Returning to India: a checklist for your money
Moving back to India changes your tax status, your bank accounts and how your overseas assets are taxed. Here is what to sort out, and in what order.
Read ArticleNRE vs NRO account: which one should you use?
NRE and NRO accounts look similar but are taxed and repatriated very differently. Using the right one for each rupee saves tax and paperwork later.
Once you become a non-resident Indian, your ordinary savings account in India has to be converted, and most NRIs end up with two kinds of account: NRE and NRO. They look alike in a banking app, but they follow different rules for tax and for taking money out of India. Mixing them up is one of the most common, and most avoidable, sources of NRI tax trouble.
The short version
- NRE (Non-Resident External) is for money you earn abroad and bring into India. It is held in rupees, and the balance and interest can be moved back abroad freely.
- NRO (Non-Resident Ordinary) is for money that arises in India: rent, dividends, pension, the proceeds of selling Indian assets, or the balance of your old resident account.
How interest is taxed
Interest on an NRE account is exempt from income tax in India for a person who qualifies as a non-resident. Interest on an NRO account is taxable in India, and banks generally deduct tax at source at 30% plus surcharge and cess. If you live in a country that has a tax treaty with India, a lower treaty rate may apply, but you usually need to give the bank a Tax Residency Certificate and other documents to claim it.
Remember that your country of residence may tax the same interest. A treaty helps you avoid paying tax twice, but only if you claim it correctly in both countries.
Taking money out of India
Funds in an NRE account, including interest, are freely repatriable. Funds in an NRO account can also be sent abroad, but within a limit of USD 1 million per financial year (April to March), and only after the taxes on that money have been paid. Banks normally ask for Form 15CA, filed online, and in many cases Form 15CB, a certificate from a Chartered Accountant confirming that tax has been paid.
What goes where
- Salary or business income earned abroad that you send to India: NRE.
- Rent from a flat in India, dividends from Indian shares, interest on Indian deposits: NRO.
- Proceeds from selling property or investments you bought while resident: NRO, then repatriate within the annual limit if needed.
- Money you may need to move abroad quickly in future: keep it in NRE where the source allows it.
You cannot move money freely from NRO to NRE. A transfer from NRO to NRE counts as repatriation and is subject to the same limit and documentation.
Common mistakes we see
- Keeping an old resident savings account open after moving abroad. FEMA requires it to be redesignated as NRO.
- Depositing Indian rent into an NRE account. It should go to NRO.
- Assuming NRO interest is tax-free because tax was already deducted. You may still need to file an Indian return, and you may be able to claim a refund or treaty benefit.
- Forgetting to update your residential status with banks, brokers and mutual fund houses.
A short review of every Indian account, folio and demat holding, checking its status, nominee and tax treatment, usually takes a few hours and prevents years of corrections.
