A Complete Guide for NRIs Returning to India from Australia

Apart from changing locations, an NRI returning to India from Australia after spending years is a major turning point. It's not only about changing countries, but also about transitioning financially, emotionally, and professionally. An NRI needs careful preparation when moving back to India, regardless of whether you have been living in Sydney, Melbourne, or Perth. 

You need to consider several things, including financial matters, tax implications, and documentation. An NRI (Non-Resident Indian) might feel overwhelmed by the questions that come to their mind when returning to India - "How will my Australian income be taxed in India?'. 'What about my NRE and NRO accounts?' 'What happens to my residency status?' etc. 

In this Blog, we will provide answers to all your questions to help you experience a smooth and well-planned transition when moving back to India from Australia. 

Why NRIs Return to India from Australia?

Before moving ahead, let's understand what could be the common reasons behind an NRI planning to move back to India. The reasons may differ widely depending on the individual. Some individuals are attracted by family connections, while others are drawn by professional opportunities and developing a feeling of belonging. 

Here are some of the common reasons behind an NRI wanting to move back to India from Australia:

• Reunite With Families: One of the most common reasons for an NRI's return to India is to unite with their family again. Wanting to take care of their aging parents or raise their children in their cultural roots becomes a major motive. 
• Developing Economy: Some are drawn to India because of its rapidly growing economy that offers numerous opportunities in technology, startups, and consulting. 
• Cost of Living: Although Australia offers a high standard of living, expenses like healthcare, education, and housing are often less expensive in India as compared to Australia. Retirees can maximize their savings while maintaining their quality of life and not compromising their comfort. 
• Retirement Planning: Several NRIs also decide to return for retirement to seek and enjoy familiarity, tradition, and a sense of belonging that one can get only at their home. 

Understanding Your Residential Status After Moving Back

Once you move back to India, determining your residential status under the Indian tax law is vital to plan all your finances effortlessly. It will help you understand what income will be subject to taxation in India and the duration for which you can claim tax exemptions on your foreign income. 

What is Residency for Tax in India?

According to the Indian Income Tax Act, 1961, an individual's residency status is determined based on the number of days they stay in India during a financial year. There are three possible categories:

• Non-Resident (NR): They are taxed only on the income sourced in India.
• Resident but Not Ordinarily Resident (RNOR): Taxed on Indian and limited foreign income. 
• Resident and Ordinarily Resident (ROR): Taxed on global income. 

Upon your return, you may be deemed an RNOR for up to two years, provided you have been staying in Australia for several years. This status offers a transition period where your foreign income is not immediately taxed in India.

Key Rules and Timelines 

You will be considered a resident if you stay:

• in India for 182 days or more during a financial year, or
• 60 days or more in the current year and 365 days or more over the preceding four years.

RNOR status applies if you have not been a resident for nine out of the previous ten years or haven't stayed in India for more than 729 days in the last seven years. 

How does this apply to NRIs in Australia?

You must be paying taxes in Australia if you have been living and working there. However, under the India-Australia DTAA (Double Taxation Avoidance Agreement), you can ensure that you are not being taxed twice on the same income.

You can claim a foreign tax credit for taxes you have already paid in Australia upon becoming a resident in India.

Tax Implications for Returning NRIs from Australia 

An NRI's tax implications can get complex once they move back to India, especially if they hold property, investments, or superannuation in Australia. You must understand how your income will be taxed to plan better and avoid any future surprises. 

What Happens to Foreign Income and Global Assets?

During your RNOR period, income earned overseas will remain exempt from taxation in India. It includes salary, pension, or rental income from Australian property. However, once you get the ROR status, your global income will be taxed under Indian law.

It means, suppose you own a rental property in Melbourne or have investments in the Australian stock market. Then, you will have to declare the income generated, and it will be taxed in India once your RNOR period concludes.

