[JithinR]

Hi All,

I had a query regarding the tax liability of returning NRI's. I did a quick search on the forum and we seem to have some threads on NRI's but they don't really discuss the Tax liability for NRI's coming back to India for good.

1. https://www.team-bhp.com/forum/shift...-am-i-nri.html (Am I an NRI?)
2. https://www.team-bhp.com/forum/shift...ompliance.html (PPF, NRIs and FBAR compliance)

My dad who was tentatively planning to retire next year has been laid off due to the ongoing pandemic induced financial crunch. While he sort's out all the Visa and other documentation stuff I was thinking about the Tax liability of the full and final settlement that he will get from his organization.

My understanding is that he would qualify for RNOR status (he has been abroad for most of his adult life and has never been in India for more than a month at a time in recent memory). I am not sure if the RNOR status has any bearing on his tax liability.

He has a NRE account in Canara bank and a NRO account in HDFC bank. He will not be earning any income from foreign sources while living in India.

As such, how do i go about understanding his tax exposure once he is back in India for good sometime this month?

The questions I have as such:

1. Can we transfer his final settlement to the NRE account and let it be as such till he is a Resident for tax purposes? Or is the NRO account more suitable here?
2. Do we have to inform the banks once he returns that he is no longer an NRI?
3. Can a RNOR hold NRE and NRO accounts in the first place?
4. I did see an online article that claimed that RNOR's can't hold NRE and NRO accounts but they can hold FCNR account (we don't have one as such). Would this be a better option than the other two?

[Comrade]

I had been an RNOR for FY18 and FY19, and became tax resident in FY20. I will try to answer some of your queries to best of my knowledge but its best to consult a CA.

Originally Posted by JithinR

My understanding is that he would qualify for RNOR status (he has been abroad for most of his adult life and has never been in India for more than a month at a time in recent memory). I am not sure if the RNOR status has any bearing on his tax liability.

I think basic premise of RNOR is to enable returning NRIs avoid Double Taxation, and freely move their wealth to India. As with NRIs, India will not question your dad's foreign income or capital gains generated during RNOR status.

India will also allow your dad to import his physical possessions like furniture, appliances, car, motorcycle etc, upto certain valuation (I think its 5L or 7.5L, dont remember) free of customs duty during RNOR status

He will not be earning any income from foreign sources while living in India.

Would he have potential capital gains? Does he have any investments (equity, property etc) that he would try to liquidate in next one or two years? If so, he can freely bring back those funds without concerns of double taxation in India.

If he earns any foreign income or capital gains after RNOR status ends, he has to report that income to India. If he is taxed at source, he can claim exemption in his ITRs. Or if foreign country allows (example US allows), he can claim exemption there but he would have to pay taxes in India.

Can we transfer his final settlement to the NRE account and let it be as such till he is a Resident for tax purposes? Or is the NRO account more suitable here?

My understanding is NRE/NRO status will cease to exist if banks come to know he is not an NRI anymore. If he wishes to convert his wealth to INR immediately, then any account should be ok. But if he wishes to hold his wealth in foreign currency, then he has to open an Resident Foreign Currency (RFC) account.

Do we have to inform the banks once he returns that he is no longer an NRI?

Yes. He has to inform banks so that they convert his bank accounts to resident status

Can a RNOR hold NRE and NRO accounts in the first place?

As per Taxman, he shouldn't. He has to either close them or convert them to resident accounts immediately.

I did see an online article that claimed that RNOR's can't hold NRE and NRO accounts but they can hold FCNR account (we don't have one as such). Would this be a better option than the other two?

FCNR will help only if you want to hold foreign currency in a fixed deposit. This is for NRIs who wish to have flexibility to move back (repatriate) funds to origin country. I believe this product will not be offered for residents or RNORs. The product that is offered for returning NRIs is called Resident Foreign Currency (RFC) account.