Managing finances can be tricky once you are out of your home country, especially if you plan to settle abroad for some time. Here are some money management tips for NRIs.
Managing finances can be tricky once you are out of your home country, especially if you plan to settle abroad for some time. When you live in a different country, you need to take care of many things to stay financially fit, such as bank account, investments, assets, taxes and a lot more things to ensure that you can manage your money efficiently.
Who is an NRI?
FEMA defines an NRI as someone who resides outside India for employment, carrying on business or vocation in circumstances as would indicate an intention to stay outside India for an indefinite period. A person will also be considered an NRI if his stay in India is less than 182 days during the preceding financial year.
So, what are some of the key things you ought to do before you leave the country and later have plans to settle abroad. Let’s check out 10 important money management tips that can help you as an NRI to stay financially strong:
1. Open a Different Bank Account Specially Meant For NRIs
NRIs are not allowed to keep their money in a normal savings account in India like a resident Indian. So, once your status changes from resident Indian to an NRI, you must convert your saving account to an NRO account to transact without any restrictions. You can use the NRO account to deposit all your income from ancestral asset or existing investments.
2. Important steps to follow before leaving India
Before you leave India, you need to assign a person who would take care of your property in your absence. It could be relative, friend, or even a caretaker in whose name you must leave written power of attorney to perform all the matters related to your asset in his absence. For example, if an NRI wants to lease out or sale a property in India, it may not be possible for him/her to come only to sign the documents. So, a representative who holds the POA can perform such work on behalf of the NRI.
3. Where can NRIs invest?
Investment rules for NRIs are very simple. They can easily invest in shares, real estate, mutual funds, bank FD etc.
At present, debt instruments are not very attractive for the NRIs in comparison to equity, mutual fund and the real estate market. The equity market is already making news highs and it is one of the best performing markets in the world. Likewise, mutual fund investment is also very attractive for the NRIs. In 2017, Indian mutual fund industry had witnessed largest-ever fund inflow.
The realty market is now safer than it used to be in the past. With RERA and GST implementation, NRIs can get huge benefits from the realty market. The realty sector is also getting lots of support from the Indian government and it is expected to grow consistently in the coming years.
4. Buying a property in India— what are the rules and restrictions
NRIs are allowed to buy real estate, including a commercial property or a residential property in India, but subject to the restriction that they are not allowed to purchase an agricultural land or a farmhouse. However, there is no restriction if NRIs inherit a farm land or agricultural property. It is mandatory that all transactions for property buying and selling happen through the Indian bank and in Indian currency. NRIs must obey the FEMA rules when buying or selling a property in India.
An NRI you cannot, however, buy more than two residential properties in India. There is no such ceiling on commercial property.
5. Is it fruitful for NRIs to buy a life insurance policy in India?
NRIs are allowed to buy an Indian life insurance policy subject to fulfilment of certain conditions. If you are planning to settle back in India or if you still have lots of connections that keep you attached to the country, then you can think of buying a life policy here. You must check the tax implication of such insurance policy in the country where you live. You should check the medical check-up requirement and whether insurance companies allow you a flexibility to submit the report from the country in which you live.
6. Buying a health policy
NRIs often looks for getting medical treatment in India, because they have entire family here back at home to take care. NRIs can buy a health policy in India, but it is important to take care of certain points. It is important to check the geographical coverage of the health policy, because you may also need the policy to get the treatment in your country of residence.
You can further claim the tax benefit under Sec 80 (D) for premium paid on health policy and reduce the tax liability for income accrued from India if any to that extent.
7. Managing your Loans
If you have existing loans in India, checkout the loan interest rate in the foreign country where you live. If interest rate in the said foreign country is lower than India, then take a loan from the foreign country and clear your loan in India. You can also do it vice-versa to close a loan in a foreign country if the loan from India costs cheaper.
8. Impact of currency fluctuation on loan and investment
You should be careful about the currency rate fluctuation when investing money in India or raising a loan. For example, if you invested $1000 i.e. Rs 63,000 (Let us assume $/INR=Rs 63) in an asset in India for 1 year, and that investment gave a return of 10% pa, but when you are redeeming the invested fund, the currency value changed to Rs 68/$. So, you would get Rs 69300, and after applying rate at Rs 68/$ after one year you’ll get $1019.11. It means you’ll get an effective return of only 1.9% pa. So, when you invest money or take a loan, you must be careful about currency fluctuation and take proper hedge to lower the risk.
9. Do you want to come back to India or settle abroad?
The biggest question you should ask yourself whether you want to stay in the foreign country or you want to come back to India. Depending on your decision, you can decide whether you should increase your investment exposure in India or not. If you plan to come back, then you can stay prepared by building an investment corpus in India and plan your taxes accordingly.
10. Take care of tax laws, investment scenario
As an NRI you need to take care of tax laws and investment scenario of both the countries, i.e. where you reside and India both. It is important that you strictly maintain a financial discipline and consult with a financial advisor on a regular basis.
(The writer is CEO at Bankbazaar.com)