If I have changed my citizenship and opened an NRI accounts. I earn intrest for NRO FD accounts. Which ITR I need to file as Foreign citizen but having NRO deposits erned intrests.

Ans: Interest earned on NRE FDs is exempt from tax till the time a person is non-resident in India as per provisions of FEMA, 1999. As you have come to settle in India, for the purpose of taxing FD Interest income, you may be treated as a Resident and entire Interest income may be taxed.

Regarding filing income tax return, person is required to file Income tax return in following scenarios:

1. If income is above Rs.2.5 lakh in a Financial Year; or

2. Further following specified persons are also required to file income tax return even if earned income is below Rs.2.5 lakh: 

a. People with Sales turnover of Rs 60 lakh and above from Business

b. Professional income exceeding Rs 10 lakh

c.  TDS or TCS of Rs 25,000 or more (Rs 50,000 or more in case of senior citizen) - even if person don't want to claim refund

d. Deposited at least Rs 50 lakh in one or more savings accounts

e.  Deposited amounts exceeding Rs 1 crore in one or more current accounts

f.   Spending above Rs 2 lakh on a foreign country travel Electricity bill exceeding Rs 1 lakh

g. Where there is an income from foreign sources for resident

h. Return filing is mandatory if you are a Resident individual and have an asset or financial interest in an entity located outside of India

i.   If you are a Resident and a signing authority in a foreign account  

Apart from above, it is also advised to file ITR in following situations, if same is applicable in your case:

• If TDS is deducted by payer of income, filing income tax return makes you eligible to claim refund with interest @6% p.a. - If person wants to carry forward certain loss to future years, it is advisable to file return
• Proof of return filing is also asked when a person applies for a loan or a visa. So in future, if you are planning to apply for the same, it is advisable to file income tax return if you have earned reasonable income which makes you eligible for application.

Ans: Having recently transitioned from being an NRI to a resident Indian, you need to reassess your financial strategy. Your situation includes Rs 20 lakhs in an NRE account and ordinary non-NRI accounts in other banks. Let's explore what steps you should take and the tax implications involved.

First, commend yourself for keeping track of your financial assets. Transitioning from NRI to resident status involves several adjustments, and you are on the right path by seeking guidance.

Transitioning Your Accounts
NRE Account
As a non-resident Indian, you were eligible to hold an NRE account. Now, as a resident, it is essential to convert your NRE account to a resident account. Here are the steps:

Inform the Bank: Notify your bank about your change in residential status.
Convert the Account: The bank will help convert your NRE account to a resident savings account or an RFC (Resident Foreign Currency) account, if applicable.
Ordinary Non-NRI Accounts
You already have ordinary non-NRI accounts, which is good. Ensure that all your accounts reflect your current residential status correctly to avoid any legal or tax issues.

Tax Implications
Interest on NRE Account
When you were an NRI, the interest earned on the NRE account was tax-free in India. As a resident, the interest income from these accounts becomes taxable. Here's how it will be taxed:

Interest Income: Interest earned on the converted NRE account will be added to your total income.
Taxation: This interest income will be taxed as per your applicable income tax slab rates.
Ordinary Non-NRI Accounts
The interest earned on your ordinary non-NRI accounts is taxable. Ensure you report this income in your annual tax returns.

Investment Strategy
Now that your status has changed, it's time to revisit your investment strategy. Here's how you can effectively manage and grow your Rs 20 lakhs:

Systematic Investment Plan (SIP)
Investing in SIPs can be a good way to grow your funds over time. SIPs provide the benefit of rupee cost averaging and compound interest.

Diversified Portfolio
Diversifying your investments can help balance risk and returns. Consider a mix of:

Equity Funds: For long-term growth.
Debt Funds: For stability and regular income.
Hybrid Funds: For a balanced approach.
Fixed Deposits
While FDs provide security, they generally offer lower returns. Allocate a portion of your funds here for stability and liquidity.

Tax-Efficient Instruments
Consider investing in tax-efficient instruments such as:

ELSS (Equity Linked Savings Scheme): These funds offer tax benefits under Section 80C and have the potential for high returns.
PPF (Public Provident Fund): Offers tax benefits and long-term savings.
Financial Planning
Regular Review
Regularly review your financial portfolio to ensure it aligns with your goals and changing market conditions.

Certified Financial Planner (CFP)
Working with a CFP can provide personalized advice, periodic portfolio reviews, and help with rebalancing your investments.

Staying Informed
Financial Literacy
Continue educating yourself about financial products and market trends. This empowers you to make informed decisions and enhances your financial planning.

Compliance and Reporting
Income Tax Returns
Ensure you report all your income, including interest from all accounts, in your income tax returns. This compliance is crucial to avoid any penalties or legal issues.

Foreign Income
If you have any foreign income or assets, ensure they are reported correctly in your tax returns.

Final Insights
Transitioning from NRI to resident status involves significant financial adjustments. Converting your NRE account, reassessing your investment strategy, and understanding the tax implications are crucial steps. Regular reviews and working with a Certified Financial Planner will help optimize your financial health. Stay informed, compliant, and strategic in your financial planning to achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in