerned FDs. No investments in foreign currency, and property at abroad. Now in this 9th year; I will be returning to India permanently by 30th Jul-2016 with no intentions to come back abroad (Gulf Countries) again for the job in near future.
I have transferred good amount of funds (including Salaries, end of service package partial amounts, etc) into my NRE A/C in last 3 months (Apr, May, June) of this year-2016. Majority of this amount / funds transferred in NRE A/C are put under multiple NRE FDs, having handful amount say 20 Lacs in NRE Bank Savings A/C excluding FDs.
(1) As I will not be able to maintain the NRI Status for this FY 2016-17; will the funds transferred in NRE A/C in year-2016 will be taxable – once I declare and convert NRE A/C into Normal Resident A/C ?
(2) I expect to have some cash flow and final settlement amount later to be transferred in my NRE A/C by end of Dec-2016. As I will be returning to India permanently by 30-Jul-16; Can the NRE A/C be kept in operation / in same status till DEc-2016 without informing bank about – especially when few of my NRE FDs will be matured by Nov-2016 ?
(3) As I am planning to keep all FDs and convert it later into Normal Resident A/C upon its maturity. In this case, I guess only interest gain on FDs will be taxable and not the principle amount in that subsequent FYs. Am I right ?
(4) In this typical case, I don’t see much benefit in opening RFC (US Dollar) account and convert NRE A/C balance amount and later FDs on maturity into RFC Account (RFC USD Account Interest Rate is up to 1.5% for 1 to 2 years term deposit). I will be carrying RNOR status for 2 years (2016-17 and 2017-18) only. The interest gain (net income)from NRE FDs converted into Normal Resident FDs (though taxable) are more beneficial in terms of financial gain than returns from RFC account/deposits. Your comments please.
Looking forward to receive your expert comments-cum-advises please.
Thanks in advance.
Kind Regards,
Pradip.
Hi Pradip,
Appreciate your kind words.
1. Principal is not taxable. Only the interest earned is taxable.
2. FEMA is quite clear. You are resident from the day you return permanently to India. And that you must inform bank within reasonable time period. Only you know if you have returned permanently and reasonable period is subjective. So, you may say you have not returned permanently and maintain NRE account. However, would suggest do the RIGHT thing and convert those accounts to resident accounts. In any case, you are RNOR for 2 years. So, your global income won’t be taxed.
Additional point to note: As I understand, if you get the credit directly from employer in your NRE account, it is considered Indian income and taxed. So, make sure you receive income abroad and remit it to India. That way, it will be your global income. Global income is not taxed for RNOR (except in specific cases). Talk to a chartered accountant for better clarity.
3. Principal amount is not taxed. Only interest income is taxed.
4. That is a typical currency risk issue. What if rupee depreciates. Conversion to RFC also depends on your needs. Something you must decide yourself.
Please understand I am neither a FEMA expert nor a tax expert. Would suggest you verify my suggestions with domain experts, especially if the amounts involved are large.
Thanks Deepesh for all the clarifications, and word of caution as well. I must mention here that your overall web site contents and prompt responses on queries raised (one to one) are simply superb and helping a lot in decision making. Would definitely share the web site and services among friends and NRI Groups as the web site is very useful and simplifying the subject understanding. Thanks and Best Wishes, Pradip.
You are welcome, Pradeep.
I will really appreciate that. Thanks!!!
I came back to India in December 2015 after working in gulf for about 36 yrs though I have been regularly visiting India for abot 10 days to a month per year as my aging parents were residing in Mumbai. Soon after that in FY 2016-2017 I took my wife for extensive tour to some of the gulf countries,Canada, europe and USA, eventually, I happened to be out of India all together for 197 days, would it suggest me be an NRI for FY 2016-2017 ? Having learnt that by staying out of india more than 183 days one can continue to be an NRI and my NRO,NRE and FCNR accounts be considered to enjoy NRI benefits ? Or do I have to disclose the concerned banks (all nationalized) about my return and file IT return as resident unlike I filed the last year as NRI disclosing all my deposits to IT department. Furthermore the banks wherein I maintained Fixed NRE INR deposits and FCNR USD deposits revealed they would continue my deposits till they mature with the contractual term like period of 5/10 years and rate of interest till their maturity. One bank manager fave me in writing disclosing it will be tax free and bank will not deduct any TDS on them. For my FCNR deposits they assure that on maturity they will convert them on my request to RFC USD and those can be renewed then on every year. NRE INR deposits with the referred banks will earn rates that has been contracted till it maturity like 5 yrs and 10 yrs and there won’t be tax deducted from them till maturity. Of course, my NRO and NRE will be converted into regular resident S/B accounts. What would you advise me to do? And as I stayed from 11th Dec 2015 till 31-3-2016 in Mumbai and in FY 2016-2017 April month I was away for a month and in all, precisely 197 days for the FY 2016 – 2017 I happened to be out of India then will I be an NRI for the referred year FY 2016 -2017 and NROR for FY 2017 – 2018 and 2018 -2019 ? Please give your understanding on this issue of mine.
Thank you
Biraj Desai
Dear Sir,
There are two definitions of NRI (one as per Income Tax Act and the other as per FEMA).
Quite possible you are resident as per FEMA while a non-resident as per Income Tax Act.
Whether and where you can invest is based on your residential status as per FEMA.
On the other hand, taxation is based on residential status as per Income Tax Act.
IT Act is quite crisp in its definition. FEMA regulations are a bit subjective and leave a scope for confusion.
Suggest you go through the following post.
http://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
http://www.personalfinanceplan.in/opinion/nri-corner-you-do-not-have-to-break-your-nre-fd-on-return/
Since there are many technicalities involved in FEMA, advise you to seek professional help.
Thanks for your very detailed info.
There is little bit confusion. If a person holding a NRE account,the transfered amount to that account from abroad is not taxable. The interest earning on that account is also not taxable. Suppose the persons residential status changed from NRI on december of a financial year 2016-2017, then the persion should close/convert that account to normal saving account. Now the question is
the taxable income will be the interest earns after december 2016 to march 2017 on that principal amount?
Dear Pranjit,
As soon as you convert your NRE account to savings account, the interest is taxable.
as you are returning in December 2016 ( you are going to stay in India for 90 days only for the FY 2016-17( Jan 1,20 17-march 30 2017) which is less than 182 days). hence you are in NRI status for the FY 16-32017 AY 2017-18..hence intrest is also tax free for fy 16-17
Hi Muthu,
I am not so sure. Here is what is mentioned in Section 10(4)(ii) of Income Tax Act (for incomes which are not considered for tax)
(ii) in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Management Act, 1999 (42 of 1999), and the rules made thereunder :
Provided that such individual is a person resident outside India as defined in clause (q) of section 2 of the said Act or is a person who has been permitted by the Reserve Bank of India to maintain the aforesaid Account ;
So, even Income Tax Act refers to FEMA only in this specific case.
So, NRE interest is tax-free as long as you are NRI as per FEMA. It is another thing that only those who are NRIs as per FEMA can have NRE accounts.
As soon as you change residential status from NRI to resident, you cannot own NRE FDs. You have to convert to resident FD and thus interest is automatically taxable.
Would appreciate your views on this.
Hi Deepesh,
Thank you for the post. This is really helpful.
I have a query regarding NRE FD accounts. I am a NRI from last one year and I have NRO and NRE savings account in India. Now I am planning to open NRE FD.
Say I open NRE FD for 2 year tenor starting from July2016. If I have to come back to India permanently within one year after opening NRE FD, how will this NRE FD be treated?
1. Will they close the account prematurely as I am no longer a NRI? If so, what about the interest? As min. Deposit period is one year for NRE FD.
2. If they simply convert NRE FD to Normal FD, will I get interest as booked while opening NRE FD? Income tax will be applicable only on the interest earned after the day of conversion?
Hi,
Thanks!!! Glad you liked the post.
Though you must be allowed to continue NRE FD till maturity (as resident FD), the interest is taxed.
However, typically, banks ask you to close the existing FDs prematurely and open resident FDs. There is no confusion then. Interest on resident FDs is always taxed.
Hence, no tax on NRE FD. Interest on resident FD is always taxed.
Please understand I am not FEMA or tax expert. You are advised to consult a chartered accountant before making a decision.
I file a return of client as NRI but actually he is Resident and Ordinary Resident. Whether we can claim exemption in interest of NRE FCNR a/c Even if we become Resident
Dear Saravan,
I assume you mean RNOR.
You must be filing as RNOR about it.
There are no ways about it.
Interest on FCNR is exempt as long as you are RNOR.
Interest on NRE(redesignated as resident FD) will be taxed.
Sir, I find your information quite reliable . I was NRE FROM 1981-2011 & AGAIN FROM 2014-2015 . It means NRE FROM 1981-2011. NOW I HAVE BECOME RNOR FROM fy 2015 onward. My son is NRI -STAYING IN USA FROM 2000 ONWAR AND GREEN CARD HOLDER. I have some 2 NRE ACCOUNTS IN joint name with him.( My name first and his name second) What to do with NRE ACCOUNT AND NRE FDs.Will appreciate your feedback
With kind regards,
Jitendra Gorashia.
Dear Sir,
Thanks. Please understand my post is not a replacement for advice from FEMA or income tax experts.
RNOR status is immaterial as per FEMA laws. RNOR is only defined in Income tax laws.
Joint holding in NRE accounts is permitted.
However, as I understand, NRI has to be the primary holder. In your case, you (resident) are the primary holder.
I am not sure if such NRE accounts are permitted. Request you to verify this with the concerned bank.
Hello Sir,
Sorry in acknowledging for your information. I am grateful for information provided by you. As informed I will contact bank .
With kind regards,
Jitendra Gorashia.
You are welcome!!!
REF: ABOVE COMMENT
Sorry again from 2013-to 2015 for 2 years.
Sir,
Thank you for your knowledgeable post.
I have returned to india in the end of FY 14-15 after being an NRI for 20 years
For AY 15-16 i have been an NRI as per the income tax act.
My query is that from AY 16-17 i’ll be a RNOR but i have as of present not transfered my NRE FD’s to RFC account and neither have i opened an RFC account.
Q1. During the FY 15-16 my FCN Deposit was matured in December 2015 and was auto renewed under the same FCN Number upto 2018. My question is since i being a RNOR whether the entire interest earned on this FCN Deposit will be exempt from tax or only the interest upto December 2015. And if the interest on FCN deposit from december 15 to 31/03/16 is to be taxed i.e. on the auto renewed FCN Deposit, then what should be taken as the rate of conversion for the interest earned between december 15 to 31/03/16?
Q2. Can i go to my Bank tomorrow and open RFC account and transfer my NRE FD’s and claim than interest earned on RFC from the date of transfer to 31/03/17 as exempt since i being an RNOR? Is there any time limit for opening a RFC account and claiming the benifit of tax free interest after returning back to india and being and opting as RNOR i.e. as long as one can opt for RNOR(2 or 3 years). Or can i open and RFC account in my second year as RNOR and claim the benifit of Tax Free Interest.
Dear Sir,
Please understand I am neither an expert on FEMA nor an expert in matters of taxation.
You are advised to consult experts in respective domains before you act.
1. Interest on FCNR is tax-free as long as your are RNOR.
2. Interest on NRE FD is not taxable. However, since you returned to India permanently, you can not own a NRE account. You are resident from day 1 of your return (as per FEMA). Well, only you know if you returned permanently.
Technically, your NRE FD should have been continued as resident FD and you would have had to pay tax on interest on such FD. Alternatively, you could have transferred the balance to RFC account. You did neither. FEMA specifies transfer of balance to RFC account must be done within reasonable time. Reasonable is subjective. Talk to branch manager on this issue. He will let you know the bank policy. I think he will let you convert to RFC.
Income Tax Assessing officer (if your case comes up for scrutiny) will decide what is reasonable (from perspective of taxation).
Dear Deepesh I have been in the merchant navy and maintained nri status since 1987 though my residence is in India. Now I plan to take a break and stay at home for 1 financial year i.e. 1st April 2016 to 31st Mar 2017 and then sail again from 1st April 2017 onwards, essentially get the nri status again for another few years. I have my money in FCNR USD, NRI Rupee deposits, NRE and NRO savings a/cs.
My question as my stay in India is not indefinite, do I need to convert my nri rupee FDs to resident FDs and also open an RFC a/c. Will my status be an RNOR.
Can you give some advise as to how to reduce any tax outgo if any. Additionally if you can suggest any good books & websites on the above subject. I am asking this as I find lot of clarity in your advice and recommendations as given above.
Thank you,
Sanjeet
Dear Deepesh,
I have been an NRI for the past 10 years and returned to India this year, I have a NRE savings account and as well as NRE deposits with a public bank. I would request information on the below questions:
1. How long I can maintain the NRE accounts? when I would have to inform the bank that I have returned permanently to India?
2.What happens to the money in the NRE Deposits? would I have to convert that also.
Regards,
Mark Antoyn
Dear Mark,
1. You must inform bank within reasonable time. The issue is “Reasonable” is not defined under FEMA. If you have returned permanently and haven’t informed the bank yet, do that as soon as possible.
2. Yes, you can’t own NRE deposits if you are not a NRI as per FEMA. As per FEMA, you are NRI from the day you return permanently. NRE FDs can be continued as resident FDs till maturity (however, typically banks ask to break NRE FDs). Alternatively, you can transfer to RFC account.
Dear Sir,
You have mentioned here that we can transfer our NRE FD to RFC so that we can save on taxes. However the bank is not allowing to open RFC before conversion of NRE to Resident accounts. The moment I convert my acccounts TDS will be applied to the interest earned in NRE FD.
Regards
Hi Madhu,
They are confusing RFC with RFC(D) accounts.
Please write an e-mail to customer care. Everything will automatically get sorted out.
Hi Deepesh
Please clarify following. I stayed in US from Feb 2000 to Feb 2004. After returning in 2004, I converted my FCNR accounts to RFC account and since then money is in RFC fixed deposit account.
Please let me know if interest earned on RFC fixed deposit is taxable in India?
Last year from Apr 2015 to Dec 2015 I was out of india for Work.
If this trip to abroad make any difference to RFC tax rules.
Dear Deepesh,
First and foremost, you are doing a great service by helping ignorant folks like me. I returned back to India about 2 months back after being in UAE for 19.5 years. I have a NRE Savings account and a few NRE FD accounts.
I have relocated permanently and planning to settle in Bangalore. I haven’t informed my bank about my change of status so far. I haven’t taken up any job so far.
Can my NRE FDs continue as NRE FDs till maturity? If yes, on maturity of the FDs, will the complete interest get taxed?
Since I am still NRE, can I open another NRE FD and move a portion of my NRE Savings balance to this NRE FD and get tax benefit?
What are good investments to get tax benefit as returned NRE? What investments are better to do before I change the status with the bank?
Kindly help. God Bless.
Dear Vijay,
Appreciate your kind words.
Please understand I am neither an expert on FEMA regulations nor an expert of income tax laws. You are advised to consult an expert before you take any action.
Whether you can hold NRE accounts is decided as per FEMA regulations.
Taxation is decided as per Income Tax laws.
Unfortunately, definition of non-resident is different in the two laws.
Under FEMA, you become resident from day 1 of your return if you have returned permanently. Since you are resident as per FEMA, you should not own NRE accounts. Do note you may still be NRI as per income tax laws.
Technically, you can continue NRE FDs as resident FDs till maturity at the contracted rate.However, typically bankers insist on breaking those FDs.
Interest on resident FDs is taxed.
Don’t open any more NRE FDs. Tell the branch manager you have returned permanently. FEMA mandates that you do that within reasonable time. Follow the steps suggested.
FEMA determines where you can invest. Since you are no longer NRI as per FEMA, your options are limited to those available to resident Indians.
