After spending a decade outside India in a foreign country, you have finally decided to return to your homeland. Well, if you can relate to the above scenario, this blog is perfect for you! See, if you intend to return to India, there is a lot of planning involved, especially if you intend to stay here for good.
Taxation is one of the most significant factors to consider before making a move. If you intend to relocate to India, it is critical that you understand the tax regulations that will apply to you. So, in this blog, we will discuss everything you need to know about NRI tax planning.
Make an NRE Account
An NRE account might be a savings account, a fixed deposit account, or a recurring deposit account. In India, the principal and interest amounts are tax-free. You can also transfer principal and interest components tax-free from India to your country of residence.
All major banks in India provide NRE account services. In addition, if you plan to consult an NRI tax consultant, he/she will suggest something similar to do.
Use the DTAA as a Significant Tool to Prevent Double Taxation
Nobody wants to pay taxes twice on the same income. As a result, India has signed a treaty known as the Double Taxation Avoidance Agreement (DTAA) with a number of nations. Individuals can avoid double taxes by using the terms of this agreement. You can seek double taxation relief in three ways:
- The exemption approach is similar to the TDS method. You are taxed in one nation and tax-free in the other.
- The deduction technique assures that taxes are paid in the nation where the money is received and that they are deducted from total global income. The disparity between income generated and taxes previously paid in one nation is then paid in the other country.
- Tax credits give relief up to the amount of taxes paid in a single nation.
Make Use of RNOR Status Wisely
You can register for the “Resident but Not Ordinarily Resident” (RNOR) status if you have just returned to India. A person holding the “RNOR” status is only required to pay tax on income earned or received in India. Income earned outside of India would not be taxed in India.
Withdrawals from foreign accounts, foreign rent, and foreign capital gains will be tax-free in India. You can use your RNOR status for three fiscal years from the day you return to India. And if you already know the new NRI tax rules, we recommend the same.
Being a non-resident Indian might make your tax situation more complicated. If you reside and work in another nation, your foreign earnings will be taxed in that country. However, if you continue to earn money through investments, assets, or business activities in India, you will be required to pay tax on your Indian income in India. As an NRI, you may, fortunately, save money on taxes. Keep the three recommendations we presented in mind when you prepare your taxes to lower the amount of tax you must pay. And for information, check out our article on company formation for NRI’s.