Once a person moves abroad, a change in his residential status, i.e. from being resident Indian to Non-Resident Indian (NRI), has direct impact on his financial life. Irrespective of whether it is a permanent or temporary move, NRIs have to deal with two set of rules — that of their country of residence and of their citizenship. Here I will list some of the crucial financial steps required on becoming an NRI:
Open NRE accounts for overseas earnings
Convert your existing bank deposits to NRE/ NRO account as soon as your residential status changes to NRI. NRE account allows you to send your overseas earnings to India. Such rupee-denominated account can help take care of your financial obligations back in India, including daily expenses of family members, payment of children’s school fees and investments. In addition to this, it also helps in benefiting from higher interest rates in India.
NRE account can be savings, fixed and recurring deposits. Both principal and interest components in such account are exempt from tax in India. Moreover, you can also repatriate both principal and interest components back from India to your country of residence. Route your investments through this account if you would want it to be repatriated in future.
Open NRO accounts to manage earnings originating in India
NRO accounts are also rupee-denominated accounts aimed at NRIs who wish to deposit their earnings arising in India from rent, salaries, dividends, etc. These accounts can also be opened as savings, fixed or recurring deposits. However, unlike NRE account, interest earned from these accounts are taxed as per the tax slab of the investor. Similarly, there are restrictions on the amount that can be repatriated to the country of residence. Only balances of up to $1 million per financial year (April- March) can be repatriated in a financial year, subject to the Foreign Exchange Management (Remittance of Assets) Regulations, 2016.
Review your existing mutual fund investments
A change in your resident status will require you to re-evaluate your investments in mutual funds. Once your residential status changes to NRI, start by updating your KYC documents with the new residential status and overseas address in your mutual fund and demat accounts. Fresh investments from your offshore earnings will then be routed through your NRE account whereas investments made from income sources in India will have to be routed through the NRO account. Remember that NRIs residing in the US and Canada will no longer be able to make fresh investments with most mutual fund houses as they avoid the complex compliance requirements of those countries.
Can continue with subscription of your existing PPF A/c
As far as PPF is concerned, NRIs cannot open new accounts. However, those who already have existing PPF accounts opened during their status as resident Indians can continue to make investments till the maturity period, i.e. 15 years. They will earn the same rate of interest as the resident Indians. Being a security with sovereign guarantee, PPF can be an excellent investment instrument for risk-averse NRIs creating corpuses for their long-term financial goals.
Open Portfolio Investment Schemes (PIS) for making fresh investments in equity shares
In case of shares and debentures, NRIs can purchase and sell shares of Indian companies through the Portfolio Investment Schemes (PIS). However, no intraday or short-selling is allowed through the PIS accounts. Shares brought through the NRE account and sold thereafter can be repatriated abroad while those routed through the NRO account cannot be repatriated. Their existing shares, prior to the change in their resident status, can be held on non-repatriation basis by transferring them to NRO demat account. These shares can be sold in the secondary market without requiring PIS permission and their sale proceeds can be credited to their NRO savings account.
Check out the jurisdiction of your existing insurance policies
Having insurance policy is always essential regardless of the country of your residence. Life insurance policies are very much valid even if death occurs outside India, except for maybe a few risky countries. Hence, communicate your change in residential status with your existing life insurance policy and make sure the cover is applicable in the country you have moved to. If not, purchase a fresh plan from an overseas insurer.
Same goes with your health insurance plans. Continue with your existing health policies offered by Indian insurers as that will be helpful while visiting or moving back to India in the future. However, ensure to buy a health cover abroad if your existing health policies in India do not provide cover overseas. Insurance companies consider NRIs to be more risky as it is very difficult for the companies to corroborate facts in case of a claim. Hence, most of the companies decline such cases. For those who offer such covers, they usually cap the sum assured and/or restrict it to certain specified treatments.
(The author is CEO & Co-founder, Paisabazaar.com)