If the NRI leaves Gulf and is coming back to his country INDIA than how long his bank account remains as a NRI accountant ?
If you are returning permanently, do it in a reasonable time. What constitutes reasonable time is not defined under FEMA. So, do it at the earliest.
What are the tax implications for returning NRIs on pension and maturity proceeds from policies taken from foreign insurers while the status was NRI ?
Dear Abhishek,
Though I will respond based on my understanding of the subject, I am not a tax expert. You are advised to consult a tax consultant or chartered accountant before making any decision.
Taxation of insurance proceeds on maturity is defined under Section 10(10D) of Income Tax Act. The said clause does not differentiate between Indian and Foreign insurer. Hence, as I understand, maturity proceeds won’t be taxed in India (if Sum Assured criteria is met).
However, you can be taxed in foreign country.
Coming to pension plan, as I understand, your pension income won’t be taxable in India till such time you are NRI or RNOR. Once you become resident (and ordinarily resident), it will become taxable in India.
Hi Deepesh. I am working in Africa for many years and have different
joint nre accounts with my wife where I am the first
Account holder. My wife has been housewife throughout .
But she came to India 6 years ago due to kids education.
However her name still stays in those accounts. She
also has NRO (jointly with me with me being the first accounts
Holder) and also resident accounts.
Do I need to remove her name from the NRE accounts
or can it stay there? Are there any implications of keeping
status quo and can it affect the tax free status on interest on
the FDs?
Kindly advise .
SV
Dear SV,
You are permitted to own joint NRE/NRO accounts with a resident relative on Former or Survivor basis. So, your wife can convert as her status as resident and it shouldn’t be a problem. I assume you are the first holder in all such accounts.
However, I am not sure if the bank will let you do that in an existing FD. Hence, they might ask you to break the FD and open a new FD with this holding structure (with your wife as resident). You can check this with the bank.
As per FEMA, the resident status should be correctly represented. Hence, you must report the correct residential status.
There is no tax implication on interest income on NRE FDs. Hence, if you can manage to own a NRE FD, interest income won’t be taxed.
I have reviewed the extensive info provided above and answers many issues . I have 2 Issues which are my particular issues .
1) I am retiring to India after 25 Yrs Service in Abu Dhabi. My Children are in US on Work Visa at the moment and when they were students I had opened a account with a US Bank for ease of Transmitting Money and for our personnel use when we frequently visit the US . After retiring also we plan to visit US frequently . Please advise whether we can keep this account Open or will have to close after a certain period when we move to India . The Account is Joint with my wife and was opened just by submission of our permanent address in PP which is in India
2) the other Question is the leverage amount from a local Bank . I entered into scheme with a Bank in UAE for a Bond for an Indian Nationalised Bank . The Leverage given by Bank is nine time my contribution. This scheme will close say after one yr of my Retirement. Whether I can continue with the Bank for this ( I think I have no other Options ) and whether I need to declare it after return to India . Please advise
Dear Sir,
Please understand my knowledge of FEMA regulations and income tax laws is quite limited. Suggest you verify my inputs with an expert too.
1. You can hold the account. Resident (after being NRIs) can continue to hold foreign bank accounts.
2. I didn’t get your question. By leverage, are you referring to a credit line?
Yes . It is same .Leverage is the amount which the Bank lends to you against that particular Investment . The Word Leverage is used to stress that the Bank has control over the management with the third party of the fund till its maturity and hands over customer its portion and retains its own investment.
Dear Sir,
Can’t comment. Suggest you consult a good Chartered Accountant.
In my opinion, all foreign assets should be reported.
Hi Deepesh, Very informative post.
I work in thailand and maintaining NRI status(more than 182 days outside india) for the last 5 years. I work 5 weeks abroad and stay 3 weeks in india and continue work for 5 weeks and so on….
My question is I was not able to maintain my NRI status for this FY 2016-17 as im staying for more than 200 days in india, but im still working abroad.
So when filing ITR, i will be Resident, but i need to maintain my NRE account as my salary comes from abroad. How should i proceed.
Dear Naresh,
Determination of Residential status is different as per FEMA and Income Tax Act.
Hence, it is quite possible that you are resident as per Income Tax Act while you are still resident outside India (NRI) as per FEMA regulations.
As long as you are NRI as per FEMA regulations, you can maintain NRE account.
Dear deepesh,
Ok i can maintain NRE account, But as per Income Tax Act,as im resident, i need to pay tax on interest amount on my NRE account(My NRE account is in INR). Will it not create a conflict when i file returns?
As long as you can own NRE account(as per FEMA), the interest on such account is not taxable (your residential status as per Income Tax Act does not matter). Section 10 of the Income Tax Act makes mention of this.
Suggest you talk to a good Chartered Accountant for better clarity.
Thanks deepesh…
Dear Sir,
I joined in Gulf Country on a employment VISA in Sep 2013. I continued here for 3 years and during this 3 years I have taken the annual leave of 20 to 30 days every year. Now I am planning to leave this country and go back to India. I have planned to leave this place on 30-Sep-2016. After that i will work there in India under a Job Employment.
I have some queries :
1. What should be the treatment of my salary income from Apr 2016 to Sep 2016. Is it taxable ?
2. I have some NRE FD. What will be the tax Impact on that FD interest ?
3. What will be my total income for the assessment year 2016-17. Will it include both foreign income and India income ?
Please advise me on this issues.
Thanking you in advance.
Dear Mr. Sahoo,
Please understand I am not an expert on FEMA regualtions or Income Tax laws. You are advised to seek professional advice from an expert before you take any action.
Taxation is governed by income tax laws while holding of non-resident accounts is governed by FEMA regulations.
As I understand, you will not qualify as RNOR (resident but not ordinarily resident) and straightaway become ROR (resident but not ordinarily resident). Had you become RNOR, your forex income would not have been taxed in India. This is as per income tax act.
As per FEMA, you are resident from the day you return to India permanently (for employment). Residents can’t hold NRE accounts. You will have to get it converted to resident account.
1. Yes (in my opinion)
2. To be redesignated as resident FD. Interest is taxable.
3. Yes (in my opinion)
Hello Deepesh. I thin most of the discussion here is around NRE accounts but I have a question about NRO.
I’m an NRI for 7 years in the past 8 years, starting from Nov’2008 (3.5 years in US, 1 year in India in between and then 3.5 years in Singapore). I’m returning to India permanently, by the mid of September.
1. Would I be RONR or ROR?
2. I hear that I better extend by stay aborad for few weeks and retrun to India in such a way that my stay in India for FYI2017 is less than 182 days. Is that useful or doesn’t make any difference to my tax for FYI2017?
3. I’ve been maintaining NRO account with a leading private bank in India and transferring my earnings overseas to it. As I wind up everything and move back to India, I will need to transfer a lump some amount into my NRO account before I come back. Would this amount be taxed?
Hi,
To be RNOR, you need to satisfy one of the following conditions:
1. You have been a non-resident (NRI) in 9 out of 10 previous years preceding that year.
2. You have, during the previous 7 years preceding that year, been in India for a period of 729 days or less.
You don’t seem to clear first condition. You need to check if you meet the criteria.
1. As mentioned above.
2. In that case, you may even qualify as NRI. Will depend on the number of days you spent in India in four preceding financial years i.e. FY2013-2016.
3. There is no tax on transferring your money from abroad to India. Only interest income on NRO account will be taxed. Btw, when you shift back to India, you need to change the account status to Resident ( you can’t hold NRO account).
Thanks a bunch Deepesh. Would you mind me giving some more clarity on the taxation for this financial year if I’m going to stay for =182 days in India? I’m NRI from 25/3/2013
You are a resident if you are in India for:
1. 182 days in the financial year
2. 365 days in the preceding four financial years and 60 days in this financial year
There are a few more conditions.
It appears you will qualify as resident because of condition 2.
You are advised to verify this with an expert.
Hello Deepesh,
I am an NRI from UK returning to India for good this October. I will be RNOR. I have NRE fixed deposits which I understand will be converted to resident FDs as I do not want to convert them into RFC due to exchange rate issues. My query is for FY March 2017 as I will be out of India for more than 182 days I qualify as Non-resident. As such will the interest on FDs be taxable in India as technically am an NRI for FY March 2017?
Look forward to hearing from you. Many thanks in advance.
Your residential status can be different as per FEMA and income tax laws.
You will have to pay tax on interest on resident FDs or NRO FD (irrespective of your status as per Income Tax Act).
Interest on NRE deposits is exempt from tax.
Suggest you verify this with a good Chartered Accountant.
Hi Deepesh,
I am a us citizen and had to return to India due to some reasons. and I might go back but not anything finalized. My 2yr rnor status about to end. I have nre FDs in rupees. Do I must need to ask bank to convert them to residance FDs or if I can wait till maturity? In case I keep these as it is and continue stay in india, do I also have to pay tax on interest in India. Regards.
Dear Niti,
Cases such as yours are always confusing.
In my opinion, you are no longer NRI as per FEMA and should not continue with non-resident FDs.
Check with a good CA and bank officials too.
Dear Deepesh,
Wish to state that your post is too good and responses are too exemplary.
I have understood that returning NRIs can continue to hold NRE FDs until maturity, and that Banks however are typically asking the depositors to foreclose the NRE FDs and open fresh domestic FDs.
I will lose substantially if I do as they insist, since I have good amount of FDs which were placed/renewed more than 2 years ago for 10 yrs tenor, and say at 9% interest, while currently FD rates are almost 3% lower, if I foreclose and reinvest.
Banks are not ready to buy the first argument, and instead are asking me to provide RBI guidelines or directive to Banks, or similar from relevant Govt dept, which makes it obligatory on the part of the Banks to only convert the status in existing NRE FDs to Domestic, and allow the deposits to run until maturity at the originally contracted interest rates stated on the FD certificates.
I request you to please help me in tracing any such official guidelines or directives, so that i will be rather able to enlighten or update their knowledge and get a fair deal as per law.
Thanks and regards
Suren
Dear Suren,
You are welcome.
To be honest, there is a lot of confusion. About FCNR(B) deposits, RBI has clearly specified that the account can be continued till maturity. In case of NRE/NRO deposits, RBI merely says these have to be designated as resident account (no mention of breaking the non-resident FD and opening a resident FD or continuing till maturity as resident FD). In my opinion, this means only status needs to be updated and the non-resident FDs should be allowed to continue till maturity as resident FD.
You can go through following link on RBI website.
https://www.rbi.org.in/scripts/FAQView.aspx?Id=52
With this language, banks can exercise discretion and be within confines of law.
As I mentioned, banks usually ask to break non-resident FDs and open resident FDs. This might be bank’s policy or may be a technology issue (their software doesn’t permit such status change)
There are exceptions though.
For instance, State Bank of Travancore website clearly mentions that you can continue NRE deposit as resident FD til maturity at originally contracted rate of interest. You can visit SBT website for more on this.
On the other hand, SBI website mentions that NRE balance has to be closed or transferred to RFC account.
Surprising part is SBT is SBI associate bank.
Don’t think you can do much in this case and will have to go by what bank officials say.
Please understand my knowledge of FEMA is limited. You may consult a FEMA expert for better clarity.
Thanks a lot for the guidance.
Dear Deepesh,
Further to your suggestion yesterday, I browsed thru the web and got a post “RBI MASTER GUIDELINES, updated as on June 23, 2016”.
I too noticed the following:
Part II, sub section 4.9: NRE accounts should be designated as resident accounts or the funds held in these accounts may be transferred to the RFC accounts, at the option of the account holder, immediately upon the return of the account holder to India for taking up employment or on change in the residential status.
While SB of Travancore has understood and implemented the directive aptly, SBI and many other Banks are simply fooling or cheating the returning Indians by insisting on closing their NRE FDs before maturity dates, thereby putting them in huge loss, and making profit out of it for the Banks.
Could any forum take up this issue with RBI for issuance of appropriate guidelines to the Commercial Banks and provide fair relief to the returning NRIs? Your guidance is of utmost value for us in this matter. Please advise.
Regards
Suren
Dear Suren,
That’s the way banks work. Even this master direction leaves scope for ambiguity.
But I agree with you. My interpretation is deposit should be allowed to run till maturity as resident deposit.
In any case, NRE deposits do not carry a higher rate than a resident deposit. Hence, it is not as if you got a better rate than a resident when you opened the deposit.
Think you can approach RBI for clarity on this matter. Think you can also approach banking ombudsman in this matter. However, before doing so, drop an e-mail to the concerned bank and take a written response from them.
Dear Deepesh,
I refer to your middle para. I am not raising the issue of returning NRIs wanting to place deposits now at current rate, which are same for NRE as well as Domestic.
Issue is serious for those NRIs intending to return now, but have huge FDs placed 2 yrs or prior,into maturity period upto 10 yrs at say 9% pa. And if Banks want them to close prematurely, they will get only around 6% pa at current rate for reinvested money in domestic FDs. 30% loss of interest revenue for next 7 to 8 years!!!! Oohh!
Can you please little elaborate on whom/how to approach in RBI, or Banking Ombudsman? If I get to their identities, I will surely take up with them and keep you informed about my efforts, success or otherwise.
Thanks once again for giving your precious time for me.
Suren
Dear Suren,
Not sure about who to contact.
You will get more details about ombudsman scheme at this link. You will find addresses.
https://rbi.org.in/commonman/english/Scripts/AgainstBank.aspx
Sure, please do let me know.
And yes, do remember to follow the due process.
Dear Deepesh,
At the outset very many thanks for your service to NRI community and valuable guidance to me.
Here I am returning after more than 6 months, to inform you about my success in getting confirmations from all 8 Banks with whom I have NRE FDs, stating that they now have systems in place to re-designate NRE FDs as Resident FDs, without making any other changes in Tenor or rate of interest, and subjecting the interest accruals from date of re-designating to TDS.
Some Banks were adament in their approach and practice of advising the returning NRIs to prematurely close NRE FDs (simply b’cause their Core Banking System did not have provision for re-designating the accounts), despite mandatory instruction vide clause 4.9( PART II) of RBI Master Directions, making it obligatory on them to re-designate them as Resident FDs, with no specific leverage to insist on premature closing.
I had to persistently put pressure on each Branch Manager and finally cautioned them that I would escalate the matter up to their Chairman, and thereafter to Banks Ombudsman, RBI and IT Dept if required. So 7 Banks caved in between 16.09.2016 to 20.02.2017. Only one Bank had instantly agreed on 25th Aug 2016. I kept cool for 3 months from Nov 2016 to Jan 2017 in view of their involvement with Demonetization issues. I can forward more details like the Banks’ confirmatory emails, if you can kindly provide me your email.
It is good that I could do this prior to my returning to India, as I can move on without any hassles and tension.
I am grateful to you for your service to NRI community, and many thanks.
Suren
Dear Suren,
Thanks for putting in so much effort and sharing the update on the website.
Appreciate that you took up the fight with banks and stopped them from being whimsical.
Many of us would have simply given up considering the enormity of the task involved.
Sure, will really appreciate if you could share a few confirmatory e-mails on the e-mail (given on the top right).
It is from inputs and real life experience of readers like you that I learn and try to share the knowledge with others.
Thanks again for sharing your experience. Will look forward to your e-mails.
Sent the copies of confirmations received from Banks to your email today
Regards
Thanks Suren!!!
Hello Deepesh,
your post and answers is very much informative,
I have few doubt, working abroad over 5 years and transferred funds to my NRE account until oct. 2015, I’m back to india April 2016 & if I stay in India until December 2016, What should I do and funds in my account is tax free or I have to pay tax.
Thanks
Javid
Thanks Javid.
Only NRI can own NRE/NRO accounts. And you have to be NRI as per FEMA (and not Income Tax Act).
Suggest you go through the following post.
http://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
As per Section 10 of Income Tax Act, interest income on NRE account is not taxed till such you are NRI as per FEMA.
