Regulatory Changes for Indian Residents Becoming NRIs
When an Indian resident becomes a Non-Resident Indian (NRI) due to the number of days spent outside India, several changes in regulations and acts come into play. These changes impact taxation, banking, investments, and other financial aspects.
Taxation
-
India Source Income: Once an individual becomes an NRI, only income sourced from India is taxed. Global income is not taxed in India.
-
Tax Filing: NRIs need to file taxes in India only if their taxable income exceeds ₹2.5 lakh, if they need to claim a refund, or if they have losses to carry forward. Additionally, NRIs need to file tax returns in their new country of residence.
-
Tax Deduction at Source (TDS): TDS rules apply to income from rent, property sales, interest, etc. The rates are often high enough to prompt NRIs to file tax returns in India to claim any excess TDS compared to the actual tax due.
-
Double Taxation Relief: Relief is provided under Double Taxation Avoidance Agreements (DTAA) between countries if taxes are paid on the same income in more than one country.
Banking
-
Account Conversion: Any savings bank accounts held by a resident should be converted to an NRO account per FEMA rules. This should be done within three months of becoming an NRI.
-
NRO Account: Used for managing India source income and expenses. Interest earned is taxable.
-
NRE Account: Needed for sending money into India from abroad. Interest earned on NRE accounts is tax-exempt.
-
Investments
-
Property: NRIs face restrictions on purchasing agricultural land, plantations, or farmhouses and when selling such property.
-
Shares and Mutual Funds: There are regulations and limits on investing in shares, mutual funds, and businesses in India.
-
Public Provident Fund (PPF): NRIs cannot open a new PPF account. However, an existing PPF account can continue. Contributions can be made via the NRE or NRO account, or the account can be kept in “extension without contribution” mod