What Would be Your Residential status on Returning to India?

When you return to India, your NRI status is treated as RNOR (Resident but Not Ordinary Resident) for 2-3 years. Once your status becomes ROR (Resident and Ordinarily Resident) status, you will not get the earlier tax benefits applicable to NRIs and NORs, including the tax benefit on foreign income. If you have come back to India for the purpose of permanent stay in India, then you will become a resident right away under the Foreign Exchange Management Act (FEMA).

Reporting Requirement for NRI Returning to India

The new tax regime under Section 115BAC is the default regime. Therefore, if the NRI taxpayer wants to select the old tax regime, then they must file Form 10-IEA and must disclose the same to their new employer. An acknowledgement of Form 10-IEA must also be reported to the new employer in India. Additionally, report all active bank accounts in the ITR.

ITR Requirement for NRI Returning to India

• Make sure you select your correct residential status (Resident, RNOR, or Non-Resident).
• Make sure your PAN (Permanent Account Number) is linked with your Aadhaar card. This is mandatory for ITR filing, except for a few conditions.

Changes in ITR Forms for FY 2024-25

New Relief for Foreign Retirement Accounts such as:

• Now, under section 89A, if India has a Double Taxation Avoidance Agreement (DTAA) with that country, you will be allowed a deferral of tax in India until you actually withdraw the money. To use this relief, you must submit Form 10-EE before filing your ITR.
• The new ITR forms for FY 2024-25 now have specific fields to report such deferred foreign retirement income and claim this tax relief under Section 89A.

Foreign Asset (FA) Disclosure Requirement for NRI

The filing Schedule FA (Foreign Assets) in your ITR depends on your residential status.

• If you qualify as ROR, you must disclose your foreign assets in the India Income Tax Return.
• If you qualify as NOR or NR, then you do not need to fill out Schedule FA.

What if NRI Does Not Report Foreign Assets?

If an NRI returning to India does not disclose their foreign assets, they might have to face the following consequences:

• If you fail to disclose foreign assets or income, you may face a penalty of Rs. 10 lakh per asset per year under Section 43 of the Black Money Act.

• On non-disclosure of foreign income or assets, you will be taxed at a flat 30% rate with no deductions under Section 3 of the Black Money Act.

• If you submit wrong information in an ITR, then this can lead to imprisonment for up to 7 years along with a penalty under Section 277 of the Income Tax Act.

• If you intentionally evade tax, then this can lead to imprisonment for 3 to 10 years. under Section 51 of the Black Money Act.

• In case of ineligible compounding, some offences under the Black Money Act are non-compoundable.

• If you do not set off losses of exemptions, you might not get any deductions or exemptions for such foreign income or assets under the Black Money Act.

Take a look at these important points to clear up confusion.

• The Rs 10 lakh penalty applies even if you have not earned any income from the foreign asset.
• There is no limit for disclosure in Schedule FA, even a dormant foreign bank account with a small balance must be reported in Schedule FA.
• The penalty for non-disclosure is judged year-wise and asset-wise, therefore, it can multiply rapidly.