So, if you are NRI as per FEMA, you can own NRE account and interest income won’t be taxed. Principal is never taxed.
FEMA also considers the reason for stay in India for your residential status. Moreover, FEMA considers preceding year (and not current financial year).
So, you need to first find out if you qualify as NRI as per FEMA.
Suggest you consult an expert too. My knowledge of FEMA and Income Tax Act is quite limited.
I am an Indian citizen workign abroad over the last 3 years. I have the following questions reg NRE FD:-
1. what happens to an NRE FD at maturity? Can I withdraw the principal+interest at the time of maturity in INR and invest in real estate in India without anytax implications?
2. If I want to repatriate the funds at maturity to my resident country will the exchange rate determined by the bank where I had the FD or do I have the option of transaferring thru a money exchanger at a better rate?
3. Over the last 3 years I have been filing my IT returns as a Resident. now if I declare myself as an NRI will I be liable to pay any additional tax for the past 3 years?
Hi Rakshith,
1. Yes, you can invest in real estate from NRE FD proceeds. As I understand,NRIs are prohibited from investing in agricultural land. Apart from that,you are good to go. About taxation, interest on NRE FD is exempt from tax. Tax liability will arise at the time of sale of real estate (and not at the time of purchase). But yes, at the time of purchase, you might have to deduct TDS before making payment to seller (even residents have to do that). Better you connect with a tax consultant while doing this transaction to ensure compliance.
2. Think it is your choice.
3. Typically, Tax liability of residents is higher as global income is taxed. In case of NRI, global income is not taxed. So, don’t worry much about that. Btw, residential status is not your choice. You are what you are. If you are NRI as per income tax act, you must file return as an NRI. It is not your discretion.
Suggest you go through the following post.
http://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
Hello Sir,
Thanks for the very informative article. I have few queries:
An NRI since past 10 years upon return to India have the following Bank account s:
NRO Account Sb and NRO account FD
NRE FD s for around 1.50 Crores.
As in FY 2016-17 the stay in India is less than 182 days he continues to hold NRI status and nor next 2 years FY 17-18 and FY 18-19 he holds RNOR status.
1. Should he convert NRE and NRO account immediately to RFC ( deposit) or RFC ( Foreign currency account)
2. If i transfer my NRE FD to RFC FD , will it be tax free interest till he holds RNOR status.
Is the interest earned in NRE FD tax free till the time he hold RNOR status.
How can i save tax on NRE FD.
Can i continue NRE FD for 2 years and will the interest to be tax free or should he transfer the entire amount to FCNR FD.
Should he transfer the amount to RC account or FCNR account.
There is lot of confusion, please help
Dear Abhay,
You are welcome. Please do share the post with friends and family.
Ok. My response is likely to confuse you even further. 🙂
1. If he has returned permanently, then yes.
2. Yes, RFC interest is tax-free till you maintain RNOR status. No such thing for NRE. NRE interest is taxable for RNOR or ROR.
First you need to see if you can hold NRE account. You can hold NRE account only if you are non-resident as per FEMA.
Suggest you go through following post
http://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
As per Section 10 of the Income TAx act, interest on NRE deposit is exempt only if you are NRI as per FEMA. It is another thing that you have to be NRI as per FEMA to hold NRE account.
If you are not NRI as per FEMA, you simply can’t own NRE account (forget about saving income tax).
You can’t open fresh FCNR account if you are no longer resident as per FEMA. Only existing FCNR accounts can be continued. Hence, transfer to FCNR is not an option available to you.
I now see that the interest income generated from NRE deposits will be included for tax calculation even if I am RONR on my return, unless I move the funds to RFC.
I would not like to convert my NRE deposits to RFC as they earn lower rate of interest and also have run a fx risk. Further I would prefer to keep my NRE deposits untouched for two reasons i) avoid penalty for premature withdrawal and ii) no TDS on interest earned which will give me better post tax return. (I will include the income in my IT returns).
My question is..
Am I allowed to keep the NRE deposits in that status till maturity when I become RONR or Resident?
Dear Sunil,
There are two definition of NRI (or resident outside India).
One is as per Income Tax At, which determines the taxation.
The other is as per FEMA, whihc determines where you can invest. The definition as per FEMA can be subjective and is therefore can be subject to interpretation.
Suggest you go through the following post.
http://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
NRE deposits can only be owned by NRI as per FEMA. If you have returned to India permanently, you must change to residential status with banks and Financial institutions within reasonable time. Reasonable is subjective.
A resident (as per FEMA) can’t own NRE deposits. NRE deposits opened before becoming resident can be continued till maturity as Resident FDs. However, banks typically ask you to break NRE FD and open new FDs.
Interest on NRE FD (continued as resident FD) is taxable when you become RNOR or resident.
1)What are the documents required to be submitted to the bank to convert NRE account into resident account.
2)What are the documents to be submitted to the IT Department while filing returns once the NRE account is designated as resident account
Thank you and Regards
Dear Mohan,
These are operational matters.
1. suggest you talk to the bank. Address proofs must be required.
2. I doubt you have file anything upfront. But you must keep the documents ready. In case your case comes up for scrutiny, you must have the documents ready. Suggest you talk to a Chartered Accountant for better clarity.
Hello Deepesh,
I am returning to India on 19th October 2016 from Middle East after 4 years. There are no salary credits in my India account till Sep 2016. Since I was on deputation & joining the same company in India, the first salary credit will happen by 31st October. My company is treating my entire yearly income as taxable (earned in Middle East during Apr-Sep 2016 as well as Oct’16-Mar’17). As per my company, I need to claim tax reversal from tax authorities post filing the return in 2017.
Since I have been outside India for more than 182 days, I should be eligible for the tax claim.
1. What documents do I need to furnish to tax authorities (at the time of tax filing) to prove that there shouldn’t be any tax levied during the FY 2016-17
2. How do I prevent my company to not deduct tax for the full year ?
Dear Rajesh,
I am not right person to answer this question. Though I will try to answer the question, suggest you consult a tax expert for better clarity.
Half-baked advice in matters of taxation can land you in serious trouble.
As I understand, you were on deputation and this salary credit is pertaining to your salary in India (for the period you were outside India).
I assume you received per diem (daily allowance) while you were outside.
In my opinion, this is your Indian income (and received in Indian account), it should be taxed accordingly irrespective of your residential status.
Even NRI have to pay tax on income in India.
Not sure if I got your question right.
You are almost there. Only correction in your understanding – the Indian salary along with per diem were getting credited to middle east bank account, therefore no tax eligibility since last 4 years. Since I am returning now, my company is treating the India component as taxable despite of the fact that I was outside India for more than 182 days during this financial year
Dear Rajesh,
Suggest you talk to a Chartered Accountant for better clarity on this matter.
In my opinion, your Indian salary should be taxed in India.
Dear Mr. Raghaw,
First of all excellent artical & very much useful to us. My query are as below,
After returning to india, is my all FD amount in NRE account become income?
or
interest earn on them for that perticula financial year is only taxable ?
Good day Dear Deepesh,
Excellent piece of information above and quite elaborated. I have a query regarding self, I am sailing onboard foreign flagged ships and have maintained my NRE status for the last 10 years except for the financial year which ended on 31-Mar-2015. I was unaware of RNOR status and filed my IT return as a Resident for that period and paid the tax accordingly. I recently came to know of the RNOR status and I am again maintaining my NRE status. Can I claim back the tax which I had wrongly paid as a Resident (for FY ending on 31-Mar-2015)which should have been filed as RNOR.
Kindly advise.
Thanks
Manish.
Dear Manish,
Thanks for the kind words.
Your case seems a bit complex. As I understand, you can file revised returns if you filed your returns before the due date.
Suggest you talk to a Chartered Accountant. He/she will guide you better.
Thanks Deepesh fr your valuable advise, will get back to my CA who had filed the return.
After living 7 years abroad, if a person returns to India (RNOR), not being sure if he would like to stay permanently in India or not, how long can he keep his NRE/NRO accounts as it is.
When will it become mandatory to convert these into RFC or normal SB account? What is more beneficial, to convert to RFC or SB account?
Can some one advise me on this.
I am not sure if there is a crisp answer for this. Suggest you go through the following post.
http://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
Your decision to consider yourself NRI as per FEMA (despite staying in India for a long time) may be contested by income tax authorities.
Thanks Deepesh for detailed explanations , I was NRI from Jun 2003 to Jun 2014 and returned in Jun 2014 and started working in India from Sep 2014.,In ITR filing shall I use NOR ( not an ordinary resident ) for two yrs 2014-15 and 15-16 ?
And I worked Apr , May in the same year in abroad and did not pay tax at abroad as worked less than 182 days there and assessment from overseas said that need to pay any tax for that assement year there , my question Should I need to pay tax on salary received in my overseas account for these two months in India ? , I heard no need to pay tax for income from overseas,is it true?.
I was settled with PF and property sale at the same year in overseas and to overseas accoun, as per NOR RULE , I do not get tax for them , is it correct.
Please clarify.
Dear Arun,
Did not get your question properly.
If you are resident (ROR) as per Income Tax Act, even your global income will be taxed.
As I understand, you will qualify as RNOR. In such a case, your global income will not be taxed as long as you are RNOR.
In my opinion, overseas salary, PF or gains from property sale abroad won’t be taxed in India so long as you are RNOR.
Please understand I am not a tax expert.
Suggest you talk to a Chartered Accountant. There may be many specifics about your case which might change the tax treatment.
Thanks Deepesh for time taking for me.
I did not pay tax in overseas for the month Apr and Mar 2014 as I was not stayed more than 182 days in overseas for that particular assessment year and as per their assessment I required to pay 0 tax for their country, So i got a doubt for the filing year 2014-15 in India, Do i need to include overseas salary/PF settlements/Property sale or not, I am sure that i am qualified to RNOR and there is not link between India and the firm where worked in overseas. So I am assuming now only Indian SALARY and interest on NRE need to be taxed.
Thanks for your suggestion
Yes. In my opinion, only Indian salary and NRE interest shall be taxed (if you are RNOR)
Suggest you verify this with a tax expert too.
Sorry small typo on my previous post.
It s as below
Arun says:
October 9, 2016 at 8:41 pm
Thanks Deepesh for detailed explanations , I was NRI from Jun 2003 to Jun 2014 and returned in Jun 2014 and started working in India from Sep 2014.,In ITR filing shall I use NOR ( not an ordinary resident ) for two yrs 2014-15 and 15-16 ?
And I worked Apr , May in the same year in abroad and did not pay tax at abroad as worked less than 182 days there and assessment from overseas said that no need to pay any tax for that assement year there , my question Should I need to pay tax on salary received in my overseas account for these two months in India ? , I heard no need to pay tax for income from overseas,is it true?.
I was settled with PF and property sale at the same year in overseas and to overseas accoun, as per NOR RULE , I do not get tax for them , is it correct.
Please clarify.
Reply
It’s a very informative article. Thanks a ton.
My query is: I am holding NRE/NRO account in India and may return to India permanently after 9-12 months. I have amount in NRE Savings and FD account/s. Is there a way to continue account as NRE till I wish even after returning to India permanently? If no, what are the consequences if I continue to hold acc as NRE?
I know strange question but wanna know other part of story as well.
Thanks.
Thanks Raj.
You cannot hold NRE account after returning to India since you won’t be NRI as per FEMA. You must change status within reasonable time. Reasonable is not defined in FEMA.
There is no benefit of holding NRE account once you stop being NRI as per FEMA. NRE interest is exempt only for NRIs (as per FEMA). And this is written in Income Tax Act.
Suggest you go through following post.
http://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
Dear Deepesh,
I have been a Nri for the past 20 years and have returned after staying out of india contineously for 120 days. I plan to be out for another 60/ 90 days during fy2016/17 . This will complete over 182 days out of india. Possibly nxt financial year may stay back permanently. In such a situation can i maintain my nri status for this year and change status next financial year.
Please do advise.
Yhanks
Pradeep
Dear Pradeep,
You are talking about NRI status as per FEMA, right?
Income Tax has a very objective definition.
Dear Deepesh,
I read the article, but not all the comments.
I have an NRE account in a leading bank here in India. I returned from a Gulf Country 5 months ago. Because of some issues here my visa expired and I am not probably going to gulf in another 1 year. I haven’t joined any firm here yet. Recently the bank asked for copies of visa and other documents for them to update their system. since the visa expired I don’t have any valid documents.
I have around INR.50k in my account and I would like to change this NRI account to ordinary SB account. This account is NRE SB account with no fixed deposits. While I apply at the branch to convert this account to Resident SB account, will there be any deduction from this INR.50k I have in this account. As I have retuned with visa expired how much time do I have legally to carry out the above procedure?
Dear Rajeev,
There won’t be any charge on Rs 50K in your NRE savings account.
There may be minor conversion charges. You can check with your bank.
Do it as early as you can.
I have returned back to India from USA in Aug 2016. I have remitted my savings into NRE account. I would use Tax exemption provision under DTAA to avoid double taxation in India, however I am not sure how much tax exemption I can claim, & how does it operates (e.g whether all federal, state, social security tax paid in USA is exempted or only certain taxes. Secondly whether the tax paid in one financial year is exempted or I can claim the tax paid on total amount that was remitted to NRE).
Provided the tax amount comes very high even after claiming DTAA exemption, is it advisable to open the RFC account and transfer the money from NRE account to RFC account. Would RFC account makes sense, if I don’t have any plan to go back to USA in near future and I don’t have any family in US now.
Please contact a tax expert.
Dear Deepesh,
At the outset, this is one of the most informative articles available on this subject. I read each & every query along with your detailed answer & it’s absolutely fantastic. I do have one question though around RNOR status for the third year (saw many posts confirming two).
I’ve spent a total of 108 days in India from FY 2012 – 17 (5 years). Assuming that I come back to India on July 01st, 2017 (therefore Resident Indian from FY 17), my calculations show that I can claim RNOR status even for FY 2019-20 if I can spend 18 more days abroad till March 2020.
Is it allowed that I can go on holiday for these 18 days anytime? Or does this need to happen before I move back permanently?
Thanks for the kind words!!!
At the outset, I want to clarify I am not a tax expert. Hence, you are advised to verify my inputs with a Chartered Accountant.
Btw, I am not sure about the numbers you have specified. FY2012 to FY2017 is 6 years (and not 5 years) April 1, 2011-March 31, 2017.
Do you mean this is sixth year running because FY2017 is not yet complete?
You become resident in FY2018. You will be RNOR in FY2018 and FY2019.
In my opinion, if you happen to spend 18-20 more days abroad by FY2019 (March 31, 2019), you may qualify as RNOR in FY2020 too.
As I understand, there is no need to spend this time before moving back permanently. You can do it even after shifting back.
Thanks Deepesh for the prompt response. My apologies, meant FY 2013- FY 2017 (April 2012 – March 2017). However, you still answered my question.. so thanks for that.. 🙂
will 20% tax on NRE deposits can be opted for all NRI deposits till maturity.
Didn’t get your question? Can you please elaborate?
Can returning NRI opt for 20% tax gross, till maturity of deposits and will RBI object? all banks have core banking issues to deduct tax on deposits, who will bear TDS and who will pay penalty if banks do not re-designate and deduct TDS
Dear deepesh
My name is Anoop.I am from kerala.From 2008 i have been working in dubai.
i cancelled my visa & returned to india in 2012,after 2 years in 2014 i am
back in another company in dubai,is there any possibility that i can still
use my old Nre account.Expecting your reply.
Mail:anoop.palani@gmail.com
Thanks
Anoop
Dear Anoop,
Does your old NRE still exist?
You should have closed it when yo returned to India.
If the NRE account still exists, I don’t see any problem in contributing to it.
Please understand I am not a FEMA expert.
