NRIs Returning from Canada to India- A Comprehensive Guide

After spending years living in Canada, moving back to India is more than just changing locations for NRIs. It's like a life-changing transition for them that involves emotional, financial, and professional adjustments. You need careful planning and accurate prepration when moving back to India. despite where you have been living in Canada.

NRIs must determine and understand changes in their tax responsibilities, finances, and documentation to ensure compliance and a smooth re-entry. In this guide, we will help you navigate every crucial detail of moving back to India from Canada. We will ensure that you plan your return with utmost confidence and clarity. 

Why NRIs Return to India from Canada?

It's essential to understand the reasons why many NRIs decide to return to India after spending several years of their life in Canada. The reasons may differ broadly for different individuals, such as family connections, financial opportunities, and lower living costs.

Common Reasons for Returning

Here are some of the most common reasons why NRIs choose to return to India from Canada:

• Family Ties: The primary reason behind moving back is to take care of their aging parents or to raise their children close to their culture and extended family to ensure they stay connected to their family's heritage.
• Economic Expansion: India's fast-growing economy attracts skilled professional NRIs to move back as it offers them new opportunities in various fields, including IT, healthcare, etc.
• Affordability: Canada offers a high quality of life; however, India provides a lower cost of living. Certain expenses, like education, healthcare, and property, can be more affordable in India. This specifically benefits retirees looking to maximize their savings. 
• Retirement Planning: Many individuals consider retirement in India as a way to connect with tradition, family surroundings, and a sense of belonging that can only be experienced at home. 

Understanding Your Residential Status Upon Returning to India

After moving back to India, the first thing you need to determine is your residential status under the Indian Income Tax Act. Your taxability and foreign income treatment are decided entirely based on this classification. 

What is Residency for Tax in India?

According to the Income Tax Act, 1961, your residency status is determined based on the duration of your stay in India in a financial year. There are three possible categories:

• Non-Resident (NR): Liable to pay taxes only on the income earned in India.
• Resident but Not Ordinarily Resident (RNOR): Taxed on Indian and limited foreign income.
• Resident and Ordinarily Resident (ROR): Taxed on their worldwide income. 

In case you have stayed in Canada for several years, you will likely be deemed as RNOR for up to two years upon your return. Furthermore, during this period, your foreign income, like a Canadian pension or rental income, will not be taxable in India. 

Key Rules and Timelines 

If you fulfill any of the following conditions, you will be considered a resident:

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

You will be considered an RNOR if:

• You have not been a resident in 9 out of the past 10 years, or
• You haven't resided in India for more than 729 days in the last 7 years. 

How Does This Apply to NRIs in Canada?

If you have been staying and working in Canada, it's evident that you must be paying taxes there. Fortunately, India and Canada have a DTAA agreement. The DTAA (Double Taxation Avoidance Agreement) treaty ensures that you don't pay taxes twice on the same income in two different nations.

Under the DTAA, you can claim a foreign tax credit for the taxes you have already paid in Canada after you become an Indian resident. 

Tax Implications for Returning NRIs from Canada 

Upon return, the tax scenario can get complex, especially if you hold Canadian investments, property, or retirement accounts. You must understand how your income will be treated under Indian tax law to ensure compliance. 

What Happens to Foreign Income and Global Assets?

Income earned abroad will be tax-exempt from Indian taxation until your RNOR period concludes. It can include salary, pension, or rental income. However, once you qualify as an ROR, your global income becomes subject to taxation in India.

Use of DTAA Between India and Canada

Under the India-Canada DTAA, you can claim relief for taxes paid in Canada. This prevents double taxation on various incomes like rental earnings, pension withdrawals, or investment returns. 

This agreement helps you to make sure that you stay compliant with the tax system of both nations, while also reducing your tax liability. 

Banking, Repatriation, and Account Conversion 

You need to adjust your banking structure in India once your residential status changes.

What Happens To Your NRE, NRO, FCNR, and RFC Accounts?

After becoming an Indian resident, you should:

• Convert your NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) accounts to Resident Rupee Accounts. 
• You may keep holding your NRO (Non-Resident Ordinary) account to receive income from Indian sources, like rent or dividends.
• If needed, open a Resident Foreign Currency (RFC) account to hold your Canadian Dollars (CAD) or other foreign currencies in India.

An RFC account is ideal if you want to keep some savings in CAD to use for future travel or expenses overseas. 

Tips for Repatriating Funds From Canada to India

You must mandatorily comply with both Canadian and Indian financial regulations while repatriating funds from Canada to India. Here are some tips to consider:

• Always try to use official banking channels to transfer funds, like SWIFT transfers. 
• Before your residential status changes to "resident", consider completing large fund transfers to simplify documentation.
• Keep detailed records of transactions, source of funds, and tax documents to use for future reference and compliance during tax assessments. 

Investments, Property, and Estate Planning After Moving Back

Upon returning to India, it is vital to manage both your foreign and domestic financial portfolios. 

Handling Your Canadian Investments 

If you own property or investments in Canada, you get three options:

• Keep the assets,
• Sell them before moving back, or
• Repatriate the proceeds to India. 

If you choose to retain the property in Canada and put it out for rent, remember that the rental income will eventually become subject to taxation in India after your RNOR period concludes. 

Additionally, you must consider your RRSP (Registered Retirement Savings Plan) or other pension accounts. Remember that withdrawals may be liable for taxation in Canada; however, they can be adjusted in India through the DTAA. 

Indian Property and New Investment Opportunities 

You can explore the following when you are settled in India:

• Mutual Funds and SIPs for long-term capital growth.
• Real Estate Investments in emerging Tier-2 cities. 
• Fixed Deposits, PPF, or NPS for stable and tax-efficient returns. 

Residency Status and Inheritance Planning 

Ensure to update your will, nominations, and power of attorney (POA) documents to show your new resident status. 

Try to include both Indian and Canadian assets in your estate plans to enjoy easy transfer to beneficiaries. In case you have dependents in both nations and you want to avoid legal and tax complications, ensure to do proper estate planning. 

Practical Checklist Before and After Moving Back to India

Here is a checklist of things that you must do before leaving Canada and after arriving in India:

Pre-Return Checklist (Canada to India)

Before leaving Canada, you should:

• Review and withdraw RRSP or pension funds (if eligible).
• Close or update Canadian bank accounts and subscriptions.
• File your final Canadian tax return and settle any dues.
• Gather property documents, tax records, and investment papers.
• Notify Canadian authorities and financial institutions regarding your permanent relocation.

Post-Return Checklist (After Arriving in India)

When you arrive in India, you must:

• Plan your first Indian tax filing as a resident.
• Declare foreign assets if you qualify as an ROR. 
• Convert your NRE/NRO/FCNR accounts to resident accounts.
• Update PAN, Aadhar, and KYC details in all financial institutions.
• Inform banks, employers, and the tax department about the change in your address and status. 

To Conclude 

Understanding the complexities of transitioning to a new residency status and relocating to India can be complex. That is when you should seek guidance from the experts at Savetaxs.

We have a team of expert CAs and professionals who are dedicated to assisting NRIs with all their legal, financial, and tax issues. Our team can guide you with everything you need to do when relocating to India from Canada, be it converting bank accounts, NRI ITR filing, or determining your residential status.

We will ensure you stay compliant and well-prepared with all legal matters, tax obligations, and financial planning. Contact our experts right away, as they are working 24*7 across all time zones.