Use of DTAA Between India and Australia 

The DTAA between India and Australia prevents you from being taxed twice on the same income in two different nations. In case you have already paid taxes in Australia on your superannuation on property rental income. Then, you can claim the amount as a tax credit while filing your Indian returns.

This agreement plays a crucial role in reducing the financial burden for returning NRIs and ensuring compliance with the tax systems of both nations.

Banking, Repatriation, and Account Conversion 

Once you transition from being an NRI to a resident, you need to change your banking arrangements. It includes converting your exisitng NRE, NRO, and FCNR accounts in accordance with the RBI guidelines. 

What Happens to Your NRE, NRO, FCNR, and RFC Account Upon Return to India?

When you become a resident Indian:

• You must convert your NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) accounts into Resident Rupee Accounts.
• NRO (Non-Resident Ordinary) accounts can be kept open to receive Indian income, such as rent or dividends.
• You can open a Resident Foreign Currency (RFC) account if you want to hold foreign currency, like AUD or USD. 

An RFC account is mainly useful if you wish to save funds for future needs or travel in Australian Dollars. 

Process and Tips for Repatriating Funds From Australia to India

You need to follow both Indian and Australian financial regulations while repatriating funds from Australia to India. To transfer funds, you must use official channels like SWIFT transfers through authorized banks. 

Tips to Consider When Repatriating Funds

• Complete major transfers before your residential status changes to "resident", which will help you simplify documentation.
• Keep detailed records of your transactions, tax filings, and sources of funds. You will need these to ensure compliance as well as during Indian tax assessments. 

Investments, Property, and Estate Planning After Moving Back

Planning your finances doesn't stop at repatriation for returning NRIs. Managing your existing foreign assets and exploring new investment options in India are also essential. 

What Happens to Past Foreign Investments?

You have three options if you own property or investments in Australia: retain, sell, or repatriate the proceeds. The process becomes easier if you sell the property before your return. However, if you plan to rent it out, be ready to report this income in India after your RNOR period concludes. 

Australian superannuation funds also need attention. You may withdraw it based on your eligibility once you leave Australia permanently. The amount you withdraw will be subject to taxation in Australia. However, it can be adjusted under DTAA in India.

Indian Property and New Investment Opportunities 

You can explore the following when back in India:

• Mutual funds and SIPs for long-term growth.
• Real estate investments, especially in growing Tier-2 cities. 
• Fixed deposits, PPF, or NPS for steady and tax-efficient returns.

Residency Status and Inheritance Planning 

Make sure that your wills, nominations, and power of attorney (POA) documents are updated to show your current status. When you include both your Indian and Australian assets in your will, you can enjoy a seamless transfer to beneficiaries. Additionally, if you have dependents in both nations, estate planning becomes essential for you. 

Practical Checklist Before and After the Return 

Consider this pre-return and post-return checklist to make your transition smooth and well-prepared:

Pre-Return Checklist (Australia to India)

Before you depart from Australia, ensure to:

• Review or withdraw superannuation funds.
• Close or update local bank accounts and subscriptions.
• Gather property deeds, investment records, and tax documents. 
• File your final Australian tax return and settle outstanding dues. 
• Notify the Australian authorities and financial institutions about your return. 

Post-Return Checklist (When in India)

After returning to India, you must:

• Report any foreign assets in case you qualify as an ROR.
• Convert your NRE/NRO/FCNR accounts to resident accounts.
• Update your PAN card, Aadhar, and KYC details across all institutions.
• Start planning your first Indian tax filing as a returning resident. 
• Inform banks, employers, and the tax department about a change in your residential address. 

Conclusion

Reuniting with your family and coming back home after spending years abroad can be exciting as well as overwhelming. It might take time to adjust to the fast-paced lifestyle, bureaucracy, and cultural nuances. With this checklist, you can navigate this transition easily. Ensure to take the necessary steps before and after moving back to India to ensure compliance and enjoy a hassle-free return to India.