You are advised to check this with your bank.
Hi,
I was an NRI and have returned to India for good. My question is, do I need file income tax on my nri income which I earned when I was holding NRI status.
Note: I am almost about to complete 2 yrs staying in India & I have not income source generating in India.
If you qualify as RNOR, you may avoid paying tax on your foreign income for a few years.
Seek services of a good Chartered Accountant.
Dear Deepesh,
Very Informative articles and answers on various queries related to NRI status, NRE account status etc. I have one specific query. I came back to India on 30th september 2016 to India after spending 21 years outside India. I hold NRI rupee deposits. In Apr 2016 to Sep 2016 I have made few trips to India. What is my residence status for FY 2016-17? If i am not having NRI status Interest accrued on my NRI rupee deposit is taxed from when? from 1st Apr 2016 or from 1st Oct 2016?
Thanks,
Murthy
Dear Murthy,
Please understand I am neither a tax expert nor an expert in FEMA matters.
You are advised to consult an expert in respective matters before acting.
I am merely expressing my opinion.
1. Likely to be resident (RNOR) for FY2017.
2. This is a tricky part. Can be argued either way. Depends on case specifics and how you present your case if your file is picked for scrutiny. Since you returned permanently on September 30, 2016, it should be October 1. Btw, you should convert your NRE account to resident account on return to India.
Many Thanks!!!
Hello sir,
I hold a UK passport with OCI status and now come to India for good to be here for some years. Please advise do I need to convert my NRE account to Resident account?
Thanks,
Raj.
Very well-written and informative article, Deepesh. Thanks very much. I have been in USA since January this year (2016). I am planning to open an NRE account now. I do already have a savings bank account in India. I checked with couple of my friends here and they are continuing with their Indian savings bank accounts to transfer funds to India for last couple of years without any problem. Just wanted to check with you if that’s a good idea to continue with the regular savings account.
On another note, once I will return to India in future and I become ROR, then NRE account will become RFC account and interest becomes taxable. My question is: will the tax be levied on the interests earned since only when I become ROR. Please confirm. And, can I use the RFC account as a regular saving bank account (like fund transfer from RFC to other savings bank account)? Thanks for your time.
Dear Sauvik,
Thanks for the kind words. Please do share the post on your social media pages.
My opinion means nothing in this matter. My opinion cannot override a law.
As per FEMA, a NRI cannot hold resident bank accounts. That’s it.
In my opinion, your friends are acting in contravention of law. It is anothe matter that they may never be caught.
The only good news for your friends is that FEMA is a civil law. They won’t be put behind bars for this violation.
They can get away after paying a penalty. That’s my understanding.
Yes, interest on RFC will be taxable when you become ROR (exempt from RNOR).
RFC is foreign currency account (and not a rupee account).
Dear Deepesh,
Having completed 23 years in the GCC, i have resigned and come back to India on oct 7th 2016 with my Gulf Visa cancelled. My EOS was sent to my NRE a/c on 4/10/2016. I have started a FD with my end of service money as a NRE on 20/10/2016.
However, I just received a job offer from GCC but can join only after 3 months. So should i request TDS from the bank to be on the safer side ?
Thanks.
Best Regards
Srini
Dear Srini,
Didn’t get your question properly.
TDS on what?
Dear Deepesh
Thanks for the response.
TDS on the interest earned from the nre fd..
Dear Srini,
In my opinion, you shouldn’t have opened NRE FD in the first place.
Yes, talk to your bank about it.
As I understand, bank won’t deduct TDS on interest on NRE FD. You will have to disclose in the IT return.
Hi Sir
I am working as a freelancer in overseas. Means not with single company or single project. (Project by Project)
I have an NRE account in nationalized bank.
After my last project job completed i returned to India and staying here since April 2016. Soon or later i will go back overseas when i get new job.
Now my question is, what will happen to my NRE account if i stay more than 6 months in India.
To keep the account status as NRE account, do i need to have incoming transaction regularly from overseas. if yes, how often must have transaction
Do i need to pay tax for the amount that already in my NRE account, if yes in which basis?
Can i open a NRO account in same bank where i have the NRE Account?
Thanks in Advance
Joseph
Dear Sir,
I was a non-resident for 15 long years and came back to India for good since December 2012. Most of my NRE accounts are closed, and FD’s got matured, got it converted to Resident FD. Few FD’s still remain as NRE FD, as they have not yet matured. I am getting NRE interest from it. If I close this FD, there is penalty as well as I cannot get the contracted interest of 9%. Is this interest taxable?
BR
If you are not as NRI as per FEMA (which you are not since DEcempber 2012), NRE interest is taxable.
By the way, you have returned permanently in 2012, there is no excuse for continuing with non-resident accounts.
You should be paying tax on interest on NRE deposits since FY2013.
I was abroad for 2.5 years and have not converted my sb account into nro/nre account.
The salary earned abroad was transferred first to my new nre account and then from nre account to sb account and was invested in equity. The trading and demat account were taken before i left india.
A total if Rs.25 lac is transferred to sb account and subsequently utilised for buying equity.
Is there anything illegal in it… if yes, what is my option to come out paying the fine/penalty.
Thanks.. prakash
Dear Prakash,
Too complex for me.
All I can say that you shouldn’t have done this.
Technically, as long as you are paying taxes, you should be ok. That’s what I think.
Suggest you go through the following post.
http://www.personalfinanceplan.in/nri-corner/nri-corner-capital-gains-tax-for-nris/
But yes, it is a violation of FEMA in my opinion.
Please contact a good Chartered Accountant for better clarity.
Thank you Deepesh…
The link is very informative…
You are welcome, Prakash!!!
What is the penalty/fine/punishment for transferring salary earned abroad to SB account.. (for 25 lac)
Dear Prakash,
I have no idea. In my opinion, there is no punishment. FEMA is not a criminal law.
Don’t worry too much about this.
But yes, such big transfers may be reported to IT authorities. You will have to explain having both resident and non-resident accounts.
Please talk to a good Chartered Accountant. He will be able to guide you better.
Can i pay tax for the interest received in SB account for the period when i was abroad and be safe…
I returned from Abroad on November 2015 on an emergency and could not go back now all my investment in NRE account what what will be status now
If you are not planning to go back, better to change NRE account to resident accounts.
Dear Deepesh..thanks for providing very informative information. I stayed overseas for 16 years and acquired citizenship of other country and also holding a OCI. I moved to India during Mid 2013 and started to work since 2014. I have an NRE account with few FD’s. How long can I have the monies in this NRE account before it can attract Tax. Please suggest
Dear Mr. Kaoori,
Suggest you talk to a Chartered Accountant in this matter.
As I understand, you have to pay income tax from the day you are no longer NRI as per FEMA.
Hi Koorai, My position is something similar, did you get any answer ? Thanks
Dear Deepesh,
Its a very informative article.
I have some questions. I was in abroad (Netherlands) for the past 9 years and returned to India in Oct’16. I have some saving in my NRE account. As per the rule I should now convert my NRE account to resident savings account. If I do so, is there any taxation for the amount that I have in my NRE account (like double taxation, etc.) ?
Dear Satheesh,
There is no tax on converting NRE account to resident accounts. Your principal is not taxed.
Only the interest income becomes taxable.
Hi Deepesh ,
I was residing in Dubai until October 2014 . However due to a family emergency had to relocate back to India ,have been here since and had completely neglected changing my NRE account of 10 lakhs to a domestic account. I don’t have any FDs or investments on it however have made a few online payments on the account .will I be taxed or will there be any complications as such while changing?.
Thanks
Do it now. Don’t think banks care much. Should change easily.
Banks wouldn’t care about tax either.
Ideally, you should pay tax on interest on NRE accounts if you are no longer non-resident as per FEMA (a resident shouldn’t own NRE account in the first place).
Talk to a good Chartered Account and seek opinion.
Thank you for the advice. Really appreciate it , also thank you for helping so many people out
Thanks for very informative and useful article and response to readers questions
After being a GCC based NRI for 15 years, I plan to comeback and settle in India in April 2017
I have three types of FDs with leading Indian banks maturing from 2018 to 2020
a)NRE Rupee FD
b)FCNR FD
c)FCNR FD in JPY but maturity proceeds to be received in Indian Rupees at a rate fixed while booking the FD
From your replies it is clear that the interest on b) shall be tax free for two years when I enjoy Not Ordinary Resident status.
Please clarify about the other two types of FDs i.e. a) and c)
It does not sound logical that whereas interest on FCNR FD remains tax free for two years, the Rupee FD starts attracting Income Tax from day one while both the FDs are funded with remittance from abroad.
It is true that interest rate on Rupee deposit is higher than FCNR FD rate but it is because of low inflation and interest rates in these countries
Appreciate an early response
Regards
Arvind
Dear Arvind,
You are welcome.
Interest on NRE FD will be taxable from the day you return. In any case, you should convert it to resident FD when you return to India.
Am not sure of (c). I have not heard of such arrangement as mentioned. In my opinion, the treatment should be the same as a regular FCNR(B) deposit.
Suggest you talk to a Chartered Accountant for better clarity.
Hi Mr Deepesh,
I read all your suggestion and answers to NRE’s which help lot however appreciate your prompt response on below:
I was working in China during Jun-2013 to Sep-2016 on Australian Project work hired by US company. I was working on rotation of 11 week on 2 week off. During Off period usually I came to India to visit my family. I receive all my pay in NRE account during that period in USD. I had paid all my taxes due to China per rule in China. I have also made NRE Deposits in INR from fund received as Pay in my NRE account. Now I am return to India in Sep-2016 and informed my bank for same on current status. Bank is suggesting me to close the existing account but I have NRE FD’s linked with account hence I suggested them to convert the account status to resident status instead of closing it so future maturity will credited to sam. Meanwhile my NRE FD’s are also maturing every month which Upon maturity I immediately transfer it to my regular saving account together with Interest. How should I calculate the tax on my interest income on NRE FD’s already matured and future maturity belongs to next year?
Thanks,
Dear Sachin,
NRE account interest is taxable for residents.
Hello Dipesh:
I have a few FCNR cumulative deposits with forward cover having 5 year tenure maturing in 2018 & 2019. As my RNOR status has ended on 31.03.16, I have to pay tax on the accrued interest from FY2016-17. My questions are:
1. At what rate should I convert the accrued interest to INR for computation of interest for tax purpose? Rate as on the date of accrual or at the forward contracted rate or any other rate (pro-rated between conversion rate & contract rate)?
2. If its rate as on the date of accrual, then what happens when the FDs mature and conversion is done at the contracted rate? Will the differential between the rate existing then and the contracted rate be considered as capital gain/loss and I pay CG Tax?
Will appreciate your response.
Dear Anjan,
I will have to get back to you on this. I have a few doubts myself.
Suggest you talk to a good Chartered Accountant.
I am a NRI Living in the GULF since 21 years. I have 2 questions.
1. Upon opening a RFC account will my foreign income be taxed in India after loosing RNOR status? (I have pension proceeds from Foreign insurance companies which will be deposited every year).
2. How many years can I maintain a RFC account after returning to India for good.
Will appreciate your response.
1. Foreign income is taxable once you lose RNOR status.
2. Maximum 2 or 3 years.
Advise you to consult a Chartered Accountant.
I came to india by 2016 june and im no longer going abroad for my work.I just approched the banker to convert my account from NRI to Resident individual.But i need a answer that what will happen to my deposits which i maintained during my NRI status .
Whether i have to transfer those FD as Resident individual FD’s
or shall i maintain it as NRE Deposits
and what will be my TAX implications.
and also im holding lot of MF’s in the same manner ,Request your suggestions for this also.
Dear Karthik,
Only NRIs as per FEMA can maintain NRE FDs.
Yes, those have to be converted to resident FDs.
Even if you continue as NRE FDs, the interest earned on the NRE FD will be taxable.
With MFs, there is no issue. You simply need to change your residential status. You don’t need to redeem those MF units.
I have been a NRI for 13 consecutive years and returned to India permanently on 1st August. My bank informed me that I qualify as a RNOR status for 2 years from my date of return to India.
I have NRE savings account, NRE FDs and FCNR deposits. I am filing tax returns regularly on my Indian income, Given this background can you please advise on the following
1. Can I continue to keep my NRE account for 2 years from my date of return to India
2. Can I continue my FCNR deposits
3. Can I continue my NRE Rupee deposit FDs till maturity, 2022?
1. In my opinion, no
2. Yes
3. Should be designated as resident FDs. Typically, banks ask you to break the FD.
Hi Vasu,
Shouldn’t you be RNOR for 3 years? Unless you have spent substantial holidays during your last 7 years, how are you exceeding 729 days in the 7 years BEFORE this tax year?
Dear Sir
please advise I am returning to India in June 2017 almost after 28 years (during this period visited India several times once or twice in a year on vacation) from now if for how long I can be RNOR and what else i should do to change my status from NRI to Resident. I dont have any FD but I am maintaining NRE and NRO account.
What will be good for me to change account. Thanks
Dear Sun,
Difficult for me to comment.
Please follow the illustration provided in the post to make an assessment.
Can’t be more than 2-3 years.
All the bank accounts and financial investments you made as NRI should be converted/earmarked as resident investments.
Dear Sir
I am planning return to India in Jan 2017 end or Feb 2017 first week – holding NRI account and some NRI FD’s . will be settling down in India. Please advise how to go about the NRI account and how much tax will I be paying when converted from NRI to resident account.
Dear Raghupathy,
Please contact your bank for the process.
There is no tax on converting NRI account to resident account.
Sir – thanks for the feedback. By mistake I mentioned – NRI account. Actually I have NRE Savings account and NRE FDS. Please advise by when I should inform the bank about my return. Can I wait for 6 months to 1 year to inform bank as I may go later again abroad depending on new assignment and my family requirement
Dear Raghupathy,
In that case, it becomes quite tricky.
Suggest you go through the following post.
http://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
You can do that. Short periods shouldn’t be a problem.Longer periods can cause issues.
However, do note in case your case comes up for scrutiny, your assessing officer may differ from your judgement.
Dear Deepesh,
Its very nice and informative article. May you please inform if NRE Fixed deposit will attract tax for NRI’s returning to India or are they exempted till one has RNOR status?
No. RNOR status has nothing to do with NRE interest.
FCNR interest is exempt for RNOR.
Dear Deepesh
I have been in Africa since Sep23 2010. I visited India every year for 31 days and a few smaller visits aggregating to 250 days till August 2016. I have left my job on Sep28 2016. I am not sure if I will go back or not. My salary was credited to my NRE account. I received final settlement in November. Am I eligible for RONR status? And what does it imply for taxation purpose regarding the account balance and FDs?
In my opinion, you will not be eligible for RNOR status. Suggest you verify this with a Chartered Accountant.
Quite possible you may still qualify as NRI for FY2017(depending upon how many days you spent abroad).
As I understand, if your salary is directly credited to your NRE account, it is taxable in India (irrespective of whether you are NRI or resident).
Your account balance or FDs don’t become taxable on change of residential status as per FEMA. However, the interest on such accounts becomes taxable.
Dear Deepesh,
Myself and my wife are both NRIs living in GCC countries for the past 6 years. I have been gifting some money to my wife every month which she is depositing in her account maintained abroad. These amounts are subsequeently remitted by her from abroad to India to her NRI account and converted to NRI fixed deposit in her name. I would like know that on our return to India whether income from these deposits will be clubbed with my income for taxation purpose.
Dear Raju,
Please understand I am not a tax expert. Even though I will express my opinion, you are advised to consult a Chartered Accountant before coming to a conclusion.
In my opinion, the income from such deposits will be clubbed with your income since you are the source of money.
