Returning to India as an NRI? Here’s How to Plan Your Finances Smartly

Returning to India having spent time abroad as an NRI can be thrilling yet it is also filled with a host of financial dilemmas. Do you take the hit now on overseas assets or wait until later? Taxes, of course. And assuming you are in the US, how do you handle FATCA compliance? And don’t forget about converting bank accounts.

In this guide, we’re answering some of the most common concerns NRIs face when they’re returning home or trying to manage their India-based assets. Let’s break it down.

Should I sell my foreign investments prior to qualifying as an RNOR?

This is something most NRIs struggle to answer. The response? It simply varies depending on your tax situation, exchange rates, and what your money needs to accomplish in the near term.

Here’s the catch: As long as you’re an NRI, your foreign income is not taxed in India. When you return, you become a Resident but Not Ordinarily Resident (RNOR) for a maximum of 3 years. In this period, your foreign income is not taxed in India except if it’s from a business or profession based here.

Only when you become a Resident and Ordinarily Resident (ROR), typically after 3 years, does your worldwide income become taxable in India.

So, you have three choices. First, you might sell your investments while you are still an NRI. This might be a good idea if you are in a low-tax nation or concerned about the currency exchange working against you. Second, you may wait until your RNOR period which remains tax-free in India but provides you with more space. Or third, you may retain your foreign investments and bring home only that which you require. Even when you are an ROR, you will only be taxed upon bringing in that money into India.

Pro tip? Don’t sell everything at once. Do it in stages, according to your future requirements and objectives. A phased approach can enable you to deal with tax and currency risk more effectively.

Handling FATCA Compliance for US-Based NRIs

As an NRI who is settled in the US and has investments in India, FATCA is not something you can live without. But relax there is nothing to worry about if you plan well.

Since you are a US person (resident or citizen), you have to report all your foreign financial accounts if their value exceeds some thresholds. They include NRE, NRO, FCNR accounts, mutual funds, Indian stocks essentially, all your financial assets in India.

There are two types you need to know about:

• FBAR (FinCEN Form 114): If your aggregate foreign accounts are $10,000 or more at any time during the year. Report it April 15 (automatic extension to Oct 15).
• Form 8938: Report it with your tax return if your foreign assets are more than $50,000 (for single individuals residing in the US).

Make sure you’re keeping solid records account numbers, balances, earnings, etc. It also helps to consolidate your accounts to simplify your reporting. And above all, be consistent. Any mismatch can lead to red flags.

And don’t worry just because you’re reporting doesn’t mean you’re paying extra tax. The US-India tax treaty has your back in avoiding double taxation.

Can You Convert an NRE Account to an NRO Non-PIS Account?

Short cut answer: No, you cannot convert your NRE account directly to be an NRO Non-PIS account. But you can transfer a regular resident account to an NRO Non-PIS account if you are going to be trading on Indian exchanges.

This is what it looks like to do it:

• Choose your preferred bank or broker. Then, gather documents required—PAN card, passport, address proof of Indian and foreign, and conversion form.
• Fill all online or branch. Upon validation, you will get an email of confirmation. Only after this should you start trading or operating the account. If you had previously owned a PIS account, you could close it after your Non-PIS account is opened.
• Each bank will be slightly different, but overall, it’s a pretty simple process.

Conclusion

Returning to India as an NRI means enormous changes—and that includes how you handle your money. Whether it’s making foreign investments, being tax compliant with the US, or even changing your bank accounts, being proactive and understanding what needs to be done can spare you a great deal of hassle. It is an issue of timing, planning, and choosing the right approach that would complement your lifestyle and long-term goals. If there is doubt, always consult a cross-border financial advisor who understands both sides of the coin.

FAQ’s

1. When should an NRI liquidate overseas investments before returning to India?

Ans- Preferably while still an NRI or during the RNOR phase for tax benefits.

2. What is RNOR status?

Ans- It’s a transitional status for up to 3 years after returning, where foreign income isn’t taxed in India.

3. Is global income taxed once I become a Resident and Ordinarily Resident (ROR)?

Ans- Yes, after ROR status, global income becomes taxable in India.

4. Should I bring all foreign investments to India after returning?

Ans- Not necessarily. You can maintain them abroad and repatriate as needed.

5. What is FATCA and why should US-based NRIs care?

Ans- FATCA requires reporting foreign accounts and assets to the US IRS.

6. What is FBAR?

Ans- A form to report foreign accounts exceeding $10,000 anytime during the year.

7. What is IRS Form 8938?

Ans- It reports foreign assets over certain thresholds with your US tax return.

8. Can I convert my NRE account to NRO Non-PIS?

Ans- No direct conversion. You must open a new NRO Non-PIS account.

9. What is a PIS account?

Ans- A Portfolio Investment Scheme account for NRIs to trade Indian stocks.

10. Do I need a tax advisor for FATCA compliance?

Ans- Yes, a cross-border tax expert ensures accurate and penalty-free filing.

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.