Income tax impact on returning NRI

[Mahendra Chauhan]

I was in India for FY 2024-25 for 176 days. In the previous preceding four years I was in India for more than 365 days. During FY2024-25 I returned to India on 27-November-2024. Can I claim NRI as per FEMA? If no, then can I claim tax exemption on my NRE FDs from 01-April-2024 till 27-November-2024 for the FY 2024-25, as I was outside India till 27-November-2024.

Kindly provide your advise in how to deal with above situation to save tax. Any link or documents supporting above will be appreciated.

Just for your info: my year wise days in India :

FY 2014-2015 38.00

FY 2015-2016 12.00

FY 2016-2017 7.00

FY 2017-2018 11.00

FY 2018-2019 82.00

FY 2019-2020 366.00

FY 2020-2021 365.00

FY 2021-2022 223.00

FY 2022-2023 130.00

FY 2023-2024 179.00

FY 2024-2025 176.00

(The remaining days are outside India)
 

[Shilpi Jain]

Under FEMA the residential status is dependent on the intention of your coming to India.

So in FY 24-25 have you come back to India for good, or for employment/business or are you planning to go back and have come only for a temporary period?

Also, if you are looking at tax exemptions, then you should be looking at your residential status as per Income Tax law. Why are you looking at FEMA?

[Mahendra Chauhan]

I have come back to India for good.  I am looking for FEMA because as per my understanding under FEMA NRI status, I can claim NRE Interest income tax exemption. I was NRI as per FEMA as of 27-November-2024. Kindly clarify.

[Ryan Vaz]

Applicable Law / Circulars

FEMA (Foreign Exchange Management Act), 1999

Residential status under FEMA is governed by Section 2(v) and FEMA (Acquisition and Transfer of Immovable Property) Regulations, read with the general principle clarified by RBI that:

A person becomes a Resident in India (RBI terminology) when he comes to India for the purpose of taking up employment, carrying on business, or for any purpose that indicates an intention to stay for an uncertain period.

Day-count is not the basis under FEMA except for returning Indian nationals where the 182-day test applies.

NRE Deposit Interest Exemption

As per Section 10(4)(ii), Income-tax Act, 1961, NRE interest is exempt only if:

The individual is a Person Resident Outside India under FEMA, and

The deposits are maintained in accordance with RBI’s NRE Deposit Scheme.

Once FEMA residential status changes to Resident, the NRE interest becomes taxable from that date onward, and banks are required to redesignate NRE accounts as Resident or RFC accounts (RBI Master Direction – Deposits, updated 2023).

Short Practical Answer

(A) FEMA Status for FY 2024-25

Since you returned to India on 27-Nov-2024, your FEMA status depends on whether your return was:

(i) for permanent return / long-term stay, or

(ii) a temporary visit with intention to continue living abroad.

If your intention (documented) was not to permanently return to India, then you continue to be “Person Resident Outside India (PROI)” under FEMA up to the date you changed your intention.

However, if you returned to India permanently on 27-Nov-2024 (i.e., ceased employment abroad or shifted base), you become a Resident in India under FEMA from that date, irrespective of day-count.

(B) Whether NRE FD interest is exempt up to 27-Nov-2024

    Yes — if you were FEMA-NRI up to 27-Nov-2024, then:

NRE FD interest from 01-Apr-2024 to 27-Nov-2024 is exempt u/s 10(4)(ii).

From 28-Nov-2024 onward, NRE interest becomes taxable, and the bank should redesignate your NRE FD.

If you permanently returned on 27-Nov-2024, the exemption still remains valid till that date, because FEMA status changes only when intention changes.

AI Summary

NRE FD interest is exempt until the FEMA residential status changes to resident based on return intent. NRE deposit interest is exempt only while the individual remains a Person Resident Outside India under FEMA and the deposits conform to the RBI NRE Deposit Scheme; FEMA residential status depends on the intention to stay rather than day counts (except specific returning resident tests), and once FEMA status changes to Resident the bank must redesignate NRE accounts and interest becomes taxable from that date.