Suggest you go through following post on my website.
http://www.personalfinanceplan.in/taxes/pfp-primer-clubbing-of-income/
Dear Deepesh,
Thanks for your prompt reply. I understand that Gifts given to spouse outside india does not attract Indian Gift Tax provisions. Hence the interest income on wife’s FD in the above case is not clubbed with my income. Am i correct?
Gifts to your spouse are not taxable.
However, the income from investments made from such gifts is clubbed and taxed accordingly.
Please understand, in absence of such provision, it will be very easy to save income tax. All the investments will be made in the name of non-working family members.
Dear All,
This is Udaya Bhaskar Malla.
I stayed since March 2008 to April 2016 abroad, in the month of May 2016, my company promoted me as a country head and asked me to go to India and work from there.
If our company would have a permanent establishment in India I would not have these many questions in my mind. I currently work from home but travel across India to meet my clients.
According to immigration policy and non establishment of the physical company here in India, my company is pay rolled me as a consultant.
According to FEMA, I m now a resident and according to Income tax I will be an RNOR.
Now it’s the turn for me to close my NRE and NRO account and get into a savings account. I appreciate if you can guide me if I m understanding whole process right or any mistake in my understanding.
I will receive foreign funds as a consultant fee where service tax is not applicable but am I supposed to pay income tax during the first two years of my stay in India because of my RNOR status.
Will the savings account will be questionable for my international funds ?
– Uday
Dear Udaya,
Since the payment is for services rendered in India, the income will be taxed in India (irrespective of your residential status).
No, many residents receive funds from abroad. As long as you can explain the source and disclose the income in income tax returns, there shouldn’t be any issues.
Please understand I am not tax expert. You are advised to consult a Chartered Accountant too.
Thanks Deepesh for the informative blog. I have couple of questions which I believe you will be able to guide(as an expert on the topic).
I returned from US after 5 years in Dec 2016. I have no plans to go back.
1. Will I be able to have take the benefit of NRI status and skip the tax on just the interest part of my FD saving in NRI account.. If so for how long I will be able to take this benefit.
2. I still have funds in my US account which I need to bring back. Should I bring them in NRI account or normal saving account now. Which one would be better.
You are welcome, Amit.
1. If you have returned permanently, close/convert your NRE accounts to resident accounts. Interest on NRE deposits is exempt from tax only for NRIs (as per FEMA).
2. As I understand, you can still maintain your US account.
Please understand you are advised to seek service of a FEMA or tax expert before taking any decision.
I worked in Dubai and i opened NRE account. Now i came back totally i need to close that account.. what i have to do with that as i don’t have many in that account and charging for low maintenance of account
To close your NRE accounts, please contact your bank.
Depeash,
I am working last 12 years in Middle East. Every financial year i am working abroad more than 190 days. Rotation basis
1. All my NRE salary s transfer to through online to NRE deposit account.
2. After accumulate some amount i make NRE FD
3. Now all NRE FD interest i am getting 25 lac per year tax free.
4.Now i have a 5 more years’ service in same company
5.After i rerun back to India how many years NRI status will get my Fixed deposit without tax?.
6. my son is in USA with his family. if i stay with may son more than 185 days in financial year After retire my FD will get same NRE status?
7.14 year back i open PPF account it is going to measured next year around 25 lac it is tax free? that amount which account i want to deposit? I have NRE, NRO and SB account and PPF account. Please let me know point wise. i am waiting for your favorable reply.
5. If you return permanently, you should convert NRE FD to resident FD and pay income tax on resident FD.
6. Yes, you will continue being NRI
7. Yes, PPF maturity amount is tax-free. If you are NRI, you cannot extend the account.
Deepesh Raghaw
Thanks for quick response. question#7 maturity amount which account i want to deposit after maturity?(I have NRE, NRO and SB account) i can make FD maturity amount? i am waiting for your favorable reply.
Didn’t get your question.Can you please elaborate?
I have an NRE a/c . i have come to india after working 36yrs in gulf. can i keep the a/c. please give me your advice.
If you have returned permanently, change to resident within reasonable time.
FD maturity amount(aprox25Lac) which account i want to deposit after maturity?NRE ,NRO, Normal Sb Account? (I have NRE, NRO and SB account) i can make/deposit ordinary fixed deposit maturity amount?i am waiting for your favorable reply.
If you are NRI, open NRE FD.
Hi Deepesh,
Your articles are great & informative. I have been working in the gulf for over 3 decades.
I have come back with my family in April 2015 & residing in Mumbai ever since.I am trying to go back if I get a reasonable offer.
I understand there is a 8 year grace period, so that will be paying tax in 2024. Am I correct?
My wife is a housewife at the moment, and I am currently jobless with no income except NRE (Rupee&$) FDs interest.
I am 54 years old. I have NRE rupees & dollar accounts, some are maturing in June 2017 & Feb 2019
I get monthly interest around Rupees 50,000/-
I have a Max Bupa insurance 11 years policies
ICICI wealth builder 3 policies
I understand an 80C form or any other has to be filled up.
Kindly guide/advice me through how I should file tax returns& if you need any info do let me know,as I have no other source of income.
Kind Regards,
Mani Ram
mani1965ae@yahoo.com
Dear Mani Ram,
I am not aware of grace period of 8 years.
Advise you to consult a Chartered Accountant. He/she will guide you better.
Dear Deepesh,
I went to the UK in mar 2008 and later got british citizenship in 2014, i later returned to india in oct 2014 and have the OCI card.
I have NRE & NRO a/c in Axis bank and have NRE FDs as well.
What shall i do?, do i get NRI status or not?
Dear Raj,
I am not too sure. In my opinion, you should be resident as per FEMA. Therefore, you shouldn’t hold non-resident accounts.
Please talk to your bank branch manager or consult a FEMA expert.
Hi Raj, My position is something similar, did you get any answer ? Thanks
Hi Deepesh,
Great post! very informative.
I have been employed in the US for past 5 years and don’t have NRE or NRO account. I have funds in my US bank account. I might move back to India soon (not sure how soon) for an indefinite period of time. I think one of my options is to open RFC account once I’m in India, if I want to use the money in India. My questions are:
1) Do you think it’s a good idea to open RFC account instead of NRI or NRO account considering my scenario? Do you have any other suggestion?
2) Can I move funds from my US bank account to RFC account through checks and online transactions while I’m in India?
3) Can I move funds freely from RFC account to regular Indian saving account (INR) for investment purposes?
Thanks in advance.
Hi Sam,
Thanks for the kind words!!!
1. RFC comes into picture only when you are returning to India. Therefore, you do not have any choice. At the moment, you can only open NRE/NRO accounts, if you want to.
2. This is about operational aspects. Please contact your bank.
3. Don’t see any problem. However, it should be one way only.
Hi Deepesh,
Greetings…
Thanks for a very informative article. I have the following query, please share your view:
I am NRI for the last 36 years and planning to settle permanently in India from 1st June 2017
All my savings are in FCNR and NRE FD’s in Nationalized Banks. I have to continue living from interest earned from these deposits.
Kindly advise me how i have to proceed.
Thanks Omkara.
FCNR can be continued till maturity. NRE FDs have to redesignated as resident FDs.
You can contact your bank branch. The concerned official will guide you about the process.
I have been NRI for over 20 years and now OCI Card holder for last two years. Want to return in India for retirement this year. I have few questions and request for your advice
1. Is there separate treatment, for Tax pupposes, for returning NRIs and OCI Card holders
2. Will it keep me out of Tax net for longer period if I return in October to have less than 182 hays during this finamcial year.
3. It looks like that it will be a good idea to convert the NRE FDs to RFC FDs.
You comments please
Dear Kaluram,
Please understand I am not a tax expert. Suggest you talk to a Chartered Accountant for your tax related queries.
Yes, if you return in October, you will be able to maintain NRI status (as per Income Tax Act) for this year. You will be RNOR for a few more years.
For conversion from NRE FD to RFC FDs, you need to look at your requirements before you make a choice. RFC is a foreign currency account.
I came back to India on 27th Jan 2017 after working in Qatar for 4 years 3 months.
How long can I continue to hold NRI account without declaration and subsquent conversion to Indian Savings account ?
There is no fixed time frame. FEMA talks of a reasonable time frame. Do it at the earliest
Better if convert within a few months.
Hello,
i am sanjay i am in israel for my job but getting salary as commission from UAE.
i was in israel from last 4 years for more than 200 days from 2017-18 i will be in india but i have recivable from israel which i will receive in 2018 so i will have to pay tax on what i will receive in feb 2018.??
or is there any ways to declare recivable to Income tax departments…i had not filed ITR for last for years as my only income is this commission which i get in NRO account (10 lac /year )
Hi Sanjay,
I am not the right person to answer this question.
Please consult a Chartered Accountant.
Dear Deepesh,
Thanks for a wonderful blog and knowledge exchange.
I have a few FCNR(B) deposits (with forward cover) maturing in 2018 & 2019. My RNOR period will finish byFY 16-17.
– Do I need to pay tax on the accrued interest for FY 2017-18 & FY 2018-19?
– If yes, what exchange rate am I supposed to use to convert the USD interest to INR for tax computation?
Please advise.
thanks.
Dear Sanjay,
Thanks for the kind words.
Please understand I am not a tax expert. Hence,please seek professional advice from a Chartered Accountant.
1. Yes
2. This aspect it a bit tricky. As I understand, it will be last day of previous year. I am not too sure though
Suggest you through the following link http://incometaxindia.gov.in/Rules/Income-Tax%20Rules/103120000000007546.htm
Hi,
I am an NRI for 15 years and I have NRE deposits with banks. My question is when I return to India and I continue to hold the NRE deposits till maturity, whether interest on those deposits that has accrued for the FY when i become RNOR will be taxed or total interest will be taxed?
Dear Subhash,
Suggest you talk to a Chartered Account for better clarity in this matter.
Interest on NRE deposits is taxable for residents (as per FEMA). Btw, you can’t hold NRE deposits if you have returned permanently. You have to re-designate such NRE deposits as resident deposits.
RNOR status does not affect NRE deposit taxation.
Suggest you go through the following post.
http://www.personalfinanceplan.in/opinion/nri-corner-you-do-not-have-to-break-your-nre-fd-on-return/
Please advise, I am returning to India in June 2017 after more than 25 years (during this period visited India several times once or twice in a year on vacation) from now for how long I can be RNOR and what else I should do to change my status from NRI to Resident. I dont have any FD but I am maintaining NRE and NRO accounts.
What will be good for me to change account. Thanks
Hi Deepesh,
Im an NRI from March-2004 and am operating my income with a NRE account.
I got married in 2014 with a NRI from Dubai. She has a NRE account and a home loan is existing on that account.She is a housewife from 2014 without any income.
I have 2 questions:
1. Will my wife also be considered as NRI even if she does not have any source of overseas income.
2. Till my marriage, i did not have any NRO / Domestic SB account. After advise from my “better-half”, i opened SB accounts in 2 different nationalized banks, who knew about my resident status. I have PPF on my Domestic SB accounts. My question is, if i convert my SB account to NRO account, what will happen to my PPF accounts which are not expired.
3. If NRIs do not need Aadhaar, how do we file our returns from the deposits, which needs a Aadhaar card.
Hi KowChi,
1. Your wife is a NRI. Source of income overseas is not a criterion in determining your residential status.
2. A NRI can’t hold savings bank account. Convert those accounts to NRO accounts.
PPF account can be continued till maturity.
Suggest you go through the following post.
https://www.personalfinanceplan.in/product-review/all-you-need-to-know-about-ppf-account/
3. Please talk to a Chartered Accountant.
Thank you Deepesh…wonderful service
Appreciate your kind words.
I have a small request. Please share the posts you like on the blog with your friends on Whatsapp and Facebook.
Dear Sir,
I worked in gulf for 12 yrs and returned to India on May 2016. I thought of going back on a job assignment but things didn’t move in that direction. Now I have decided not to go to abroad. I have the following query :
1. How long I can maintain NRI status without informing Banks (Some say 1 Yr. & Some say 3 Yr.) ?
2. What will happen to my NRE FD’s ? (Means until the maturity date can it continue & after maturity, I have to pay tax for that maturity amount ? )
Thanks in Advance.
If possible reply to my mail ID only.
Dear Sir,
1. FEMA is silent on specific time frame. It merely says that you should do this within reasonable time. Sooner the better.
2. NRE interest is exempt only for NRIs as per FEMA. If you are not a person outside India (NRI) as per FEMA, such NRE interest is not exempt.
Better to convert those FDs to resident FDs.
You can redesignate your FDs as resident FDs.
http://www.personalfinanceplan.in/opinion/nri-corner-you-do-not-have-to-break-your-nre-fd-on-return/
Hi Deepesh,
A person left India in Nov-2013 and returned back to India in Nov-2016 permanently. As per 1st condition since he is in India for less than 182 days he should be a NRI. However, there is no clear mention of exception for a person permanently returning to India in second condition (of more than 60 days stay in previous year). Kindly advise if this person should be a Resident or NRI? He is satisfying the second condition of being in India for more than 365 days in last 4 previous years.
Thanks
Manish
Hi Manish,
In my opinion, the person is a resident both as per FEMA and IT Act.
IT Act is not concerned about the nature of person’s stay in India. FEMA is.
Please understand my knowledge is these matter is quite limited.
Please talk to a good Chartered Accountant for better clarity.
Dear Deepesh
I was surprised to note the following in your article although your replies are giving correct approach.
QUOTE
“NRE savings account will be re-designated as a resident rupee account.
FCNR and NRE deposits can be closed immediately or can be allowed to run up to maturity.
UNQUOTE
So please correct the above statement. I think the correct advice is . BOTH NRE SB ACCOUNT AND NRE FD ‘S TO BE RE-DESIGNATED AS TAXABLE RESIDENT SB AND FD FOR RETURNING
NRI’ s.WITH SAME CONTRACTED INTEREST AND MATURITY FCNR can be continued till end of RNOR STATUS AS NON TAXABLE.
Hope I am right.
PLEASE REPLY
You are right, Dr. Matthews.
I agree the choice of words can lead to some confusion.Thanks for pointing out.
Suggest you go through the following post.
http://www.personalfinanceplan.in/opinion/nri-corner-you-do-not-have-to-break-your-nre-fd-on-return/
Hi,
I have been a NRI from Apr 2009-Dec 2016.From Jan 1st 2017 to till date I am in India.I have NRE fixed deposits maturing in July and October.Could you please advise whether i will be taxed for the interest on these deposits for the FY 2017-18.I am eligible for RNOR status.
As I understand, interest on NRE deposits is taxable from the day you have returned to India.
For taxation of interest on NRE deposits, RNOR status is meaningless.
Thanks for your clarification Deepesh! Could you advise the benefits of RNOR for returning NRI and also clarify whether i need to declare to the bank before the maturity of the FD of my resident status?
Hi Rajesh,
RNOR status is from the perspective of Income Tax Act. Your global income barring a few exceptions is not taxed if you are RNOR.
Global income would have been taxed if you were ROR.
A good Chartered Accountant can guide you better.
Banks don’t really care whether you are RNOR or ROR. They should be worried about your status as per FEMA (and not as per Income Tax Act).
Please let me know about this .
I am NRI. My daughter is minor (US citizen ). I have made NRE Fixed Deposits in India with first name as my daughter and me as second name(joint holder). What happens if I return to India . As my daughter is US citizen can I can continue them as NRE Fixed Deposit ? or do I need to make them as NRO deposit accounts ?
Thanks in advance
Dear Jagdish,
If you can hold NRO accounts, you can hold NRE accounts to.
If your daughter stays in US and is a NRI, in my opinion, you can continue these NRE accounts.
Hi Deepesh,
Thanks for some good tips and information above.
I have been an NRI since 2005. I will be returning to India next month for an 11 month assignment that will be paid in India with a clear ambition to return back abroad before 1 year.
