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The decision to return permanently to India is a serious matter for many Indians living abroad. Not only does this decision involve questions of familial and social benefits, health considerations and nostalgia for home, but it also requires careful financial planning and preparation. In this article, we examine some of the most common areas of financial planning for returning Non-Resident Indians (NRIs).
In general, investment and tax provisions relating to NRIs returning to live in India are fairly generous. However, NRIs should carefully plan their return to India to ensure that there are no surprises with respect to their overseas income and investments.
The FEMA and the ITA
There are two applicable statutes governing taxation and foreign investment for returning NRIs – the Foreign Exchange Management Act (FEMA) and the Income Tax Act (ITA). It is important that NRIs know their residency status with respect to both laws, and that they make important investment decisions with both statutes in mind.
The FEMA regulates foreign investment; transactions of Indian residents outside India are covered by FEMA. This includes foreign bank accounts and foreign investments in real estate, equity, mutual funds, businesses, money transfers, remittances, borrowing and lending as well as gifts, among others. The ITA, on the other hand, regulates taxation and defines the appropriate tax treatment of such investments.