The COVID pandemic has brought about extreme uncertainty and has been quite stressful due to an abrupt halt in all the economic activities. India is currently experiencing a situation of widespread unemployment which results in people frantically trying to return to their hometowns. Being the highest recipient of NRI remittance, India is home to a sizeable fraction of the migrant population. The ambiguous atmosphere is also another reason for forcing them to return. This is a major shift as it involves adapting to changes in lifestyle, investment pattern, understanding India’s financial framework, governing bodies, and their regulations, as some of them may not have even planned to return soon. There are over 150,000 NRIs registered to return just from UAE alone, and we have the Indian diaspora spread all across the globe.
The foremost change that they have to adapt is to understand the investment patterns and banking options available to them, to utilize their resources wisely.
Residency status and taxation
Residents in India and non-residents are subjected to slightly different taxation policies. To smoothen the transition, returning NRIs can be divided into two categories – Returning Ordinary Residents (ROR) and Returning Non-Ordinary Residents (NROR). All ROR status holder’s worldwide income is taxable and has to report all foreign assets in their ITR. And RNOR’s are the ones with limited presence in India for the last 7 years, foreign income is not subjected to taxation as long as it is not received in India. Also, their FCNR is tax exempted. Usually RNOR status is offered for 2-3 years.
Banking pattern
NRIs open NRE or NRO or FCNR accounts for different sorts of investment and each having varied tax-slabs. NRO account is for income earned in India and is taxable, whereas NRE and FCNR deposits are tax exempted. These accounts are usually for the transfer of foreign income. As per FEMA policies (Foreign exchange management act, 2012), on being a Resident Indian all NRE/NRO accounts have to be converted to Resident Savings account, a hefty penalty shall be levied on violating.
Insuring
Until returning NRIs were insured by a foreign country, they may have to switch to Indian options for now. In this dynamic economy, it is always advisable to insure oneself and family. Insurance can be seen as a form of investment too. The returning could lead to fluctuations in income earned so far, therefore to manage sudden contingencies, they appear beneficial.
Investment pattern
NRIs liquidate their foreign assets as the income earned would be taxable after being a resident Indian. They tend to invest their savings in stocks or other financial instruments. But because of their limited knowledge regarding the Indian market and economy, they approach financial advisors to make a good profitable portfolio and for seizing the right opportunities with the experience of global exposure that they carry.
