As a returned NRI, you need to plan your finances for a comfortable journey ahead. Investing is a major part of many NRIs’ financial planning, and for that planning, your funds according to your risk appetite and financial goals are very crucial. Here’s a guide that will help you navigate your finances and investment journey.
Update Your Residential Status First
When you are returning to India, changing your residential status should be your priority. Your residential status affects your tax exemption. If you are living in India for 182 days in a financial year, then you qualify as a resident of India. Otherwise, you fall under RNOR (Resident but not Ordinary Resident), where your income is tax-free only up to three financial years after you return to India.
So, you might think, why is this crucial? it’s because tax obligations, investment eligibility, and banking requirements all depend on this classification. Notify both your bank and the Income Tax Department promptly to avoid compliance issues later.
Convert Your Bank Accounts
Converting your bank accounts from NRE/NRO to a resident bank account is a mostly neglected part, but it is absolutely crucial, and this can affect how your returns and interest earned on these accounts are taxed. This conversion of bank account will be done by your bank once you inform them about your updated residential status and provident the necessary documents.
If you wish to keep your foreign earnings without converting them into Indian currency, then you can opt for an RFC or FCNR account.
Fun fact: RFCs allow you to maintain funds in major currencies like USD, GBP, EUR, and others, protecting you from currency fluctuation risks if you plan international expenses in the future.
Update Your Demat and Trading Accounts
Before starting to invest in the Indian market, update your demat and trading account with your updated residential status. This can be done by your financial planner, agent, or broker. Many agencies provide this facility online, resulting in hassle hassle-free process allowing you to retain your holdings while switching your account status. This prevents unnecessary selling and repurchasing of stocks, saving you from potential capital gains taxes and transaction costs.
Revise Your Investment Strategy
Investing in a developing country like India and looking at the current market conditions, the strategies should be aligned for better returns. With India’s economy projected to grow at 6.5% this year, the stock market offers excellent opportunities for returning NRIs. India’s stock market has performed very differently from other markets, with small and mid-cap stocks historically outperforming their larger counterparts during economic expansion phases.
It is recommended that you have a financial planner who could align your investment strategy according to your financial goals, like purchasing a house, a child’s education, vacation planning, or any other reason. Prime Wealth is a one-stop solution for all your financial planning, whether it’s taxation, investment, insurance, etc.
Navigate Tax Implications Carefully
As a returning NRI, understanding the tax treatment of your stock investments is essential. For equity investments, long-term capital gains (held for more than 12 months) are taxed at 10% above ₹1 lakh, while short-term gains face a 15% tax rate. Unlike when you were an NRI, your resident status means no TDS deductions on stock sales. However, you’ll need to disclose these transactions in your income tax returns. If you qualify as an RNOR, you might enjoy certain exemptions on foreign income for up to two years. To know more, you can watch this TDS complete guide for NRIs.
Conclusion
As a returned NRI, you must change your residential status, convert your bank accounts, update your demat and trading accounts, and review your investment strategy. Your residence status has an impact on tax breaks, investment eligibility, and banking requirements. If you qualify as an RNOR (Resident but not Ordinary Resident), you may be eligible for up to two years of foreign income tax exemption. It is important that you consult with a financial planner like Prime Wealth to ensure that your investing strategy matches your financial objectives.
FAQs
1. Can I continue using my NRI trading account after returning to India?
Ans – No, you must convert it to a resident trading account by updating your KYC and status.
2. How long do I have to update my status after returning?
Ans – Ideally within 90 days of becoming a resident to avoid compliance issues.
3. Will I lose my existing stock holdings during the transition?
Ans – No, your holdings remain intact during the conversion from NRI to resident accounts.
4. Can I invest in both Indian and foreign stocks as a returning resident?
Ans – Yes, through Indian brokers offering global investing or via the Liberalized Remittance Scheme.
5. Are dividends from Indian stocks taxable for returning NRIs?
Ans – Yes, they’re taxed at the applicable slab rate with no special exemptions.
6. Should I sell my stocks before returning to India?
Ans – Not necessary; you can simply convert your accounts while maintaining your positions.
7. Can I operate both resident and NRI accounts simultaneously?
Ans – No, once you qualify as a resident, all accounts must be converted accordingly.
8. What’s the main advantage of an RFC account for stock investors?
Ans – It allows you to keep foreign currency for future international investments without conversion.
9. Do I need a new PAN card after returning to India?
Ans – No, your existing PAN remains valid, but your status linked to it needs updating.
10. Is professional financial advice necessary during this transition?
Ans – Highly recommended, as cross-border financial transitions involve complex tax and compliance considerations.
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.
