The United Kingdom (UK) has been more than just a place to work or study for a lot of Indians. It has been a home for numerous Indians for decades. However, in recent years, numerous NRIs (Non-Resident Indians) have decided to move back to India for personal, professional, and financial reasons.
This relocation needs careful planning, doesn't matter if you are returning permanently or temporarily. Apart from planning the journey, you need to take care of several other things as well. It includes understanding your residency status, tax obligations, banking conversions, and asset management across both nations.
In this blog, we will help you navigate every financial and legal aspect of your relocation from the UK to India.
Key Takeaways
- NRIs return to India due to an emotional connection with home, professional opportunities, low-cost living, etc.
- Your residential status serves as the basis for understanding how your income will be taxed in India.
- Under the DTAA, you can claim tax credits in India if you have paid taxes in the UK.
- Convert NRE and FCNR accounts into resident rupee accounts upon arriving in India.
- Repatriate funds using only official bank channels like SWIFT or wire transfer.
Why are NRIs Moving Back to India from the UK?
India's fast-paced economy, emotional connection to home, and strong family values are some of the key reasons behind an NRI's return to India. However, there are many more reasons motivating NRIs for this reverse migration.
Common Reasons for Moving Back to India
Here are some of the most common motivations that attract NRIs back to India from the UK:
- Family Ties: The wish to live close to parents or raise children in Indian culture is the most common reason behind an NRI moving back to India.
- Career Options: India's fast-growing corporate and startup ecosystem offers a wide range of professional roles in various dynamic fields.
- Cost of Living: Many NRIs find India more affordable for enjoying a comfortable living and planning early retirement.
- Retirement and Lifestyle: India offers community support, healthcare affordability, and emotional comfort.
Understanding Your Residential Status in India
It is crucial to determine your residential status in India, as it serves as the basis for understanding how India will tax your income. Under the Indian Income Tax Act, 1961, an individual can be classified into:
- Non-Resident (NR): Only Indian-sourced income is taxed.
- Resident but Not Ordinarily Resident (RNOR): Indian income, as well as certain foreign income is taxable.
- Resident and Ordinarily Resident (ROR): Worldwide income is subject to taxation in India.
How is Residency Status Determined?
You will be considered a resident if you:
- Stay in India for 182 days or more in a financial year, or
- Stay in India for 60 days or more in a financial year and 365 days or more in the previous four years.
Initially, most NRIs returning from the UK will qualify as RNOR for up to two years. This offers them tax relief on their overseas income for a temporary period while they settle back.
Tax Implications for NRIs Returning From the UK
The UK has one of the most structured tax systems worldwide, and relocating back to India means adjusting to new taxation rules.
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What Happens to Your UK Income Upon Return?
- When you hold the RNOR status, only your Indian income and specific Indian-sourced earnings are subject to taxation.
- Foreign income remains tax-exempt in India during the RNOR period, such as a UK salary, dividends, or property rent.
- Once you get the ROR status, your worldwide income (including UK income) becomes subject to taxation in India.
India-UK Double Tax Avoidance Agreement (DTAA)
India and the United Kingdom have signed a DTAA. This tax treaty will ensure that you don't pay tax twice on the same income. Here are some of the key benefits under DTAA:
- Tax Credits: You can claim tax credits in India if you have already paid taxes in the UK.
- Income Allocation: Certain income types are taxed only in one country, such as dividends, royalties, and capital gains.
- Avoiding Double Taxation: DTAA provides clarity on where your income will be subject to taxation.
Example: When staying in India, if you rent out your property situated in the UK, the income received will be taxed in the UK first. However, you can claim a tax credit for it in India.
Banking, Repatriation, and Account Conversion
When you return permanently, you need to reclassify your bank accounts and manage fund transfer properly according to the guidelines of the RBI.
What Happens to Your NRE, NRO, and FCNR Accounts?
Once your residential status changes:
- Convert NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) accounts into resident rupee accounts.
- Keep using your NRO (Non-Resident Ordinary) account to manage income received from India, such as rent or dividends.
- If you still hold funds in foreign currency, then you must consider opening a resident foreign currency (RFC) account to keep them in pounds.
