What happens to the money you built abroad

Ask around about returning to India and you will hear two rumours. The first says you must bring everything home — close the accounts, sell the investments, repatriate the lot. The second says nothing changes at all. Both are wrong, and both are wrong in ways that cost money. The law is more exact than either rumour, kinder than the first and stricter than the second.

Two bodies of law are at work, and they answer different questions. The Income-tax Act decides what is taxed — the Income-tax Act, 2025 from Tax Year 2026-27 onwards, the erstwhile Income-tax Act, 1961 for income up to 31 March 2026. The Foreign Exchange Management Act, 1999 — FEMA — decides what you may hold, and in what form. Each has its own definition of who is a resident, and the two do not move in step. It is entirely possible to be one thing under FEMA and another under the Income-tax Act in the same year. Muddling the two is the most common confusion returning families bring us.

You become a FEMA resident when you return to stay

Under FEMA, the question is not a count of days but the nature of your return. When you come back to India to stay, you become a “person resident in India” for exchange-control purposes. From that point, the rules that governed you as a person resident outside India — the rules under which your NRE account, your foreign investments and your foreign property were all set up — stop describing you.

That sounds ominous. Mostly, it is not.

The keeping rule

s.6(4) of the Foreign Exchange Management Act, 1999 — note the Act; the Income-tax Act has its own, entirely different s.6 — permits a person resident in India to hold, own, transfer or invest in foreign currency, foreign security or immovable property outside India, where it was acquired, held or owned while that person was resident outside India, or was inherited from a person resident outside India.

Read that slowly, because it answers the first rumour. What you built while you were abroad — the deposits, the shares, the retirement account, the flat overseas — you may generally keep, hold and go on dealing with. Returning to India does not, by itself, force a sale or a repatriation of assets legitimately acquired abroad. Foreign assets inherited from a relative who lived abroad are protected on the same footing.

The protection is for the assets. The accounts through which you hold money are a separate matter, and they do change.

What happens to the bank accounts

The familiar NRI accounts exist only for people resident outside India. On return, they change character.

An NRE account and an NRO account are redesignated as ordinary resident accounts. An FCNR(B) deposit may ordinarily run to its maturity. And one facility exists specifically for the returning resident: the Resident Foreign Currency account, or RFC account, which lets you hold foreign currency in India after your return — the proceeds of foreign deposits and assets, for instance — rather than converting everything at once.

Which balances go where, and in what order, depends on your circumstances, and the timing is specific to you. The practical instruction is short: tell your banks that your status has changed, and settle the account structure before you move large sums, not after. The character of an account can affect the tax on what it earns, so the sequence is worth planning rather than improvising.

The shares and the house abroad

Foreign shares, funds and property acquired while you lived abroad sit squarely inside the protection of s.6(4) of the Foreign Exchange Management Act, 1999. You may keep them, and you may deal with them.

The tax side runs on its own calendar, which our companion article on residence sets out. While you are “not ordinarily resident” — the status most returnees hold for the first two, sometimes three, tax years — income arising abroad generally stays outside Indian tax under s.5(1)(c) of the Income-tax Act, 2025 (erstwhile s.5), unless it is derived from a business controlled in India or a profession set up in India. Once ordinary residence begins, foreign dividends, foreign rent and gains on foreign assets are taxable in India at the rate in force, with relief where a tax treaty applies.

That boundary makes timing consequential. A sale of foreign shares, or of the flat abroad, can fall on either side of the line, and the two sides are taxed on different principles, sometimes by two different countries. There is no general answer to “should I sell before or after”. There is only your answer, worked out on your dates, your asset and the treaty between India and the country concerned.

The pension is the hard part

If one area deserves to be called genuinely difficult, it is retirement money. An employer retirement plan in the United States, a workplace or personal pension in the United Kingdom, an end-of-service benefit in the Gulf — each was designed inside one country’s tax system, with that country’s rules on when the money is taxed. Often the answer there is: not when it builds up, only when it is withdrawn.

India’s rules were not designed around these plans. Once you are ordinarily resident, Indian law takes its own view of what your plan is and when its income arises — and that view may not match the home country’s timing at all. The mismatch can mean the same money taxed in two countries, or taxed in India in a year when the home country considers that nothing has happened. Tax treaties, given effect by s.159 of the Income-tax Act, 2025 (erstwhile s.90), can resolve some of this; some treaties deal with pensions squarely, others leave gaps. The answer differs by country, by treaty, by the kind of plan, and by whether the money is drawn before, during or after the not-ordinarily-resident years.

We will not pretend otherwise: this is the corner of the subject where confident general statements are least trustworthy, ours included. A pension does not need a paragraph. It needs a worked analysis of the actual plan, the actual treaty and the actual dates, and nothing short of that is worth relying on.

When the reporting begins

For as long as you are not ordinarily resident, Indian law does not require you to file a return merely because you hold assets abroad. That changes when ordinary residence begins. Under s.263(1)(a)(ix) of the Income-tax Act, 2025, a resident other than a not-ordinarily-resident who at any time in the tax year holds any asset outside India — as beneficial owner or otherwise — or has signing authority over any foreign account, or is a beneficiary of a foreign asset, must file a return for that year regardless of income. Regardless of income: even a year in which you earn nothing does not excuse it.

Notice the breadth. Signing authority over an old joint account counts. Being the beneficiary of a foreign asset counts. The obligation attaches to holding, not to earning.

None of this is a reason for alarm — it is disclosure, not confiscation — but it is a reason for records. The first ordinary-resident return will ask for particulars of foreign assets that are slow to reconstruct from India: opening dates, costs, balances, statements from institutions no longer around the corner. The earlier years are the time to build that file. Families who use those years to gather paper have an easy first filing. Families who do not, do not.

Why generic advice fails here

It should be clear by now why this article keeps refusing to give you a rule of thumb. Residence under two different laws. Account decisions that turn on your particular banks and balances. A pension governed by another country’s system. A treaty that reads differently for the United States, the United Kingdom and each Gulf state. A reporting obligation that switches on at a date fixed by your own travel history. Two families returning to Kochi in the same month can need opposite advice, and each would be badly served by the answer the other found on a forum.

That is not a disclaimer at the end of an article. It is the finding of the article. On this subject the generic answer is not merely imprecise — it is the most expensive thing you can act on, because the sums involved are usually a working life’s savings and the decisions are hard to reverse.

We prepare written assessments for returning families: an inventory of your foreign accounts and assets, the position of each under FEMA, what becomes taxable in India and when, what the first disclosure will require, and a sensible order for the steps in between. Where a matter needs a professional we are not — an adviser in your former country of residence, or a chartered accountant for work reserved to that profession — the assessment says so plainly, and you appoint your own. It will not answer every question. It will tell you which questions are yours.