Personal finance

Personal Finance Checklist for Those Becoming NRIs

Indians have always been allured by foreign countries, with some of them wanting to visit or probably settle down forever. For some Indians, these dreams turn into reality when they get the opportunity to follow new avenues and explore their talent. The host country is also benefited when a skilled and capable professional decides to move there, hence they are always ready to welcome Indians with great enthusiasm. The status as a Non-Resident Indian (NRI) is different under Foreign Exchange Management Act (FEMA) and the Income Tax Act. According to FEMA, someone becomes an NRI if they decide to move overseas professionally or for an indefinite period.

Becoming an NRI can be full of hassles and a bit rough if the execution is not done with proper planning, as it means to accept a new identity and responsibilities in a foreign land. If someone is moving overseas in the near future, they can plan with without any trouble. Here is a detailed checklist of the things that need to be settled before the move.

  • Bank Account

Redesignate the existing resident bank accounts to a Non-Resident Ordinary (NRO) Account. If an individual has multiple resident accounts, this is the perfect time to consolidate accounts. Managing multiple accounts when you are abroad and ensuring that all of them are properly listed for taxes can become a challenging task. Chose one account as an NRO account for India related income in the form of rents, pensions, etc. Additionally, a Non-Resident External (NRE) Account needs to be opened which can be used to remit money without compromising the repatriation of funds.

  • Bank Lockers

If an individual plans to store valuables and documents in India only then keep the bank lockers. Otherwise, it will be an unnecessary annual cost to bear.

  • Real Estate

As India doesn’t have high-quality property management services, managing real estate can become a bit complex. Think about the long term plan, temporarily renting real estate is a very popular practice in these scenarios. Things like maintenance bills, utilities, and monthly instalments need to be taken care of beforehand.

  • Demat Account

Along with the normal bank accounts, the Demat accounts also need to be redesignated. Being in a different country, it could be troublesome to manage the equity portfolio. Liquidating it or seeking a professional’s help may prove useful in such cases. The Indian government and RBI have various restrictions on NRIs to invest in the Indian market. Some of those are:

  • An NRI cannot hold more than 10% of paid capital of an Indian company
  • NRIs are allowed to invest in Initial Public Offers (IPOs) of Indian companies in repatriation and non-repatriation Demat accounts
    • Repatriation Account: An account where NRI can hold securities purchases via repatriable funds. The money, in case of a sale, will automatically go to the NRE account
    • Non-Repatriation Account: The security here is held via money that is non-repatriable. In case of a sale, these funds will go into the NRO account.
  • Mutual Funds

It is important to update the Know Your Customer (KYC) before becoming an NRI. Also, update the folio as a non-resident and link it with your NRO bank account to avoid any form of confusion in the future. Also, similar to the Direct equity portfolio, consider using a professional based on individual needs. In countries like the US, owning mutual funds might not be most efficient in terms of taxation. So, the country you’ll be moving to also plays a crucial role in this decision.

  • Insurance Plans

Inform the insurance company regarding the move. Life insurance and Health insurance needs to be handled a bit differently for example:

  • Health Insurance

It will be wise to not give up health insurance immediately. As someone might need to come back for medical treatment and pre-existing illness. It is critical to ensure all the premiums are paid on time because these policies can’t be revived once lapsed

  • Life Insurance

Setup proper electronic instructions for the premiums of life insurance plans. Evaluate the importance of multiple policies and only keep the ones that are crucial. Some of the policies can be converted to paid-up wherein, fresh payments are not necessary and the policy is still kept as active. It is advisable to keep the important policies for the time being as it would not be possible to immediately get fresh policies abroad.

  • NRI Taxation

Ensure that the current taxes are paid off and appoint an official with thorough knowledge of handling NRI taxes. A person from abroad can also help the advisor in India in dealing with cross-country taxations.

  • PPF Account

In case someone already has a PPF account, it can be managed via NRE/NRO accounts. Once an individual gains the status of an NRI, it is not possible to open a new PPF account. So, this is the right time for someone who doesn’t have a PPF account and wishes to open one.

  • Joint Accounts

In case of a joint account where an individual is a primary holder with a spouse or any other Indian resident, the account gets converted to an NRO account. In case the individual is a secondary holder, the account gets converted to a formal or survivor basis. The individual can not access such accounts until the primary holder is alive.

Leaving India and moving to a different country comes with its own set of pros and cons. However, with proper planning, you can save yourself a lot of hassle.

If you have any questions, please ask below!