When Non-resident Indians (NRI) decide to return to India permanently, it involves more than just moving families and job careers. Along with this, it brings with it important financial, legal, and regulatory considerations. From understanding the difference between tax residency and FEMA residency, to shareholding and succession planning, every step requires attention.
This case study shows how our team of professionals guided an Indian-origin professional returning from the USA, helping them plan a smooth transition.
After staying in the USA for several years, the Indian origin professional planned to return to India permanently in September 2025. This family approached us with concerns, such as:
- Determining tax and FEMA residency status during the transition year.
- Structuring directorships and shareholding in Indian companies.
- Planning for succession and asset protection through trusts.
- Exploring ways to retain or create wealth outside India before becoming a resident.
Tax Residency vs FEMA Residency:
Under the Income Tax Act, 1961, residency is based on the number of days stayed in India. Under FEMA, 1999, once a person returns to India for permanent stay, they are treated as a Resident from that day.
Directorship Eligibility:
If FEMA and Tax residency status do not align, immediate induction as a director can create compliance issues. Operational involvement can instead be facilitated by making the individual a bank signatory.
Shareholding and Investment Structuring:
Direct equity holdings are permitted, but excessive direct shareholdings can create succession and transfer challenges. A family trust was recommended to hold shares beyond a modest percentage.
Succession and Trust Planning:
A discretionary family trust was advised for succession, asset protection, and continuity. It remains revocable during lifetime and becomes irrevocable after death, ensuring stability for beneficiaries.
Overseas Wealth Planning Before Returning:
While still an NRI, funds up to USD 250,000 annually can be remitted abroad under LRS. Setting up a Dubai entity was considered but only recommended if backed by genuine business needs. US-based assets were also simplified to reduce cross-border compliance after residency.
- FY 2024-25: Non-resident (Tax & FEMA), not on board as director, up to 9% direct shareholding.
- FY 2025-26: Resident (FEMA), likely resident (Tax). Directorship to be evaluated, shareholding maintained at 9% direct through trust, trust established as discretionary family trust.
- While Still an NRI: Remit up to USD 1 million abroad under LRS, consider Dubai entity only for strategic reasons, realign US assets for simpler compliance.
- Tax & FEMA residency are different and should be planned separately.
- Directorships and shareholding should be phased to avoid compliance issues.
- Trust structures provide succession planning, asset protection, and continuity.
- NRI status provides a window to create offshore wealth before residency changes.
- Early planning ensures a smooth transition, compliance, and wealth preservation.
After years of living abroad, returning to India is a significant challenge, both personally and financially. At KDP Accountants, we create customized roadmaps for NRIs planning to return, covering taxation, FEMA compliance, succession, and cross-border structuring.
Reach out to us at enquire@kdpaccountants.com. With decades of experience, we help individuals and businesses make confident financial decisions in India or abroad.
