NRE 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.
Read ArticleReturning 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.
After years abroad, the move home is usually planned around schools, housing and work. Money matters tend to come last, yet the first two or three years after returning are often the most valuable window for tax planning. A little preparation makes a real difference.
1. Work out your residential status
Your tax status in India depends on how many days you spend in India, not on your passport or visa. Many returning NRIs first become Resident but Not Ordinarily Resident (RNOR). You generally qualify as RNOR in a year if you were a non-resident in nine of the ten preceding years, or if you spent 729 days or fewer in India over the preceding seven years.
During RNOR years, income earned and received outside India is generally not taxed in India, unless it comes from a business controlled or a profession set up in India. Once you become Resident and Ordinarily Resident, your worldwide income is taxable in India. Mapping out when that switch happens is the starting point for everything else.
2. Convert your bank accounts
- NRE and NRO accounts must be redesignated as resident accounts once you become resident. Tell your bank promptly.
- FCNR deposits can usually run until maturity; the interest treatment changes with your status.
- A Resident Foreign Currency (RFC) account lets you keep foreign currency in India after returning, which can be useful if you expect to spend or invest abroad again.
3. Review overseas assets before they become taxable
Pensions, retirement accounts, employer shares, overseas property and foreign bank balances all need a plan. Some are best left where they are; others are worth restructuring or selling while you are still RNOR. The answer depends on the tax rules of both countries, so decide before the RNOR window closes, not after.
4. Update every Indian investment
Mutual fund folios, demat accounts, insurance policies and the PPF must show your new status. Investments made as an NRI do not become invalid, but the KYC records must be corrected so that tax is deducted correctly and future transactions are not blocked.
5. Plan your tax filings in both countries
- Your final year abroad may need a part-year return in that country.
- Once you are Resident and Ordinarily Resident, overseas assets and income must be reported in Schedule FA of your Indian return, even if no tax is due on them.
- Keep proof of your travel dates; day counts are the basis of your status.
6. Revisit your will and nominations
A will written abroad may not deal cleanly with Indian assets, and nominations made years ago may no longer reflect your wishes. Returning home is a natural moment to bring both up to date.
Returning to India is a once-in-a-lifetime transition. Treat the first year as a planning year, and the tax benefits of the RNOR period are far more likely to work in your favour.
