I am working in Toronto from 2017 I am a PR now and plan to move back to India for good by 2022. Is it advisable to open a RRSP now?

1. What are the tax consequences I will face if I withdraw the RRSP 1 year after I move to India?

2. Is there any withholding tax on withdrawal in addition to the income tax?

3. Is the amount need to be declared in India?

Thanks in advance for any advice.

This materials posted here are TWO Years OLD. The new Budget restricts you to a level LOWER THAN THIS. Normally you could have got TWO years of RNOR, if you spent less than 730 days in TEN Years. A few have got even THREE YEARS out of their stay, being away all of the TEN Years outside. (See the article Below)

This is only HALF of what I want to post to you here. Please read and MAXIMIZE your savings out of your Holdings here in Canada. Please read and DIGEST the whole article. Then get back.

Sell your HOME here if you own one. I will get back to the RRSP in my next posting. You can get the latest of materials from D.S.&A if they have prepared themselves for a client with the latest tax budget into account. (See Below)*

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Tax Planning for NRIs Returning to India
November 13, 2018
Posted by India Briefing Written by *Dezan Shira & Associates Reading Time: 6 minutes

Income Tax Rules and Planning for NRIs

In general, investment and tax provisions relating to non-resident Indians (NRIs) returning to live in India are fairly generous. However, NRIs must carefully plan their return to India to ensure there are no surprises with respect to managing their overseas income and investments.

In this article, we examine some of the most common areas of financial planning for returning NRIs.

NRI tax residency status under FEMA and ITA

To identify whether the income earned abroad will be taxed in India, NRIs must first consider their residential status for the financial year and whether the income was earned in India.

As per the Indian law, 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).

The FEMA regulates foreign investment and transactions of Indian residents outside India. 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.

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The ITA, on the other hand, regulates taxation and defines the appropriate tax treatment of such investments.

Under FEMA, an NRI is a person who is a resident outside India who is either a citizen of India or a person of Indian origin. A Person of Indian Origin (PIO) is anyone who is a citizen of a country, other than Pakistan and Bangladesh, and:

Has held an Indian passport at any time in their life;
Was an Indian citizen, or whose parents or grandparents were Indian citizens; or
Is a spouse of an Indian citizen.

Residency under FEMA is defined by intent. An NRI permanently residing outside India is treated as an ‘NRI under FEMA’ irrespective of the number of days of their stay in India. Once an NRI returns to India with the intent to settle permanently, that individual becomes a resident Indian for FEMA purposes. This is very different from the residency test for tax purposes – which is given under the ITA.

The ITA uses a ‘days present’ residency test to determine tax residency, regardless of intent. Under the ITA, an individual is an NRI for tax purposes if he or she meets the following conditions:

Spends 182 days or more in the financial year (FY) in India; or
Spends 60 days or more in the FY and 365 days or more in the four consecutive FYs preceding the relevant FY.

Once an individual meets these conditions, the person becomes a resident for tax purposes either as:

A resident and ordinarily resident (ROR) taxable on worldwide income; or
A resident but not ordinarily resident (RNOR) taxable only on Indian sourced income.

A person is treated as ROR during the year if he or she satisfies both the following conditions –

Is a resident in India for at least two of the ten FYs immediately preceding the relevant FY; and
Stays in India for a total of 730 days or more during the seven FYs preceding the relevant FY.

Resident individuals who do not meet the above conditions or meet only one of the conditions are treated as RNOR.
Treatment of foreign assets under FEMA

Under FEMA, an NRI returning to India is free to hold, own, transfer or invest in assets situated outside India. However, the provision is only applicable if the asset was acquired when the individual was resident outside India or was inherited from a person resident outside India.

The NRIs can hold foreign earnings and make foreign asset transactions through the following accounts:

Exchange Earners Foreign Currency Accounts

Exchange Earners Foreign Currency Account is a facility that resident Indians can use to credit 100 percent of their foreign exchange earnings to the account. The earning may include professional income – including director’s fees, consultancy fees, lecture fees, and honorarium received by a professional, in addition to payments received by exporters, and several other categories of income.

The facility helps account holders to minimize transaction costs as they do not have to convert foreign exchange into rupees and vice-versa. Furthermore, residents can use the funds held in EEFC account for all permissible current account transactions as well as for approved capital account transactions.

Account holders, however, must note that the amount withdrawn in rupees is not eligible for conversion into foreign currency and for re-credit to the account.

The account is maintained in the form of a non-interest bearing current account.

Resident Foreign Currency (RFC) Accounts

Indian residents may maintain a Resident Foreign Currency (RFC) account for foreign currency assets, which were held outside India at the time of their return. Foreign exchange amounts received as pension or benefits from employers outside India, gifts, or proceeds of life insurance policies in foreign currency may also be credited to this account.

RFC accounts can be maintained in the form of current or savings or term deposit accounts. The funds in RFC accounts are free from all restrictions regarding utilization of foreign currency balances, including any restriction on investment outside India. Residents can use their RFC accounts to reinvest sale proceeds of overseas assets.
Treatment of Indian assets held during non-residency

During the period that an individual is an NRI, they may hold assets, investments, and bank accounts in India. Special accounts exist for NRIs who hold investments in India.
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Generally, an Indian bank account held by an NRI would be either a Foreign Currency Non-Resident (FCNR) account or a Non-Resident External Rupee (NRE) account.

These accounts are opened for the purpose of depositing income earned overseas. The funds held in these accounts can be remitted back overseas freely, subject to the terms and conditions of the resident country. Upon re-establishment of residency, an NRI must re-designate Indian banking accounts from FCNR/NRE to the RFC accounts mentioned above.

