Becoming an NRI? Here’s a personal financial checklist for you
People are always searching for better career opportunities. Often, people get the opportunity to move abroad for career advancement. If you have found a suitable scope for yourself outside India, then a whole new world is waiting for you. You’ll start arranging a lot of things since you’re going to leave India. As you are becoming an NRI (Non Resident Indian), it would not be out of place to focus on organizing your personal financial matters in the right manner. It’s natural to have concerns related to your residential status and its impact on your finances. Addressing your personal financial matters in a planned manner always helps. As Financial Advisor in Kolkata, we are sharing a basic personal financial checklist for people who just have become or are becoming an NRI soon.
As per Foreign Exchange Management Act and Income Tax Act, you need to take certain steps as you are becoming an NRI regarding the following:
- Bank Accounts & Debit/Credit Card(s)
- Investments
- Insurance
- Loan
- Power of Attorney
- Income Tax Return Filing
Bank Accounts & Debit/Credit Card(s)
You need to intimate your bank so that existing resident Bank Accounts are redesignated to non-resident ordinary (NRO) Bank Accounts.
Basically, NRO Bank Accounts allows you to park your earnings from India in Indian currency. You can deposit in foreign as well as Indian currency and withdraw in Indian currency. You may use NRO Bank Account for your India-related incomes such as rent and dividends, etc. Any payments towards insurance premiums, EMI, etc. availed while you were in India can be done from NRO Bank Accounts.
You need to open a non-resident external (NRE) Bank Account to remit money from overseas for dependants’ care and investments, etc. You should opt for NRE Accounts if you want to hold or maintain your overseas earnings in Indian currency.
NRE Bank Accounts enables you park your foreign earnings in India, in Indian denomination. You can deposit in foreign currency, and withdraw in Indian currency.
Money from NRE Bank Accounts is freely repatriable i.e. both the Principal amount and interest earned are freely and completely transferable. Funds from the NRO Bank Accounts can be repatriated post payment of applicable taxes with a limit of USD 1 million in a financial year.
You may continue to be a joint holder in your spouse (non-NRI) or any other non-NRI relative’s a/c.
If you want to park your idle funds (Forex) in India, you can open FCNR (Foreign Currency Non – External) Account.
Availing internet banking facilities shall enable you to initiate transactions smoothly.
You need to convert your Debit/Credit Card(s) to international cards.
Investments
a) Know Your Customer (KYC) & The Foreign Account Tax Compliance Act (FATCA): You need to mandatorily update your KYC and FATCA.
b) Fixed Deposits: Existing Fixed Deposits are to be converted to NRO Fixed Deposits.
c) Public Provident Fund (PPF): NRI cannot open PPF account. But, existing investors, after becoming an NRI, can continue to invest in PPF till maturity only. The facility to extend PPF account after completion of 15 years is not available to NRIs. The payment towards PPF account can be done from both NRE and NRO Bank Account.
d) Mutual Funds: Once Re-KYC is done, change of tax status is to be updated in all asset management companies where you have your investments. Thereafter, it’s ideal to link your existing investments in Mutual Funds with your NRO Bank Account. Taxation aspect cannot be neglected. After becoming an NRI, tax rules with regard to investments in Mutual Funds change. As SEBI Registered Investment Advisor in Kolkata, we are of the opinion that you should revisit your Financial Plan while you are becoming an NRI. This would allow you to realign your investments with your financial goals which may be changing partially.
e) DEMAT Account(s): You need to close your Resident DEMAT Account and open new DEMAT Account as an NRI. There are two types of DEMAT account available for NRIs i.e. Repatriable DEMAT Account & Non – Repatriable DEMAT Account.
Repatriable DEMAT Account is an account where an NRI hold securities which are purchased with the money which is repatriable. When you sell any share, your money will automatically get processed to your NRE Bank Account. Non – Repatriable DEMAT Account is an account where an NRI hold securities utilizing money that is not repatriable. Sale proceeds will be going to NRO Bank Account only.
f) National Pension Scheme (NPS): NRI can open and invest in NPS.
Insurance
a)Term Life Insurance: If you are already having a term life insurance, you should inform the company about the change in your residential status. Otherwise, in case of any mishap, there would be issue with regards to claim settlement.
If you are yet to buy term life insurance, it’s ideal to proceed while you are in India.
b) Health Insurance: People are of the opinion that there’s no point continuing health insurance policy in India if you are becoming an NRI. They feel that they can take a fresh policy once they come back to India. As Certified Financial Planner in Kolkata, we strongly believe that your health buys you insurance and not your money alone. What if you are not medically fit to get insured once you come back to India? Thus, if you have plans to come back to India, you should take a new or continue your existing health insurance policy in India.
Additionally, you should opt for suitable health insurance in the country of residence.
c) Other general insurances: As Financial Consultant in Kolkata, we would recommend that you should definitely continue standard fire and earthquake insurance for your residential properties in India and of course your motor insurance in case you own a car in India.
Loans
You can continue to pay monthly installments through ECS from NRO Bank Account.
Power of Attorney
There can be many matters which would require your presence in India after you have become an NRI. It may not be possible for you to travel back to India very often. The issue can be addressed through Power of Attorney.
In Power of Attorney, you are giving legal authority to another person to initiate financial transactions and to take financial decision on your behalf. It can be entering into agreement for rental income from properties, purchase and sell of shares, real estate properties, etc.
Filing Income Tax Return
As a thumb rule, you must file an Income Tax Return in India if your Gross Income is more than exemption limit or Rs 2,50,000 (assuming you are less than 60 years of age).
Becoming an NRI? Know what to do about your finances
Once you move abroad, you’ll have to focus on various matters in your place of residence. So, as leave India, if you can wrap up personal financial matters in India, the transition would be smoother.
