The month you land
Your NRE account stops being tax-free the day you land.
Not when your RNOR period ends. Not when you get round to the paperwork. The day you arrive intending to stay. This is the FEMA side of moving back — which accounts must change, which can be left alone, and the one provision that lets you keep everything you built up abroad.
Two clocks
FEMA residency changes the day you land. Income-tax residency runs on day counts and may lag by years.
The leak
NRE interest stops being exempt on arrival, not when RNOR ends. Most people discover this a year late.
The myth
Returning does not force you to repatriate anything you acquired while you were abroad.
FEMA decides which accounts you may hold, and its test is intention — you are resident the day you return to stay. The Income-tax Act decides what you are taxed on, and its test is day counts, which can leave you non-resident or RNOR for another two or three years. Nearly every costly mistake in this part of the move comes from applying one rulebook's answer to the other's question.
Account by account
What changes, what stays, and by when.
Three of these are obligations. Four are things people change unnecessarily, at a cost.
NRE savings and term deposits
Must changeRedesignate to a resident rupee account, or move the balance into an RFC account.
The exemption on NRE interest applies to a person resident outside India under FEMA. It stops the day your FEMA status changes — not when your RNOR period ends. This is the single most expensive misunderstanding of the move.
NRO account
Must changeRedesignate to a resident rupee account.
NRO interest was always taxable, so nothing changes on the tax side. The redesignation is a FEMA obligation, not a tax one.
FCNR(B) deposit
Leave itLet it run to maturity at the contracted rate. Move the proceeds to RFC when it matures.
You do not have to break it. Interest on a foreign currency deposit with a scheduled bank is exempt while you are not ordinarily resident.
RFC account
Now availableOpen one, and use it as the destination for foreign currency you are not ready to convert.
Interest is exempt while you are RNOR and becomes taxable once you are ordinarily resident. Balances stay freely repatriable with no LRS limit attached.
NRI demat and PIS permission
Must changeConvert the demat account to resident status. Portfolio Investment Scheme permission ends with your non-residency.
Gains are taxed as a resident from then on, and TDS at NRI rates stops applying.
Mutual fund folios
Must changeUpdate residential status and the bank mandate with each AMC or registrar.
TDS is otherwise deducted at NRI rates on redemption regardless of your actual liability, and you spend the year reclaiming it.
Foreign bank and brokerage accounts
Leave itKeep them. FEMA lets you continue to hold foreign assets acquired while you were non-resident.
Income on them stays outside Indian tax while you are RNOR, and can be retained abroad rather than repatriated.
Property owned outside India
Leave itKeep it. The same provision covers immovable property acquired while you were non-resident.
Rental income is sheltered during the RNOR window and becomes taxable in India once you are ordinarily resident.
Foreign currency notes brought back
Must changeDeposit into the RFC account.
Holding foreign currency outside the permitted routes is a FEMA matter, and the permitted window is short.
PPF, NSC and small savings
Now availableAvailable to you again as a resident.
An account you had to leave dormant as an NRI can generally be operated again, subject to the scheme's own rules.
The account nobody mentions
What an RFC account is for.
A Resident Foreign Currency account lets a returning resident hold foreign currency in India without converting it. Banks rarely offer it unprompted.
Why it matters
What it gives you
- Holds foreign currency as currency, so arriving does not force a conversion decision at whatever rate that week happens to be
- Freely repatriable, with no LRS limit applied to money that was already yours
- Interest exempt for as long as you remain not ordinarily resident
- Already offshore-usable if you end up moving abroad again
Ask for it by name. It is not part of the standard account-opening conversation and most branches will not raise it.
What can go in
Where the money comes from
- Balances in your NRE and FCNR accounts when your status changes
- Pension, superannuation or other monetary benefits from an overseas employer
- Proceeds of assets and investments you held abroad while non-resident
- Gifts or inheritance received from a person resident outside India
- Foreign exchange you bring back with you on return
An RFC account is not the same as an RFC (Domestic) account, which is a different facility with narrower sources and no interest. Confirm which one you are being opened.
The myth worth killing
You do not have to bring any of it back.
FEMA expressly permits a person resident in India to continue holding foreign currency, foreign securities and immovable property abroad where those were acquired while they were resident outside India, or inherited from someone who was. No repatriation is required and no LRS limit applies to what is already yours.
- Bank accounts opened while you were non-resident
- Shares, funds and brokerage holdings acquired while abroad
- Immovable property bought while you were non-resident
- Assets inherited from someone who was resident outside India
- Income earned on all of the above, which may be retained abroad rather than brought back
The sequence
What to do, in what order.
Most of this is a single afternoon of forms, done once, in the right order.
Tell every bank you have moved back
FEMA status turns on intention, not day count. The moment you arrive to stay, you are resident under FEMA even though you may be RNOR for income tax for another two years. Notify each bank in writing and keep the acknowledgement — the obligation is yours, not theirs.
Decide currency before you decide accounts
The real question is not which form to sign but whether you want to hold dollars or rupees. Redesignating an NRE account converts it. Moving the balance to RFC does not. Decide the currency view first and the paperwork follows from it.
Redesignate rather than close
Closing an NRE or NRO account and opening a fresh resident one loses the account history that banks and registrars use to match you. Redesignation keeps the relationship intact and is what the rules contemplate.
Let FCNR deposits run
An existing FCNR deposit continues to maturity at its contracted rate. Breaking it early to “tidy up” usually costs interest for no regulatory benefit. Plan where the proceeds go instead.
Convert the demat account and the folios
Demat status, Portfolio Investment Scheme permission, mutual fund folios and the bank mandates behind them all need updating separately. Each one left as NRI keeps deducting TDS at non-resident rates you will spend the next year reclaiming.
Leave your foreign assets where they are
There is no requirement to repatriate foreign accounts, investments or property acquired while you were non-resident. People sell perfectly good holdings in the belief that returning forces their hand. It does not.
Update KYC everywhere at once
Address, status and bank mandate with every bank, AMC, registrar, insurer and depository. Doing it in one pass while the documents are assembled is far faster than discovering each stale record when a transaction fails.
Work out your window first.
The account changes here are driven by your arrival date. The planner works out how long your RNOR period runs from the same date, and what depends on it.
Idopia Services Pvt Ltd is an AMFI Registered Mutual Fund Distributor, ARN-331653. This page is educational and does not constitute tax, legal or investment advice. FEMA account rules and the tax treatment of each account depend on individual facts and are amended from time to time. Confirm your own position with your bank and a qualified chartered accountant before acting.