NRI Taxation Implications For Moving Back to India With Foreign Household Goods

This information goes out to all NRIs from a CA firm in Kolkata: Whether you studied, worked, and were a permanent resident in the US, UK, or any other country, or whether you were born and raised in a foreign country, or got posted in India by your company.

There are several tax implications and regulations that affect NRI adults who are returning to their motherland, India. The core things to accomplish are your residency status, treatment of any foreign assets, regulations on bringing foreign household goods with you, and customs duties, among others.

The best course of action is to hire tax advisory services for NRIs before you make any decisions because you need careful tax planning and investment. Professional advisories can not only ease your transition from one country to another but also assist you in taking advantage of the numerous tax breaks available to returning NRIs in India. You can establish a secure and diligent settlement here and even start growing your money. But first, let’s see what tax obligations you have here as an NRI.

NRI Taxation in India: How They Are Different From Indian Residents

Non-resident Indians who return to India can invest and pay taxes in the country very favourably. However, NRI taxation, in terms of both regulations and benefits, is vastly different from those for Indian residents, as directed under the Indian Income Tax Act of 1961.

The main difference is that Indian residents are required to pay taxes on their worldwide income, which means they must report all of their income from all sources and countries. Non-resident Indians, on the other hand, are only subject to taxation on income earned or accumulated in India. The income tax obligations of a non-resident Indian in India apply to both Indian citizens and persons of Indian origin and are primarily determined by his or her residential status for the financial year.

Understanding Residency Status for NRI Taxation As Per The Income Tax Act, FEMA, and New Tax Laws After FY 2021-22

The Income Tax Act (ITA) and the Foreign Exchange Management Act (FEMA) are collaboratively responsible for governing and administering NRI taxation and foreign investment in India.

The NRI community has been directly impacted by new tax laws enacted in the Financial Year (FY) 2020–21 and onwards. The most significant change to the system is the method for determining an individual's residence status. The first tax obligation that NRIs must fulfil before moving to India is to consider their residential status for the financial year to avoid the possibility of their income earned abroad being taxed in India. Seeking tax advisory services on Indian soil is the best way to stay up to date.

Residency Status According to the Income Tax Act (ITA)

According to ITA, the number of days an NRI spends in India determines his or her residency status, and the residency status determines their NRI taxation guidelines. In the following circumstances, the ITA considers NRIs as Indian Residents for a financial year:

●    An NRI spends 182 days, or 6 months, in India during the financial year and earns less than Rs. 15 lakhs of taxable income.

●    When an NRI has spent at least 60 days in India in the previous year and has spent a total of 365 days in India in the four years preceding FY 2020–21,

A significant change was made to the NRI taxation laws after FY 2020–21. NRIs with taxable Indian income of more than Rs 15 lakhs earned within 120 days of entering Indian territory would become Indian residents in 120 days rather than 182.

Indian citizens working in a foreign country and crew members of Indian ships who need to travel abroad for work are not included in the timeline. PIOs who visit India to meet their parents or grandparents who were born in undivided India are also exempt from the second option.

Residency Status According to the Foreign Exchange Management Act (FEMA)

FEMA, on the other hand, focuses on the NRI's intent. If an NRI returns to India intending to settle down, FEMA treats him or her as a resident Indian. For different tax purposes, the residency status of NRIs is divided into two categories: resident and ordinarily resident (ROR) and resident but not ordinarily resident (RNOR).

●    RORs have to pay taxes on their worldwide income like any other ordinary Indian resident.

●    RNORs are considered true NRIs and must pay taxes only on income earned in India. While RNORs have to pay against income earned in India, they can save taxes on their global income for up to three fiscal years.

NRI Taxation Update FY 2020-21: Setting New Bar On Taxable Income Along With Period of Stay

Imagine foreign artists, businessmen, and property owners coming to India and earning less than Rs 15 lakhs during a financial year. They will continue to remain NRIs till the last hour of their 181st day in the country.

According to a case study presented by a CA firm in Kolkata, an NRI had to pay taxes for staying in India for 160 days and earning just over Rs. 2000 to Rs. 15 lakhs during the FY 2021-22. The moral of the story is that it is highly recommended that you not only plan the number of days you can spend in India but also keep track of your taxable income in India. When taxable Indian income exceeds Rs 15 lakhs, the period of stay is reduced from 182 to 120 days.

NRI Taxation for Foreign Assets Under ITA and FEMA

An NRI returning to India is free to own, transfer, or invest in assets located outside of India under FEMA. The provision, however, only applies if the asset was acquired while the individual was a resident outside of India or was inherited from a resident outside of India. NRIs can use an Exchange Earners Foreign Currency (EEFC) Account or a Resident Foreign Currency (RFC) Account to hold foreign earnings and transact in foreign assets.

Importing Household Items to India from Your House Abroad.

You may bring your beloved car or any other household item from your home abroad, but the Indian government has strict laws and regulations in place to prevent this. You may seek tax advisory services to make this process as transparent as you can, but be aware that this is an expensive route. To begin with, these items will be considered "imported goods," which could include automobiles, motorcycles, scooters, home appliances, electronics, laptops, furniture, and other items.

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