I understand that I could continue my NRE deposits until maturity however I need to pay income tax on interest earned on these deposits, right? Is the interest a flat rate of 10% or it is just added to the income?
A second situation is if these NRE deposits will mature in January 2019 by which time I will already be back abroad do I need to do anything?
Lastly, if an NRE FD does mature before I return back abroad and it needs to be deposited in a resident savings account can I repatriate the money from this account after I move back abroad?
Thanks,
Kunal
Hi Kunal,
If you are an NRI (as per FEMA), you do not have to pay any tax on NRE deposits.
If you are not, interest will be taxed at marginal income tax rate.
You can go through the following post for more on this.
https://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
Hi Deepesh,
Thanks for your quick reply!
Just wanted to clarify what does the definition under FEMA to classify Resident or Non-resident Indian status mean. If I move back to India after 10 years for a limited time period of less than 12 months what then is my status with regards to FEMA? I am not intending to come back for an unlimited period of time.
Secondly, upon my arrival in India if I convert my NRE deposits into RFC deposits in foreign currency when I move abroad again can I convert the RFC deposits in foreign currency to NRE deposits in India rupees?
Thanks,
Kunal
Hi Kunal,
If your stay in India is temporary, then you can continue with Person Outside India (NRI as per FEMA) status.
Whether you qualify depends on definition of NRI as per FEMA.
I have discussed the definition in my following post.
https://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
A good CA can also guide you.
RFC to NRE is possible later but you need to see if you need to convert to RFC first. Avoid if you can. Banks will make merry on conversion charges.
HI DEEPESH, JAI HIND,
KINDLY CLARIFY MY FOLLOWING QUERY PLEASE:-
A) WHAT IS THE MEANING OF RIRD (RES) FIXED DEPOSIT (FD) MEANS.
B) RIRD (RES) FD IS A TAX SAVING FIXED DEPOSIT OT NOT?
– YOUR EARLY REPLY ON THIS REGARD IS HIGHLY APPRECIATED,
BEST REGARDS,
JAI
Hi Jai,
Are you talking about a product from a specific bank, Bank of Baroda?
Hello Deepesh,
Your article above is very informative. However as economic and financial situations are changing rapidly, therefore would,
Request your advice and suggestions on our present situation.
Presently we are NRIs living in USA for last 9 years and six months. planning to return to India for good. Couple of queries.
1. When is the best time to return to India to get the maximum advantage of tax and NRI status (considering 182 days clause for NRIs) is benefits?
2. Having real estate property on rent in USA and filing tax returns on the income in USA, what will be my tax implications in India?
3. Until how long will I be able to transfer funds from USA to India without any sort of implications to my NRE account considering I move to India by the end of this year.
4. What is the RBI bonds present rate of interest and can we buy RBI bonds online from here in USA?
Thanks .
Hi Suranjana,
You are welcome.
1. Depends on your sources of income. Yes, you can stay outside India for more than 182 days to maintain NRI status (as per Income Tax Act) for the year.
2. If you are resident as per Income Tax Act, such rent will be taxable in India. You will get benefit of DTAA for the taxes paid in US. If you are NRI as per income tax act, then such rental income in US is not taxable in India.
3. You can keep your foreign accounts even if you shift back to India. Therefore, there is no rush. You will have to disclose such assets in your IT returns. NRE accounts have to be closed once you return permanently (since you wouldn’t be NRI as per FEMA).
4. Buying Government bonds in India is quite cumbersome tricky. Bond markets are not well developed. But, you can take such exposure through MFs.
Please understand I am not a FEMA or Income Tax expert. My knowledge in these fields in fairly limited. Advise you to consult experts in the respective domains.
Thank you Deepesh for your insights. Greatly appreciate.
Just one question: As you said, the bonds market is not yet fully developed to play around with large amounts.
What is the best ” no risk” investment for a large sum of money in India which will generate a handsome monthly income?
Thanks.
Will depend on exact requirements and eligibility and if you want to hold till maturity.
A low cost gilt mutual fund can be good and easily available choice.
Suggest you talk to a good investment adviser once you are back in India.
That person can help yo construct a portfolio in line with your requirements.
Thank. Grateful for your advise.
Hi Deepesh,
Thanks for the insightful article, I have two questions, I hope you can help…
1. I have a NRE account with some Fixed Deposits. For the next year(2017-18) I will be in India for more than 7months but after that I will move back to my employment country. For this year I am going to Indian resident.
I am bit confused about maintaining my NRE account , should I change ordinary account but I need it after 10 months? And Do I need to mention the NRE FD interest in my IT returns, as it is there is no tax on NRE account.
2. The savings I have in my foreign account if I transferred to Indian account while being a taxed Resident will it be taxable under capital gain etc? How do you advice me to handle to foreign savings, if I dont want to move it to india immediately ?
Hi Akash,
You are welcome.
1. Whether you can hold NRE account is determined as per definition of NRI as per FEMA (and not as per Income Tax Act). Suggest you go through the following post to figure out your residential status.
https://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
You need to report NRE deposit interest, irrespective of your residential status (as per Income Tax Act). Whether the interest is taxed or not, is a different matter altogether.
Interest on NRE fixed deposits is exempt from tax only for those who are NRI as per FEMA.
2. Transfer of own funds from foreign account to India does not entail any taxation. You can keep money in foreign accounts. No need to move such funds to India. Report such assets in your tax returns.
Hi Deepesh,
Thanks for the reply. I read your other blogs as well, quite informative for me. I learned I can be NRI under FEMA but still have to pay tax as you are not NRI under Income Tax act.
Dont you think, it is unfair at IT part to ask for taxes on foreign salary and taxing them as per Indian slabs. It us quite normal to hit 10L and immediately u have to pay 30% tax. It is so unfair!
Your expenses abroad are quite high, housing, food, travel are very high and on these you cannot really save anything. Is there any way to protect yourself. It seems unfair at their part….
Whats your opinion ?
Hi Akash,
That’s the way it is. Have no comments to offer.
You get adjustment under DTAA.
Dear Deepesh Ji,
Greetings & Good day
I saw your very informative article on the web. Since you are an expert in this field, I shall be highly grateful to you if you could please let me know the implication of taxation for me. I am an Indian working in Abu Dhabi UAE. I have completed about 23 years here. No decided to go back to India for good by 15-Sept-2017. Every year I only go for say 30 days for vacation to India
This financial year 2017-2018 : during April-May-June I was in India for 31 days and since I am going back to India during Sept-17 I believe the 1st rule of staying abroad is not fulfilled to stay as NRI. But same time during the last preceding 4 years I have hardly spent 200 days in India for vacation.
My Monthly salary here is (in Rs) 95,000 pm. Further upon retirement I shall be getting around 30 lacs as terminal benefits ( Service money for 23 years) as per UAE Labor law. This amount also I will be bringing with me to India in Sept 2017. If some of it is taxable then how much I need to pay. My total final dues will be Rs.33 Lacs
Kindly let me know the rules applicable to me since I am very much worried if big chunk of my saving will be taxed and I will be left with very little final savings.
Thanks and best regards
Shankar Narayan | Abu Dhabi – UAE
Hi Shankar,
Better to ensure that you are NRI or RNOR as per Income Tax Act for FY2017-2018.
Plan your return accordingly.
Based on information shared, you will likely qualify as RNOR. In that case, you don’t have to pay any tax on such Rs 33 lacs.
Do note, if you are not NRI or RNOR, such terminal benefits may be taxed.
Please understand I am not an expert in income tax laws or FEMA regulations.
You must consult a good Chartered Accountant before taking any action.
Hi Deepesh Ji,
Many thanks and for your prompt reply. Yes, I have checked today with a CA and he has also confirmed your views. that my case will be treated and RNOR. due to long period spent as NRI
Once again thank you very much for your confirmation
You are welcome, Shankar ji.
Please do share the posts you like with your friends and family.
Dear Deepesh ji
Thanks for such informative article !!
What can we do if our bank refuse to open RNOR account saying that they dont offer such service ?
I have been a NRI from 27 Mar 2007 to 16 Dec 2015. I have my NRE account in BOB.I have few FD accounts as well
In my understanding , i am eligible for RNOR (by both conditions).
What do i do in such a case , where my bank doesnt offer RNOR accounts?
What can i do ..
1. Can i transfer my NRE account to any other bank who offers RNOR account to me?
2. shall i withdraw all the money from FDs and invest in something else (where?) ti save the tax?
One more thing..till date , they havent converted my account …(its been an year)..It is still an NRE account
Even though i told them in the beginning..I went to the bank personally and also got my contact information (phone number and address) changed …I even sent a scanned copy of my passport (showing my return date)..but they didnt do it .. Now, when i was filing the ITR , i realized that my account is still on NRE status ..and they are putting the blame on me thta i didnt inform them ,,,
Hence i have to take a decision now … i requested to change my NRE account to RNOR but they say they can not do it .
My question is “when my government / regulations gives me a right to save tax and open a RNOR account , then who are these bank to refuse me for my right . who will pay my tax? ,
Why would i suffer when my service provider is unable to give service ?
Pl advise what to do.. i really need an expert advise
Thanks’
NSM
Dear Navneet,
Guess there is some confusion.
What is a RNOR account?
You can request the bank to change your NRE accounts to Resident accounts. And, while filing income tax you can file as a RNOR (strictly speaking NOR as per income tax forms).
My understanding is banks don’t have a provision for RNOR accounts.
Interest on NRE bank fixed deposits ….on return and becoming resident … Can the person avail reduced tax rate under sec 115 h.?
Hi Sundaram,
I am not the right person to answer such questions.
Please contact a good Chartered Accountant.
My cursory reading of the said section suggests that it refers to Foreign Exchange Asset (NRE FD is a rupee asset).
Hi Deepesh
Could you please assist me with this matter pertaining to NRE, NRO and FCNR accounts maintained in a bank here in India.
My residential status summary: Was in UAE since 10 Oct 2005, returned to India on 10 Nov 2016.
Year-wise residential status:
FY
2005-06 : 113 days in India – NR
2006-07 : 27 days in India – NR
2007-08 : 57 days in India – NR
2008-09 : 20 days in India – NR
2009-10 : 15 days in India – NR
2010-11 : 23 days in India – NR
2011-12 : 22 days in India – NR
2012-13 : 0 days in India – NR
2013-14 : 8 days in India – NR
2014-15 : 13 days in India – NR
2015-16 : 22 days in India – NR
2016-17 : 220 days in India – RNOR
Last 7 years (FY 2015-16 backwards) : 103 days in India.
Q1:
I was in India for a bypass surgery in March 2016 and returned to UAE in May 2016. I resigned from my UAE job in June 2016 since the company dissolved and I returned to India in Nov 2016 as I could not find a suitable job after that. I have been still seeking a job in UAE but have not been successful as yet.
If I stay in India permanently from now I presume my status will be RNOR till FY 2017-18 and in FY 2018-19 the status would become R&OR. Is that correct?
Q2:
I still have my NRE, NRO and FCNR accounts. the accounts were opened several years ago when I became an NRI.
– The FCNR will mature in May 2018 and I shall deposit the proceeds in my savings account.
– The existing NRE and NRO accounts – when do I have to change these to resident rupee accounts / RFC account (for NRE acct) ? Is there a time limit? My status is still RNOR. Note that I maintained them in situ as my intention was to return abroad for employment. Unfortunately no luck as yet. Note that I have not taken any employment here in India since Nov 2016.
Your advice would be appreciated.
Thanks.
Dear Mr. Suri,
Please understand I am not a FEMA or Income Tax expert. My knowledge in these fields is limited.
Therefore, even though I will express my opinion, you are advised to consult a Chartered Accountant before taking any decision.
1. You will be RNOR for both FY18 and FY19.
2. A bit of subjectivity here. Since you can always argue that it is not a permanent return, you may not qualify as resident (as per FEMA) from day 1.
In that case, regular definition of person outside India (NRI) may apply.Your RNOR status has nothing to do with whether you can hold NRI accounts. That is dependent on your status as per FEMA.
https://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
How does a RNOR go about showing interest accrued on FCNR under exempt income (for reporting purpose), Form ITR1?
Is it sufficient to mention “Interest from FCNR and RFC” under “Others”, “Nature of Income” and mention the total interest in the amount box? Thanks.
Please talk to a Chartered Accountant.
As I understand, in ITR-1, exempt income section is for dividends and capital gains.
Dear Mr.Deepesh Raghaw,
Thank you very much for posting such a informative article and hats off for maintaining it live till this moment.
My Query is :
I went to a gulf country in Apr’ 2012 on contract job , in June’ 2016 due to man power reduction in the client site I was retrenched from the site and my contracting company sent me back to India after cancelling my visa ,
At the time of settlement the client company which availed my service advised my contracting company to pay me one month extra salary as compensation for the loss of job plus one month notice period salary as per contract since it discontinued my service with immediate effect along with the gratuity due for the period worked there , and then to claim from it,
My contracting company paid part of the above said beneficial amounts as cheque instead of depositng in my salary account there and it with held a part amount saying it will deposit later in my Indian NRE account after receiving from the client ,
I encashed the cheques directly from the corresponding bank without depositing in my salary account , I closed my salary account after withdrawing the full balance , I send the total amount to my Indian NRE account thru the money exchange from there itself,
I returned to India in June 2016 and my company send the balance amount in July 2016 to my NRE account and I’m still maintaining it along with few NRE FDs hoping to get a job again in gulf
Pls Kindly clarify the following
As I’m in INDIA till now , my status is resident for the FY 16-17 ,
if so do I have to pay income tax for all the amount received in NRE account After April , 1st 2016 ,
Segregating individually pls advise which one is taxable or not
1. April , May month salary amount.
2. Part of the final settlement amount received by cheques in abroad and remitted from there
3. part final settlement amount send thru money exchange by my contracting company after I returned
4. During the month of April I send my previous month ( February and March ) salary to my Indian NRE account ( will it not be considered as my FY 15-16 salary )
Or Do I have to pay tax only for the interest received on FDs and NRE savings account,
Thanks & Regards,
Arun
If you qualify as Resident as per FEMA, you won’t have to pay any taxon NRE interest. FEMA definition is a bit subjective.
Suggest you go through the following post.
https://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
Also suggest that you contact a good Chartered Accountant for actionable advice.
If you are resident for FY2018 as per Income Tax Act, your global income will be taxed in India.
If you qualify as non-resident for FY2018,
1. Money received abroad won’t be taxed in India.You can receive abroad and transfer to India. No tax on that.
2. Money received in India will be taxed in India.
Hi Deepesh,
Thanks for providing detailed information in the topic. I have a specific question regarding Fixed deposit income.
Me and my spouse came to USA in Dec-2013 and planning to return back in Dec-2018 for good. I have converted my account to NRE account and have some saving as fixed deposit which will mature in Mar-2019. My wife has one Indian savings account in SBI and it was never converted into NRE/NRO account. In my wife’s account we have some savings also. After returning back to India, I would like to put our Savings in my Wife’s account and do a fixed deposit. my question is “the amount earned from fixed deposit interest”, will it be added to my income or it will be only her income and she will pay as per tax slab. And can I transfer money from my NRE account to her Indian account or should I open an NRE account for her.
Regards,
Deepak
Hi Deepak,
In such cases, interest on fixed deposits will be clubbed with your income and taxed in India.
Suggest you go through the following post.
https://www.personalfinanceplan.in/taxes/pfp-primer-clubbing-of-income/
Thanks Deepesh. If she was working in USA and saved the money in Indian savings account, will that interest will be clubbed with my income. She is not going to work in India after returning. Do we need to provide her income details in USA when we come back to India.
I will not be transferring any money from my Indian bank account to her. It will be directly transferred from US on monthly basis(based on savings)
Thank you,
Deepak
If she is the source of income for the money in her account, there will not be any clubbing.
I don’t think so. However, if such a query comes from assessing officer, you can show.
