Coming back to India after having worked outside has its own financial options, and it is extremely crucial to understand the tax advantages which you can utilize as a return NRI (Non-Resident Indian). India provides several tax advantages that will assist you in saving money and planning your finances effectively. In this blog, we will be discussing the major tax advantages and return options of NRIs.
Residential Status and Its Tax Implications
Your residential status determines your tax liability in India. According to Indian taxation, if you are in India for 182 days or more in a financial year, you are a resident. Tax treatment is, however, different for “Resident and Ordinarily Resident” (ROR) and “Resident but Not Ordinarily Resident” (RNOR).
RNOR Status: Returning NRIs are allowed to have RNOR status for three years, during which their foreign earnings are not taxable in India. This is useful if you earn or have investments abroad.
ROR Status: Once you receive Resident and Ordinarily Resident status, your worldwide income will be taxed in India. But there are various tax-saving methods to lighten your load.
Tax Deductions Under Section 80C
Perhaps one of the best tax deductions among all residents, including repeat Non-Resident Indians (NRIs), is the Section 80C deduction from the Income Tax Act. You can avail yourself of deductions of up to ₹1.5 lakh each year by making investments in tax-saving instruments like:
Public Provident Fund (PPF): A long-term savings plan for which returns are tax-exempt.
Life Insurance Premiums: Premiums incurred on life insurance policies for you or your loved ones are allowed as a deduction.
Tax-Saving Fixed Deposits: These are bank FDs of five years duration that provide returns along with tax benefits.
Double Taxation Avoidance Agreement (DTAA)
One of the greatest issues for NRIs coming back to India is to prevent double taxation on overseas income. Fortunately, India has entered into Double Taxation Avoidance Agreements (DTAAs) with numerous nations to ensure that NRIs are not taxed twice.
Claiming Tax Credits: As per the DTAA, you can claim tax credits for foreign income tax paid in the foreign nation.
Exempt Income: Some foreign income is exempt from taxation under the provisions of the DTAA, as per the source country.
Fact: India has more than 90 countries with which it has DTAAs, including the USA, the UK, Canada, and Australia, which makes it convenient for return NRIs to deal with tax collections.
Tax-Free Investment Options
As a re-pat NRI, you have various options where you can invest your funds and get tax relief. Some of them are:
NRE Accounts (Non-Resident External): Interest on NRE account is tax-free in India and hence a good option for those NRIs who would like to retain their foreign earnings.
Equity-Linked Savings Schemes (ELSS): These are Section 80C tax-saving mutual funds with the added benefit of high returns on account of equity investment.
National Pension Scheme (NPS): NPS is deductible under Section 80C, and as an added facility, there is a deduction of ₹50,000 under Section 80CCD(1B).
Tip: Keep your NRE account open for as long as possible after returning to India to accumulate tax-free interest income.
Repatriation and Tax Exemptions
Upon their return to India, all NRIs would like to repatriate their overseas earnings and wealth. The tax incidence of repatriation and how to minimize any taxes should be understood.
Foreign Assets: If you are repatriating foreign assets to India, note that some assets will attract capital gains tax. Nevertheless, since you will be an RNOR, you will not be liable for taxes on foreign capital gains.
Tax-Free Repatriation: Some money, including money in NRE accounts, is repatriated tax-free, so it will be more convenient for you to transfer money between nations.
Conclusion
Comeback NRIs are entitled to various tax reliefs in India, from minimized liability through RNOR status to tax-free investments and Section 80C deductions. Understanding these benefits is crucial to reducing tax burdens and maximizing financial growth. Consulting an experienced NRI Tax advisor in India can help you navigate the complexities of Indian taxation, ensuring compliance while optimizing your investment strategy. Prime Wealth, a trusted firm specializing in NRI financial planning, provides expert guidance to help you make informed decisions and secure long-term financial success.
FAQs
- What is RNOR status, and how does it benefit returning NRIs?
Ans – RNOR status allows returning NRIs to avoid taxes on foreign income for up to three years after returning to India. - Can returning NRIs claim deductions under Section 80C?
Ans – Yes, returning NRIs can claim deductions under Section 80C by investing in eligible tax-saving instruments such as PPF, life insurance, and tax-saving FDs. - How can NRIs avoid double taxation?
Ans – NRIs can avoid double taxation by taking advantage of the Double Taxation Avoidance Agreement (DTAA) between India and the country of their foreign income. - What tax-free investment options are available to returning NRIs?
Ans – Returning NRIs can invest in NRE accounts, Equity-Linked Savings Schemes (ELSS), and the National Pension Scheme (NPS) to enjoy tax-free or tax-benefited returns. - Are there any benefits to keeping an NRE account after returning to India?
Ans – Yes, the interest earned on NRE accounts is tax-free, so keeping the account active can provide additional tax-free income. - What are the tax implications of repatriating foreign assets to India?
Ans – Some foreign assets may be subject to capital gains tax, but under RNOR status, you may be exempt from paying taxes on foreign capital gains. - Can NRIs repatriate funds from NRE accounts tax-free?
Ans – Yes, funds held in NRE accounts can be repatriated tax-free, making it easier for NRIs to manage their finances. - What is the maximum deduction I can claim under Section 80C?
Ans – The maximum deduction under Section 80C is ₹1.5 lakh per financial year. - How does the DTAA help NRIs save on taxes?
Ans – The DTAA helps NRIs by allowing them to claim tax credits for taxes paid abroad and avoid being taxed twice on the same income. - What is the best tax-saving investment for returning NRIs?
Ans – Tax-saving investments like PPF, ELSS, and NPS are popular options for returning NRIs, offering both returns and tax benefits.
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.