RFC accounts are specifically for those individuals who may have recurring UK income or wish to hold funds in foreign currency.
Repatriating Funds from the UK to India
Repatriation means transferring your savings or investments in India legally. Here are the steps you need to follow when transferring funds from the UK to India:
- Transfer funds through official bank channels to your Indian NRE/NRO accounts, like SWIFT or wire transfer.
- Maintain records of the source of funds. It can include employment income, property sale, or investments.
- Before converting your accounts, consider transferring funds to simplify tax handling.
- Avoid physical transfer of significant sums; instead, try to rely on regulated banking channels for increased transparency.
Managing Investments, Property, and Estate Planning
To ensure tax efficiency and financial security after moving back to India, make sure to transition your investment correctly.
Property in the UK
If you own a property in the UK, you can either:
- Sell it before returning and transferring the proceeds to India.
- Rent it out for a steady income (taxable in the UK), or
- Hold ownership as a long-term investment.
If you decide to sell, you will be liable for UK Capital Gains Tax (CGT). You can transfer the proceeds to India using official banking channels with proper documentation.
UK Investments (Pensions, ISAs, Shares)
- Pension: UK pension withdrawals may be taxed in the UK. However, you can report it under DTAA to prevent double taxation.
- Stocks and ISAs: Individual Savings Accounts (ISAs) are tax-exempt in the UK. However, it will be taxed after you get the ROR status in India.
- UK Bank Accounts: You may keep the UK bank accounts active, but the interest earned will become liable to taxation in India (once the RNOR phase concludes).
Investment Opportunities in India
You have the option to explore India's fast-growing market after you settle back in India:
- Mutual funds and SIPs for long-term returns.
- Fixed Deposits and Bonds for stable growth.
- Indian Real Estate, as a strong investment and emotional anchor.
- Public Provident Fund (PPF) and National Pension System (NPS) for retirement security.
Ensure to update your PAN, Aadhar, and KYC before investing to show your new 'resident' status.
What are the Common Challenges NRIs Face When Returning from the UK?
Here are some of the key challenges that an NRI might face while moving back to India from the UK:
- Complex tax reporting between the UK and India.
- If DTAA is not used properly, you might face double taxation issues.
- Difficulty in transferring pensions or closing accounts.
- Complications in selling a property and transferring funds.
- Compliance errors in investment due to a change in status.
Try to plan your move at least 6-12 months in advance and maintain clear documentation to avoid facing these issues.
Pre-Return and Post-Return Checklist
Consider this pre-return and post-return checklist when relocating to ensure accuracy and compliance:
Pre-Return Checklist (Before Leaving the UK)
- Sell or rent out UK property and vehicles.
- Recheck insurance and healthcare coverage.
- Transfer funds using official banking channels.
- Inform your UK employer and finalize your last tax filings.
- Close or maintain UK bank accounts based on your needs.
- Gather all pension details, P45/P60 forms, and investment statements.
Post-Return Checklist (Upon Arrival in India)
- Convert NRE/NRO/FCNR accounts to resident RFC accounts.
- Check health insurance, property, and investments in India.
- Update PAN, Aadhaar, and KYC across all institutions.
- If you are classified as ROR, ensure to report foreign assets.
- File Indian Income Tax Returns under the correct residential status. (RNOR/ROR).
- Reassess retirement and estate plans under Indian laws.
Expert Advice
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The Bottom Line
Moving back to India from the UK involves both emotional and financial transitions. Proper planning and preparing everything correctly can help you minimize tax burdens, comply with laws, and save your wealth. Update your banking accounts, understand your residency status, and transfer funds carefully. A well-planned and well-structured plan will ensure a smooth transition back to India.
Furthermore, if you need any more assistance with understanding NRI tax obligations and financial planning, contact the experts at Savetaxs. We have a team of expert professionals with years of knowledge and expertise in this field. They can assist you with determining your residential status, converting bank accounts, and much more. You can contact us 24*7 across all time zones and stay relaxed while getting the best quality service you deserve.
Note: This guide is for informational purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA, or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.
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