Sir, I had an NRE a/c in SBI, in which I had three NRE FDs to be matured in 02/2016, 07/2016 and 11/2016, I came back in 07/2015 and in 02/2016 I informed the SBI that I had come back India in 07/2016 so that my NRE status of the a/c may be changed accordingly (as the NRE status of the a/c remained valid after six months of return to India). Immediately they changed the status of my NRE a/c to normal S/B a/c. I was outside my hometown. Just before maturity of the FDs, SMS came from the Bank that your FD is going to be matured, either you instruct the bank or the same would be rolled back to the original term. I could not respond to the SMS. I came back to my hometown in 06/2017 and encashed all the three NRE FDs. I have seen that the bank has given me an interest of approx. Rs. 45,000/- (for the period from 02/2016 to 06/2017) over the matured value of the FD which had been matured in 02/2016 while no interest was paid to me for the matured value of the other two FDs which were matured in 07/2016 and 11/2016 (only the matured value was given). On query, the bank has said that as the other two FDs were encashed before one year (minimum) period, no interest was paid.
My question is:
(a) As the amount remained with the Bank, they may not give me interest at the rate on which the FD was made, but may I not be entitled to get interest for Savings Bank (S/B) a/c rate?
(b) If they disallow it, as I had informed the bank about my return and changed the status of my NRE a/c to normal S/B a/c, after maturity date (in 07/2016) was not the matured amount become as domestic FD? And I should get the interest as per the rate of domestic FD, may it be?
(c) If at all the rules do not permit me to give any more interest on the other two FDs, is the interest amount (Rs. 40,000/-) obtained for the first FD is taxable, i.e. do I need to reflect it in my other income during the financial year 2017-18? or it is non-taxable, as the interest is obtained from the NRE FD.
Hi,
a. There is no interest on NRE FD if you close before 1 year. Therefore, the bank seems correct.
b. You may have a case here. Did you ask them to convert NRE FDs to resident FDs? Ideally, when you changed residential status in savings account, you should have done in NRE FD too. Suggest you go through the following post.
https://www.personalfinanceplan.in/opinion/nri-corner-you-do-not-have-to-break-your-nre-fd-on-return/
c. Interest from NRE fixed deposit is taxable from day 1 of your return. A CA will guide you better on taxation.
Hi Deepesh,
Thanks for your detailed insight on the matter. I was reading an another blog where it says, returning NRE can maintain the same status for 3 years without paying tax on NRE FDs. Please refer to the below and kindly advise.
Site : https://cleartax.in/s/nri-status-and-taxation
Interestingly, in case you have just returned back to India – you are allowed to keep your RNOR status for up to 3 financial years post your return back to India. That could benefit you in a big way – since your taxation will be very much in line with that of an NRI and therefore income that you may earn outside of India (while you may have returned back) will continue to be not taxed in India. Therefore like an NRI –
Any income that is ‘earned’ in India is taxable for you in India
Your income outside of India is not taxable in India
And you can continue this status for a period of 3 years. However, once you have attained the status of a Resident, all of your income within and outside India will be taxable in India, barring any concessions that may be available under the Double Taxation Avoidance Agreement between India and the country from where your overseas income has arisen.
Regards,
Deepak
Hi Deepak,
Appreciate your kind words.
If you read ClearTax article, there is no mention that RNOR status qualifies you to hold NRE account.
In fact, there is no linkage.
RNOR is residential status as per Income Tax Act.
Whether you can hold NRE account is determined as per FEMA regulations.
Suggest you go through the following post.
https://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
Hi Deepesh
I am an NRI and returned few weeks back on permanent basis. Now i started working in India. Currently i am holding some funds in NRE and i have asked the bank to close the NRE and transfer the funds to my local account. Currently the process is going on. My question is whether i can transfer the surplus funds in my wife name and file IT return for her by claiming the deduction available for her. My wife is not working and this only be source of income and i can claim this benefit. Please advice whether this will attract clubbing provision? With my new employment, i will start paying tax and any additional income from interest on FD (assuming i am parking the surplus funds in FD) and i would like to avoid it. Please advise what would be best tax planning aspect to avoid tax on interest on surplus funds? Whether i can transfer the funds to my sister name by way of gifts? I can’t transfer to my mother and she is pensioner and she is close to tax bracket.
Thanks
BR
Hi BR,
Suggest you go through the following post on my website.
https://www.personalfinanceplan.in/taxes/pfp-primer-clubbing-of-income/
Will clarify some of your doubts.
You can’t save tax by transferring money to your spouse.
I am a NRI who has returned to India recently (March 2017) after spending close to 13 years. For years from 2004-2017, I haven’t filled an IT return since it wasn’t mandatory for NRI. Although this year I have filled IT return for FY 2016-17 by taking help from local CA. But seems he isn’t much conversant on NRI IT & FEMA laws, I have some questions where I seek professional advice.
• My visa is still valid till May 2018. Although I am not very keen in taking any overseas assignment for now. Should I change my bank account to resident or continue maintaining NRE account?
• After returning to India in March 2017, I have opened another NRE account, where I have booked INR NRE FD for 3 years (interest to be paid on maturity) to take advantage for tax free status for NRE FD. After changing the status to resident, will Interest income on NRE FD be taxable or will I continue to enjoy tax free status.
• I have a PPF account with i have opened after becoming NRI; i was’t aware of that NRI can’t open PPF account. Even my CA has used 150k as deduction under 80c while filling ITR for FY16-17.
Hi Gagan,
There is a bit of subjectivity in FEMA regulations.
Technically, if you have returned permanently, you are resident (as per FEMA) from day 1.
However, only you know if you have returned permanently.
If your case comes up from scrutiny, you can always argue( with assessing officer) you had plans to go back but didn’t materialize.
But we know how these things end.
2. If you are resident(as per FEMA, you will have to convert NRE deposit to resident. In any case, NRE interest is exempt only for non-residents as per FEMA. Suggest you go through the following post.
https://www.personalfinanceplan.in/opinion/nri-corner-you-do-not-have-to-break-your-nre-fd-on-return/
3. Ok. This was clearly wrong. If this is found, you will get the amount back without interest. When did you open this account?
I am a new NRI in USA under dependent GC visa. I am not earning in USA. I have converted by Domestic Account to NRO. Will I get the contracted interest rates(including the additional 0.5% for senior Citizens) for my FDs till its maturity? Any circular by RBI is there? Kindly help
Check with your bank. Typically, banks give better rates to senior citizens.
Dear Sri Raghaw,
I am sorry. Perhaps my query lacks clarity. I have converted the SB accounts to NRO already in Aug 2017. The query is regarding interests on FDs opened as Resident earlier and maturing in Dec 2017. From various blogs & details, I understood that the same contracted interest rates (including the additional 0.5% for Senior citizen: I am being 78 years) will be payable till its maturity. I wanted to know whether my understanding is correct.. The present interest rates are much less.
Dear Sir,
Yes, you will get the same rate of interest if you continue your NRE FDs as resident FDs.
Suggest you go through the following post.
https://www.personalfinanceplan.in/opinion/nri-corner-you-do-not-have-to-break-your-nre-fd-on-return/
Hope this answers your query.
Hi Deepesh,
I will be permanently returning to India mid-next month. For Income tax purpose, I will be Non-Resident as I am in India for less than 182 days. Also, I will be non-resident as i was in India for less than 360 days in last 4 previous year. I understand that I will be resident for FEMA the moment I land there. My question is whether the interest earned on my NRE saving account for period October 2017 to March 2018 will be taxable as I am still non-resident for income tax act? or as I have to convert my NRE account to Resident account the same will be taxable though I am Non-Resident?
Hi Tushar,
As per IT Act, interest on NRE deposits is exempt only for NRIs as per FEMA.
Since you are NRI as per FEMA from day 1 of your return, NRE interest is taxable once you return.
Advise you to consult a Chartered Accountant too.
Dear Mr Raghaw, thanks for the detailed article. If a US citizen with an OCI card returns to India he too (a foreign citizen) has to convert his NRE and NRO accounts to Resident accounts as soon as he becomes ROR, correct? Or can he as foreign citizen retain the NRE accounts longer? But if he were to leave India again is he not limited by how much USD he can take back?
Dear Shri,
Right. As I understand, even OCIs need to convert their non-resident accounts to resident accounts (if they qualify as resident as per FEMA).
Contiuation of of NRE account after returning Long stay abroad is not clear. Our main aim is to get tax benefit on our NRE funds for maximum period.
i was NRE and maintining NRI accounts and deposits from 25 years. i Average I used to spend one month vacation in India every year. I returned on 15th April 2017 for good. After that I spent about 90 days abourd for tourisum. I have still not changed any of my bank accounts. Appreciate your response on:
1. when I should change my NRE accounts to RNOR account.
2. How long I can prolong Tax benefits on NRE accounts.
3. Although for tax purpose I say I am trying to go abroad for job. There no real possibility..
Please suggest a expert CA in Bangalore in this subject.
Hi Benedict,
There is no such thing as RNOR account.
RNOR is a status only as per IT Act. No such thing as RNOR under FEMA.
Suggest you go through the following posts.
https://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
https://www.personalfinanceplan.in/opinion/nri-corner-you-do-not-have-to-break-your-nre-fd-on-return/
You can hold NRE accounts so long as you are NRI as per FEMA. FEMA leaves a scope for subjectivity.
However, if you have returned permanently, you are a resident (as per FEMA) from day 1 of return and hence should convert NRI account to resident accounts.
I do not know CAs in Bangalore. You can talk to online platforms such as ClearTax or H&R Block.
Dear Mr Raghav,
Thanks for sharing the detailed article.
I have the below situation, can you please advice?
I am an Indian citizen and have travelled abroad to Switzerland on a company assignment and as per income tax act I am still not an NRI.
Now, during my stay here I have transferred some foreign exchange from my Swiss account (salary account here) to my SBI savings bank account in India (which is not yet an NRE/NRO account). I had been doing this for the last 8-10 months as personal expenses and there was no problem. But, recently my last transfer was stopped by SBI and they have send me a declaration to sign – section 10(5) chapter iii of fema 1999. But I am not too sure about the FEMA act. Now, going through the internet I understand that as per FEMA I am an NRI already. So, please advice –
1. What if, now I request my bank to convert my savings account to an NRO/NRE account then do I still violate the FEMA act for my previous transfers?
2. What is the best possible to do in this situation?
Thanks
Dear Shubhankar,
As per FEMA, you are NRI from day 1 if you are going abroad for retirement.
Convert your resident accounts to non-resident accounts and you should be ok.
Dear sir,
If I was non-resident for 7 out of 10 previous years (FY2008 to FY2017) preceding that year (FY2018). The condition is not met. By additional condition as per your article. During 7 previous years (FY2011 to FY2017), I was in India for 333 days (152 in FY2015 + 126 in FY2016 +55 in FY2017), which is less than 729 days. Please confirm whether I will be eligible for RNOR awaiting for your reply sir.
Yes
Please verify my opinion with a Chartered Accountant too.
Dear sir,
I am a mariner working onboard ship and in last 10 years (FY2008-FY2017) I missed out NRI time of 182 days outside India during the years 2009,2010 & 2015. So please advise any alternate or ways to be for in NRI status for tax purposes.
Hi Rahul,
Please consult a competent Chartered Accountant.
Would the proceeds from an RFC deposit into a resident Savings account be taxable ?
I’m returning to India in Jan-18 after 7 financial years abroad as an NRI. I’m going to have a resident income from Jan-18. I’m planning to convert all the NRE / FCNR into RFC deposits with an year of maturity. In both FY 1718 & FY 1819 , I’ll be eligible to maintain RNOR status. What happens when the proceeds from RFC deposit gets credited into a savings account ? In my case I’ll have such a credit in FY1819. Would that be counted as an income in FY1819 ?
Also, can FCNR deposits be automatically migrated into RFC accounts ? Or you need to close those and then open a fresh RFC deposit ?
Rgds
Transfer of money from one type of account to another does not give rise to any tax liability.
Tax liability is only on the interest income earned.
You will have to initiate requisite requests.
Great Information, Thank you for sharing
I am an NRI for last 17 years and returning back to India in April-2018. I have appeared for interview for a middle east country and most probably get it but in case I do not get the job I have to be a Resident of India. My questions are – (a) How long I can wait before declare to the bank that I have returned? (b) Can I transfer my money from outside to India in that time period? (c) Can I convert Resident account back to NRE if I get the job?
Appreciate your advice.
Hi Deepesh,
Practical question, how we will keep counter how many day in last 10 year you visited to India. Normally NRI visit to India for multiple reason, NRI from Middle east normally visit India more than once to India.
What if I working 13 years abroad & maximum 650 days i have visited to India in last 13 years.
My question how long i can maintain my FD in NRE as non taxable?
thanks
Pradeep
Hi Pradeep,
From passport. If you have been in India for only about 650 days in the last 13 years, you will most likely be non-resident as per FEMA and IT Act.
However, if you have returned to India permanently or for employment, you are resident from day 1 (as per FEMA and not as per IT Act).
And whether you can hold NRE account or not is dependent upon your status as per FEMA. However, you don’t have to convert your account on day 1. You can do this within “reasonable” time. Reasonable is subjective,
Btw, Interest on NRE is exempt from tax only for those who are resident as per FEMA.
Please understand I am not a tax or FEMA expert.
Please consult a chartered account before taking any action.
Dear Sir ,
I am living in Gulf last 12 years and last 7 years i stayed in India 288 days , I plan to go back to India for good ,
I have 3 question ,
when will i become ROR , and what would be be my tax liabilities ,
I have put all my earnings in NRE Fixed deposits and would mature in 2018 , 2019 and max in 2020 ,
So how would my tax on intrest work ,
for example – 10 lac fd maturing on 2020 , will fetch x intrest so will ibe able to get all or it will taxable .
can u explain in simple , is it advisable to stay NRI be working 6 months in Gulf till my Fixed deposits mature to avoid tax
When you become ROR depends on when you return to India and the number of days spent in India spent in India in the previous years.
Suggest you go through the following post.
https://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
You are a RNOR if you satisfy ANY of the following conditions:
You have been an NRI in 9 out of 10 years preceding the financial year under consideration. OR
You have been in India for no more than 729 days during 7 previous years preceding the financial year under consideration.
As I see, you are likely to meet both conditions for this year and the next.
Interest on NRE FDs is taxable from the day you return to India.
Dear Sir,
Kindly please note that I was working last twenty years in Gulf. My NRE SB account has a balance of 70 Lak.
I am planning to settle permanently in India in December 2018. How long I can maintain this amount in SB account. Do I need to pay tax for the amount . I dont have any FD . my all money is in NRE SB account only.
Kind Regards,
Dear Sanilkumar,
You must convert your NRE/NRO accounts to resident accounts when you return to India.
FEMA only says that you must convert to resident accounts within reasonable time. Do it in a few months.
Btw, even if you do not convert, the interest on NRE savings/FD account is taxable if you are a resident as per FEMA (which you will be from day 1 on your return to India)
Even though I do not know much your case, in my opinion, it was not wise to keep all your money in NRE savings account.
Dear Sir,
Thank you very much for your kind reply, As you said it was not wise to keep the money in SB.
Kindly advise one more thing please, Do you foresee any threat in near future for my NRE SB account money . Which I am planing to utilize for some business investment for my family expenses.
Kind Regards,
Not sure if I got your question right.
I do not see any threat to NRE savings bank accounts.
Good day
I am having NRI status till the financial year ending 2018 Mar 31. from 2004. I am employed with Marine shipping company located abroad. Wages are remitted as US dollars in my NRI account in India.
I wish to take a break in Financial Year 2018-2019 due to domestic reasons for six months hence will not be able to complete NRI taxation time of 182 days from 01 April 2018 to 31 Mar 2019. Wish to rejoin for job by end 2018.