Similarly, returning NRIs must inform companies in which they have shares of their change in residency status, as well as firms in which they may own partnership interests.
Treatment of foreign assets under the ITA

NRIs returning to India can save tax on their global income for up to three FYs by taking advantage of their RNOR status; however, they are still liable for tax on their Indian sourced income as an RNOR.

Tax on conversion to Resident Foreign Currency Accounts

When NRIs return to India, they must re-designate their NRE/FCNR bank account to an RFC account. Interest on NRE and FCNR accounts is exempt in the hands of NRIs and RNORs.

However, once the individual becomes a ROR, interest on the RFC accounts becomes taxable.

Wealth tax

Money and assets brought into India by an NRI who was ordinarily residing in a foreign country, and who has returned to India with the intention of permanently residing, is generally exempt for wealth tax purposes for a period of seven successive assessment years, although certain restrictions apply.

In addition, amounts held in an NRE account on the date of an individual’s return to India are deemed to be amounts brought into India on that date – they are also exempt from the wealth tax.

The wealth tax exemption does not extend to tax on income earned from assets brought into India.

Taxation on pensions

NRIs receiving pensions from former employers after returning to India may be liable for tax on that pension in India. This is subject to provisions of any double taxation avoidance agreement between India and the country from which the pension is received.
Customs duties

Another area not to be overlooked by NRIs returning to India is customs duties on the importation of goods following overseas assignments.
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The Customs Act provides ‘transfer of residency’ rules relating to import duties on household items for professionals returning to India. These rules allow the import of personal and household articles, free of duty and certain other listed items, on payment of concessional rate of duty.

For those returning after a long stay abroad – one year or more than two years, the rules provide a clearance-free duty of up to Rs 200,000 (US$2,753) in household items. Other rules apply for shorter durations, while some restrictions also apply.
Careful tax planning for NRIs advised

NRIs returning to India for permanent settlement have many issues to consider. Careful investment and tax planning can help ease the transition and will allow individuals to avail themselves of the many tax breaks accorded to returning NRIs.

Editor’s Note: This article was first published on July 29, 2015 and is updated on November 13, 2018 to accommodate latest regulations.


FH.

There is more to this than meets the eye. I will be able to provide you with detailed plan to Maximize prior to return. It becomes difficult once you return back to India. (You can't put the Tooth Paste Back into the TUBE!!)

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Originally posted by sensouv

I am working in Toronto from 2017 I am a PR now and plan to move back to India for good by 2022. Is it advisable to open a RRSP now?

1. What are the tax consequences I will face if I withdraw the RRSP 1 year after I move to India?

2. Is there any withholding tax on withdrawal in addition to the income tax?

3. Is the amount need to be declared in India?

Thanks in advance for any advice.

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Thank you for sending me the information about it. I appreciate you the detail you went into it. I am grateful for the amount of time and effort you put into this helping us. Your insights and summary are beneficial.

Not knowing your plans for the future, I am unable to chart out a plan for the RRSP's that you want to invest the permitted amounts into. Also, the deadline for the previous year being 29th of February of this year, I would completely eliminate this issue. You only had a Maximum of Three years to invest into RRSP's and when you withdraw it gets loaded as income during the year you pull it out. That amount will become taxable in any case and will be subject to the bracket that you will be in that year.

The Indian Government has a TAX YEAR starting from 1st April and ends on 31st March of the next. That makes the accounting practices a complicated subject matter. So, to avoid all of the Dual taxation subject matter and calculations, please try and close your stay within Canada before the 1st of April and carry all the funds out of Canada by that timeline. Your new year and the calculation there after and the taxation year too begins on the first of April. There are appropriate forms to fill out here in Canada and after obtaining the clearance, you cease to be a Tax Paying Canadian after that date here in Canada. Please get that prior to departure.

Having lived outside of India, you can claim and carry a lot of household goods tax free, if they were purchased an year earlier here while you were staying within Canada. A few of them are Electrical goods. But the Voltage and the frequency being different your purchase ought to have been for the DUAL Voltage system and they will be operational then after reaching India too. I don't know if you planned the move well to take this into consideration. If I were planning I would dispose off all of the items on or before the last day of your stay, except for a few useful and sentimental items and carry the sum on person and purchase new items there upon landing in India. That will reduce your baggage.

Please look into the baggage rules of an Airline that will permit you a Second Suitcase to carry without paying additional fees and if you exceed this limit they might even charge you a penalty for the Third item. Under these conditions, try and book a few suitcases as unaccompanied baggage and collect the same on arrival. That will be a lot cheaper too.Please note that they only permit Three or Four days to collect upon its arrival and not collected by you there might be demurrage fees that they will charge. Please get to know the exact days prior to booking.

When you carry very large sums into India upon arrival they expect you to declare these sums that you bring into India. Please make it to be as close to a sum that you will be carrying with you there upon landing. You might still have Six more months to park this foreign exchange as Non Resident External Account and if perchance you decide to go out of India for any reason, you can take all or part of it for your future use and spend it freely and enjoy it. It will be good to find out if any of the Canadian Banks will permit you to hold a ZERO Balance account with them indefinitely with NO Charges for the same. The Canadian Government would demand that you close all of the Dollar accounts with them and have NO BALANCE or NIL Balance in them.

If you have any questions please revert back under the same topic that you are discussing here.

Bon Voyage. Safe trip.

FH.

Please avoid intermediate stops and take a DIRECT FLIGHT, if at all possible. Please have an Insurance policy for Health care there in INDIA prior to landing. It is to safeguard yourself against this COVID 19 Scare that we are experiencing. Good Luck in your future endeavours. fh.