Coming back to India after years of staying abroad can be an exhilarating yet complicated experience, particularly when it comes to managing foreign assets and tax liabilities. As an NRI (Non-Resident Indian), you might have acquired different financial assets abroad, and it is important to understand how to handle these assets upon your return to India to avoid any legal or tax issues. The following are the main points to consider how to handle foreign assets and taxation efficiently on return to India to prevent any financial losses.
Declaration of Foreign Assets
On returning to India and becoming a resident, it’s essential to disclose any foreign assets, such as:
- Bank Accounts: Foreign bank accounts have to be reported in your return filings after becoming a resident.
- Real Estate: Any properties owned abroad should also be declared to Indian tax authorities.
- Investments: This includes shares, mutual funds, and other financial investments held in foreign markets.
Neglecting to declare such assets invokes fines under the Black Money Act, 2015, aimed at preventing evasion of tax on untaxed foreign income and hidden foreign assets.
Knowing Your Tax Residency Status
Although you go back to India, you should realize how your tax residency status gets affected and the implications for your foreign assets. Tax residency in India depends upon the days that you spend within India:
- Resident: You are a tax resident if you stay in India for 182 days or more during a financial year.
- Resident but Not Ordinarily Resident (RNOR): RNOR is a temporary one that is given to Indians who have just returned. The RNOR persons are charged with only Indian income and foreign profession or business income earned from instructions in India.
- Non-Resident: NRIs charge only income arising or received in India.
RNOR status provides some relief because foreign income cannot be claimed as a deduction for taxation in this period, offering a time limit to arrange your finances.
Taxation of Foreign Assets in India
After being treated as a resident, your global income, including foreign assets, is taxed in India. This is how different types of foreign income are taxed:
- Interest from Overseas Bank Accounts: Interest accruing on foreign bank accounts is taxed in India after becoming resident.
- Rental Income from Overseas Property: If you have an overseas property and receive rental income, this will be taxed as Indian income.
- Capital Gains on Foreign Investments: Capital gains earned on the sale of foreign shares or mutual funds are taxed in India depending on whether the asset is short-term or long-term capital gains.
It is advisable that you engage the services of a tax consultant to advise you in accordance with Indian tax law on foreign income.
Double Taxation Avoidance Agreement (DTAA)
Double taxation avoidance is one of the main concerns of dealing with foreign assets after coming back to India. India has entered into Double Taxation Avoidance Agreements (DTAAs) with various nations to prevent the payment of tax on the same income twice by an individual. Let’s understand how DTAA can help you:
- Tax Credits: You may claim tax credits in India to set off tax paid on foreign income when you have already paid tax on income earned abroad.
- Exemptions: In certain situations, income of a particular nature is exempted from taxation in a country completely.
You must keep appropriate records of taxes paid abroad and claim the tax credits while submitting your Indian tax returns to avail benefit of DTAA.
Repatriating Foreign Assets
Repatriation of your foreign funds back to India is another important part of taking care of your finances when you return. There are a few choices to repatriate your money back to India:
- NRE Account: Non-Resident External (NRE) accounts enable you to repatriate foreign exchange earnings back to India without any incidence of tax.
- FCNR Account: Foreign Currency Non-Resident (FCNR) accounts enable you to maintain your deposits in the same foreign currency, covering exchange rate risks,
- NRO Account: Non-Resident Ordinary (NRO) accounts are for managing income that is received in India, i.e., rent or dividends.
Select the mode of repatriation most suitable to your aims and seek a financial planner for compliance with FEMA (Foreign Exchange Management Act) regulations.
Conclusion
Handling foreign assets and taxation at repatriation to India is something that is to be planned and known about Indian tax law. By disclosing foreign assets, being aware of your tax residence status, availing DTAA, and smartly repatriating assets, you can plan for a trouble-free process. Always seek guidance from financial and tax professionals to handle the technicalities of taxation and foreign asset handling in India without any legal issues, and thereby maximize your financial position.
FAQs
- Do I report all the foreign assets when I get back to India?
Ans- Yes, after becoming a resident, you are obliged to report all foreign assets, bank accounts, property, and investments. - How does foreign income get taxed in India after coming back?
Ans- Foreign income gets taxable in India when you become a resident, such as interest income, rent income, and capital gains. - What is the RNOR status?
Ans- RNOR (Resident but Not Ordinarily Resident) relief is temporary relief in which only Indian income is taxed, not worldwide income. - How do I avoid double taxation of foreign income?
Ans- You can avoid double taxation under the Double Taxation Avoidance Agreement (DTAA) between India and the nation where you received the income. - What is an NRE account, and how can it assist with repatriation?
Ans- An NRE account allows you to repatriate foreign earnings to India free from tax liability. - Will I have to close foreign bank accounts on return to India?
Ans- No, you can keep your foreign bank accounts but will be required to report them to Indian tax authorities. - What is the Black Money Act, and how does it apply to me?
Ans- Black Money Act mandates disclosure of foreign unreported income and assets by residents with non-reporting penalties. - Can foreign property income be repatriated to India?
Ans- Yes, rental foreign property income can be repatriated through NRO or NRE accounts. - How does DTAA impact foreign investment capital gains?
Ans- DTAA prevents double taxation on capital gains through credit of taxes paid outside the country. - What is FEMA, and how is it useful for repatriation?
Ans- Foreign Exchange Management Act (FEMA) regulates the remittance of foreign earnings and Indian regulations.
Disclaimer: The information provided here is for educational and informational purposes only and should not be construed as financial, legal, or tax advice. Consult with a qualified professional before making any investment decisions. We do not accept any liability for errors or omissions in this information nor any direct, indirect, or consequential losses arising from its use.