Kindly advice my wages remitted from 01 April 2018 to 31 Mar 2019 will be taxable.
I have no other source of Income in India.
Thanking You
Dear Karan,
A competent Chartered Accountant is a better person to answer your query.
Btw, if you are receiving your income in NRI account directly, it should be considered local income (and not global income).
Dear Deepesh,
First of all thanks a lot for opening such platform.
As we all have heaps of question , I will try to restrict it to one at a time ..
I am an Australian citizen with valid OCI visa.
I am in india right now and will be here for next few years or more….Not sure for permanent yet.
Can I keep NRE account or do I need to get it changed by informing bank?
Please suggest.
Many thanks.
Hi Kunal,
As I understand, you must convert your account to a savings bank account.
Dear Deepesh,
First of all thanks a lot for opening such platform.
As we all have heaps of question , I will try to restrict it to one at a time ..
I am an Australian citizen with valid OCI visa.
I am in india right now and will be here for next few years or more….Not sure for permanent yet.
Can I keep NRE account or do I need to get it changed by informing bank?
Please suggest.
Many thanks.
Reply
Deepesh, I am a US Citizen but hold OCI (born in India). I have come to India a dozen times in last 15 years but never more than a month. Now though I will be coming to stay in India for appx 4 months every fiscal year.
What will be my tax status for say next 5 years?
Thanks for your help!
Hi Jay,
You will be non-resident as per Income Tax laws.
And here is one more, please…
Please treat the following questions separately:
Say I am a US citizen for last 10 years. If I came to India for exactly 5 months every year and stayed the remaining 7 months in the US, do I maintain NRI status every year? I have NRE and NRO accts in India.
If I shift to India and stay there permanently, when will my status become resident? And can I then change my nro and nre accts to residential acct status?
Thank you
1. You can maintain NRE/NRO accounts in that case.
2. If you shift to India permanently, you will have to convert your accounts to resident (even if you are a foreign citizen and OCI card holder).
Deepesh, thanks for your replies. Would the latter part of following, however, not make me a resident of India for taxes in year 4 (if I stayed in India 5 months every fiscal year? Do you still think I will be a non-resident as per Income Tax laws? If yes, kindly explain why.
“To qualify as a resident Indian, an individual should have spent 182 days or more of a financial year in India, or stayed in India for 60 days or more in the year and for a period of 365 days or more in the 4 years preceding the relevant financial year.”
Jay,
You are right. I messed up maths in my head.
You may be able to retain NRI status for say a couple of years. Then to RNOR and then to ROR.
Thanks for the clarification, Deepesh. Highly appreciate your promptness and service to the community at large. Best wishes.
You are welcome.
Please do share the posts with your friends and family.
They may find it useful too.
Dear Deepesh,
I am US citizen with PIO card.
Can I open a FCNR deposit in any of the Indian banks?
Dear Sir,
You stay in India or in US?
Back ground – I lived in the UK from sep 2007 to july 2017, between these 9 yrs and 10 months, visited india 5 times for not more than 30 days each time. so every visit was 2-4 weeks long max.
Now, I have had to return to india for good in july 2017 due to some health issues in my family in india. Also, my visa expired in the mean time & extension was getting difficult anyway.
I had opened an ICICI bank acc in pounds in the UK in 2011 and they also opened an NRE acc in INR for me in india, so that i could transfer GBP to INR and use it whenever i visited india on holidays.
Question – 1) When i returned in july 2017 GBP to INR exchange rate was 83.5,…..however, now in SEP 2018, it reached 97 approx, hence i transfered my GBP savings into NR acc through this ICICI acc and made NRE fd for 17.5 lacs. I hope i dont have to pay any tax on the principle amt of 17.5 and also nothing on the interest i earn on this 17.5 Fd ? Am i right? i ? ( NOTE- I am not working in india and been a a career break since july 2017 to date). 2) Also, the bank official said, u can continue keeping this icici NRE account until system prompts for kyc. So is it ok to keep NRE acc open ? as i still hv some funds in the UK accounts and wish to transfer at a later date as exchange rate has gone down from 97 to 93.5?
Respected Deepesh Sir,
Please help me with the above enquiry?
Hi Joel,
You never have to pay tax on the principal amount. Only on the interest amount. Interest on NRE FDs is exempt for Non-residents (as per FEMA)
1. Nothing on principal. In my opinion, you are not NRI as per FEMA since you have returned permanently (so it seems). Therefore, the interest on the said NRE FD will not be exempt for you. In fact, in my opinion, you shouldn’t have opened NRE FD in the first place.
2. Better to close NRE/NRO accounts.
Hi Sir,
This is Niyaz khan from China. I am a NRI, working in china almost 3 years.
I am planning to take loan from Private lender from USA. The Loan amount will be $100,000 with 20 years tenure with rate of 5%. My question are as follows,
1) Is it legal to take loan from Private lender from USA even i am not working in USA. But i am working in China.
2) If its legal then Which account number (NRE/NRO) should i give to USA Private lender?
3) Whether this fund $100,000 will be taxable in india?
4) Once i received this funds $100,000 to my NRE/NRO , Do i need to declare to RBI for the purpose.
5) How can i pay EMI amount to USA Private Lender on monthly basis? Is there any way to send EMI amount from Indian account to USA?
6) Even i am not a NRI. Because after 2 years, i will back to india for permanent stay. Still i can send EMI amount to USA Private Lender?
Looking forward to see your valualbe reply on my quries.
Thanks
Niyaz KHAN
Hi Niyaz,
Quite a strange structure you are talking about.
You are based in China. You want to take a loan in US and you will send that money to India. I assume you can get such a loan.
1. Can’t comment about US or China laws. No issues with Indian laws.
2. Your NRE Account
3. No
4. No. Income tax authorities and your bank will likely question.
5. Yes, you can send from your NRE account.
6. At this point in time, you are an NRI. If you come back to India, you can remit under LRS.
Btw, this does not look like a very sound decision. You are exposing yourself to a huge currency risk
Hi Sir,
I have NRE Rupee Saving Account. If i return back to India after completing my work contract and i will search new job and leave India within three months. Then should i have to change my NRE account to Resident account in that three month and open new NRE account after joining new job. After three months i will regain NRI status but all my previous savings will become taxable in india. It’s a NRE rupee account, converting it to USD in RFC account and then again converting to Rupee will incur loss. Please suggest ur opinion.
Hi Sudhagaran,
Such aspects are always subjective. Technically, if you are coming to India for an uncertain period (which will be in your case), then you have to convert accounts from non-resident to resident.
Btw, once you regain NRI status, you can send money from to NRO to NRE. (1 Million USD per annum)
Dear Sir,
Your blog is most useful on the web I could find and hope you can help me with these question.
I am RNOR and want to know :
1.) till the time my status is RNOR can I keep my NRE account as-is?
2.) I have closed all my NRO accounts and opened a Resident SB account to credit my India salary as Indian salary can’t be credit to NRE account.
3.) While I hold my NRE account can I continue to keep my Fixed Depoit until my status is RNOR?
4.) Until I am RNOR can I open new NRE fixed deposits?
Thanks
Deepak
Thanks Deepak.
1. RNOR is Tax Status. However, whether you can hold NRE account or not depends on your resident status as per FEMA. As per FEMA, you are resident from day 1 of return. So, RNOR status has nothing to do with whether you can hold NRE account. If you have come back permanently, close NRE account.
2. That’s fine. NRE should be closed too (as you did with NRO). Even if you keep NRE account open (even though you shouldn’t), you have to pay tax on NRE interest. So, no point in continuing. Convert NRE FD to resident FD.
3. No
4. No
Good day My self working middle east for last 20 years
I am planning to return to India in the month of May 19 . Please advise me what to do the money kept in NRE deposits in Indian currency since they will be taxable one i loose my NRI status . what is the procedure to Procure RNOR status and is NRE deposits non taxabale if i get RNOR status
You have to convert your NRE accounts to resident accounts when you return to India.
NRE interest is taxable even for RNOR.
You don’t have to apply for RNOR status. If you meet the criteria, you are RNOR.
Thank u . . Could you also guide me how to obtain RNOR status . Though I meet the requirements. I will enjoy my NRI status for another 182 days . Is my remittances after April 1 2019 be taxable
Remittances are not taxable for anyone. Only income is taxed. Principal is not taxed.
I think RNOR status as per Income Tax Act is for taxability on income whereas FEMA act is more about controlling Foreign Exchange . So NRE deposits interest income is not taxable for RNOR for 2-3 years as per ITA.. FEMA doesnt talk about holding NRE account or closing NRE account.. Otherwise , what is the use of having RNOR status in ITA.
Please advise
Hi Shekhar,
That’s not how it works.
IT Act decides How you are taxed.
FEMA decides where you can invest.
RNOR helps you save tax on global income for a couple of years.
Hi,
I have been working outside India for last 25 yrs (non-us). I am now returning to India to continue to work here. I Have investment in US stocks well above 500KUS$. Can I continue to keep this in my brokerage account? Will it be any issue to bring back this India after I returned home? any tax liabilities? Am I allowed to continue trade in equity market ? what is the tax implications?
Thanks
you can keep these investments. Report these foreign investments in these ITR.
Once you become a tax resident, you will have to pay tax on income generated from these investments.
Equity investments will be treated as non-equity in India. So, for sale before 3 years, you need to pay tax at your slab rate. After 3 years, at 20% after indexation.
You will have to pay taxes in US too. you can get credit as per DTAA.
Please consult a good CA for filing your returns.
Thanks for your detailed answers th answered all of my questions.
My question is
1. can I convert NRE FDs into FCNR and make RFC out of them along with NRE savings account ino RFC??
2. Is RFC account is maintained by the banks in INR or in any of the eligible FCNR currencies like dollar & Pounds etc??
I am RNOR, 1s of the 3 year eligibility. I am uncertain as to if I will & or want to become NRI again.or not as of now (returning NRI of > 35 years) ; hence I like to keep the FCNRs in Dollars as a reserve for use, if need be, for my son’s education in US.. .
You are welcome.
1. NRE to FCNR not possible after return. NRE Savings or deposits can be put in RFC.
2. RFC is in foreign currency.
FCNR(B) deposits can be continued until maturity. Interest is tax-free till you are RNOR. So, you have a cushion on that front.
Dear Deepesh,
I left India in 1996 and have been living outside India since and have been visiting india only for short periods every year ( once or twice for 2 weeks at a stretch maximum ). I have investments in various banks and have FDs ( both INR and FCNR ) and hold NRE and NRO accounts. My rental income, mutual fund investments is through my NRO a/c only. I have not filed tax returns as yet and tax is deducted at source on my NRO accounts. Apart from these, I do not have any other monies anywhere else to declare. Do I still need to file Income tax since I continue to hold NRI status or should I only file as and when I get back to India?
Dear Raja,
Not sure of quantum of your income in India. Better to file ITR in India.
Btw, TDS deduction does not mean that you don’t need to file ITR.
Hi sir mera nre & nro account hai me 10 saal se out of india job karta tha lekin pichhle 1.5 saal (18 month) se me india me hu thode din pehle muje bank ne kyc ke liye bola mene documents to de diye lekin mera account freeze kar diya hai ab me kya karu ?
Hello Sir,
Thank you for the article.
I have returned to India after being 3 years abroad. I have opened FD through my NRE Account.
I informed my bank about change in my status. At that point they are asking me to close my NRE FD, as a result of which I will have to incur a Pre closure penalty of 1%.
Also, if I close existing deposits, I may not get interest on few deposits which I had opened only less than a year ago.
Is there a way I can convert my NRE FD into a local FD without actually pre-closing the existing deposits?
Hi Sandeep,
You don’t have to break your NRE FD.
Please refer to the following post.
https://www.personalfinanceplan.in/nri-corner-you-do-not-have-to-break-your-nre-fd-on-return/
Dear Deppesh,
I am thinking to do one PRP, premium rupee plan, for 5 years in one of the nationalized banks. let us say I return to India after 3 years then what happens to total interest earned? Say hypothetically, I did the PRP of Rs 50 lakhs for 5 years after that I was supposed to get 25 lakhs interest total. So, my questions are as below,
1. Am i allowed to keep this PRP for 5 years even though I will come to India after 3 years?
2. If, yes, then do i have to pay income tax on full 25 lakhs during fifth year or I have to pay tax on Rs 5 lakhs, pro rata earning, each in 4th and 5th year?
Dear Rajesh,
As I understand, PRP is an FCNR(B) deposit along with booking a forward. These two can be looked at separately.
1. FCNR(B) can be continued until maturity. I do not see any issues with a forward contract either.
2. I am not very sure of this. Even though I have an opinion, I would refrain from offering it. Please consult a competent Chartered Accountant.
I have been an NRI since Oct 2009 and I may return to India in mid-June 2020.
Will the income from April 2020 to June 2020 earned abroad be treated as indian income and taxed accordingly?
Thank you for awesome blog.
Thanks Srikanth!!!
Hi Deepesh,
Me and my Wife working in Singapore more than 10 years, planning to return to India in May 2020. We both have our own NRE accounts. How should we go about it? are we auto convert to RNOR account? if yes, for how many years? or do we need to inform our bank?
Please guide me to save my oveseas earned income to get taxed in India.
Thank you
Raj.
Hi Raj,
There is no such thing as RNOR bank account. RNOR is a tax status.
The definition of NRI is different as per FEMA and Income Tax Act
As per FEMA (that decides where you can invest), there are no just status, Resident or NRI. The nomenclature is slight different.
As per Income Tax Act (that decides how your income is taxed), there are 3. Resident, RNOR or NRI.
Please refer to this post.
https://www.personalfinanceplan.in/who-is-nri-as-per-fema-and-income-tax-act/
You must inform the bank about the change in status (as per FEMA) when you return to India.
Hope this answers your query.
Awesome guide, thoroughly explained. It’s a great .
From Anonymous
Very informative posts. I have a question and seek your advice. As NRI I made the mistake of opening and depositing local agriculture sale proceeds in a resident bank account. I wasn’t aware that it was wrong. Now that I know the mistake what’s the solution? I have to inform the Bank and convert the account to NRO? Or close the account and transfer the FD to my existing NRO account? There were some withdrawal from the resident bank account too. The said bank is in a rural area and it may not have NRO opening facilities. Will I need to inform the RBI and Income Tax dept.
thanks
Thanks for your informative posts. I have converted my account to NRO.
Dear Sir, I am a NRI from 1996. I have assignment from my parent company from June 2019 for about 9 months to one year on foreign company business india. The company will pay tax for the salary, I will be receiving abroad for the duration of the work here. after this period, I will move back to the same country. what will be my status during this period
what will be my NRE deposits status? is any specific action i need to take?
thanks
Dear Deepesh,
Thanks for writing this article to educate us on policies in India from tax & FEMA. I am planning to return to India during October, 2020.
From below scenario, I would like to check with you I can avail RNOR status for financial year 2020-21.
Stay in India No of Days Status
201415FY 4/1/2014 3/31/2015 365 Resident
201516FY 4/1/2015 7/19/2015 109 NRI
201617FY 21 NRI
201718FY 21 NRI
201819FY 21 NRI
201920FY 21 NRI
202021FY 10/25/2020 3/31/2021 157 NRI
Total 715
My apologies for the format. I added few spaces but I didn’t come well after I posted it. Please consider my scenario below.
201415FY(366 Days) – Resident of India
201516FY(109 Days) – NRE
201617FY(21 Days) – NRE
201718FY(21 Days) – NRE
201819FY(21 Days) – NRE
201920FY(21 Days) – NRE
202021FY(157 Days) – NRE
Total stay in India during last 7 financial years including 2020-2021FY is 715 days. I have a confusion whether to consider 201920 or 202021 to count last 7 Financial years. Please advise.