NRIs NRE and FCNR Accounts: What Happens After Returning to India?
When Non Resident Indians (NRIs) open NRE (Non-Resident External) or FCNR (Foreign Currency Non-Resident) accounts while residing abroad, they have specific provisions in place for what happens to these accounts once they return to India. It’s important for NRIs to understand the implications and necessary actions to take when they decide to relocate back home.
Opening NRE and FCNR Accounts
NRE accounts and FCNR accounts are specifically designed for NRIs who have a business or personal connection only with non-Indian entities while living abroad. These accounts allow NRIs to hold foreign currency while the parent bank branch operates as an External Commercial Borrowing (ECB) window with Reserve Bank of India (RBI).
Redesignation on Returning to India
Once an NRI returns to India and no longer qualifies to maintain an NRE/FCNR account, the account should be redesignated to a domestic Indian account. This process typically involves converting the NRE or FCNR account into a resident account (R-Current/ R-Savings/ R-Legacy R-Other) based on the account holder’s specific needs and the RBI guidelines.
Tax Implications for NRE Accounts
The key difference in maintaining an NRE account is that the income from the account is tax-free in India, provided the funds are used for specified purposes. These purposes include paying for education, accommodation, or medical expenses in India. Upon redesignation, the account will be taxable just like any other savings account in India, and the interest earned will be subject to Normal Resident Income Tax (NIT).
Handling NRE and FCNR Fixed Deposits
NRE and FCNR fixed deposits can continue to be held until their maturity date. However, they cannot be renewed as NRE or FCNR deposits upon maturity. An alternative approach is to convert them into a Resident Foreign Currency A/C (RFCA) by managing the funds in designated Indian currency. When the fixed deposit matures, the full amount can be transferred to an RFCA, where it will not be subject to tax withholding at source (TDS).
Conversion to RFC
Upon converting an NRE or FCNR fixed deposit to an RFC, the bank no longer deducts TDS on the interest earned. However, it’s the responsibility of the account holder to calculate and pay the appropriate tax based on the existing tax laws in India. This may require you to file quarterly estimates, pay advance tax, and file an annual tax return, ensuring all taxes are paid in due course.
Challenges and Considerations
NRIs returning to India with NRE or FCNR accounts should be aware of the complexities involved in redesignating these accounts and converting the fixed deposits to RCAs. Understanding the tax implications, timelines, and the necessary paperwork can help smooth the transition. Additionally, it’s advisable to consult with a tax advisor or an experienced financial planner to navigate through these processes efficiently.
Summary
In conclusion, the management of NRE and FCNR accounts after returning to India requires careful planning and compliance with specific norms. Whether you redesignate the accounts or convert your NRE and FCNR fixed deposits to the Resident Foreign Currency A/C, ensure you follow the correct procedures to avoid any legal or financial complications. Always stay informed about the latest RBI regulations and consult with experts to safeguard your financial interests.