From clearing home loan dues, to changing bank accounts and buying insurance locally, NRIs must take a systematic approach to their finances before packing their bags
Himanshu Rao, a 48-year-old non-resident Indian (NRI), lives in New York with his spouse and children. He now wants to return to India permanently. He has lived abroad for the past 20 years and had been working for a law firm. His spouse is a software programmer. In the middle of the COVID-19 pandemic, both Himanshu and his spouse lost their jobs. They have been unemployed since mid-March. Himanshu feels that this is the ideal time to return to India and hopes to start a new innings by working for companies here.
After international travel norms are eased by the Government of India (GOI), there may be thousands of NRIs like Himanshu who may feel the urge to return to India.
What are the financial aspects that must guide such decisions? Here is a checklist.
Seek employment in India before returning
The first thing NRIs must do is to apply for jobs in India. Himanshu has been building a network on social media, speaking to prospective employers and human resource consultants for the last two months. Says Himanshu, “It’s important for at least one person to have a confirmed job offer, so our monthly income is secured after returning to India. Also, this way, we will not dip into our savings and investments.” Harshil Morjaria, a certified financial planner at ValueCurve Financial Solutions says, “Looking for a job after returning to India may diminish your bargaining power and it may take a longer time to get a job offer than expected.”
Clear outstanding credit card debts
You should clear all outstanding dues on credit cards and close the accounts that you won’t be using in India. The balance outstanding on credit cards can keep doubling every one and half years in case the foreign bank charges 2.5 per cent monthly interest. Also, these cards attract annual charges irrespective their usage.
“Banks may trace you down and ensure recovery of total outstanding amount. They now have outsourced collection agents in India post the 2008-09 global financial crisis. Also, you may be black-listed from travelling to that country in future,” says Varun Girilal, Director at Mitraz Financial.
What if you are unable to repay the full amount due? “Approach the bank and try to settle your dues at 50 to 60 per cent of the outstanding amount,” says Lovaii Navlakhi, Managing Director and CEO of International Money Matters. But make sure you get a closure report from the bank. Settling for a lower amount with your bank may affect your credit score in the country of residence.
Ways to settle home loans overseas
Himanshu has a home loan with a tenure of 15 years. He serviced the loan for seven years. Before traveling to India, he is ensuring that his house is rented out, to service the home loan, if the amount is good. He plans to sell his house some six months after coming to India, by appointing an agency to take care of an auction on commission basis. “This way, you don’t have to do a distress sale of your house at a lower price in the present economic crisis,” says Girilal.
“Alternatively, he could discuss with the lending bank and negotiate to write off 10-15 per cent of the home loan dues,” says Navlakhi.
Managing bank accounts
NRIs returning to India permanently or planning to stay for a short period (one to three years) in India should manage the bank accounts wisely to avoid breaking Indian taxation norms.
They should open a Non-Resident External (NRE) savings account with a bank of their choice. “The ability to repatriate (send or bring back) funds to India in any currency, and the fact that interest earned on NRE accounts is tax-free, make these accounts popular with the NRI community,” Navlakhi says. With this account, foreign savings can be brought back to India. Interest income and balances in NRE accounts are exempt from income tax and wealth tax, respectively.
In addition to NRE savings accounts, you also have an option of booking foreign currency deposits. So, if you want to save your earnings in foreign currency, you can book Foreign Currency Non-resident (FCNR) deposit and earn interest in foreign currency. The deposit must stay untouched with the bank for at least one year. Interest earned on FCNR deposits is also tax-free in India until you have the ‘resident but not ordinarily resident’ status.
Veena Sivaramakrishnan, Partner at Shardul Amarchand Mangaldas says, “Within months of returning to India, you will have to reassess your existing FCNR / NRE accounts and consider RFC and other accounts, to optimise the manner in which money can be held as a resident within the prescribed debit and credit conditions for such accounts, to avoid any unintended violation under the Foreign Exchange Management Act (FEMA).”
Before returning to India, inform your foreign bank that you are no longer staying in that country. So, update the address at which you will stay in India and your contact details. Maintain the minimum balance if you continue to hold the bank account in the foreign country. “If you don’t maintain the minimum balance in the foreign account, then the bank may debit your account on a monthly or quarterly basis, as per norms,” Girilal says.
Purchase independent medical insurance cover
Whilst most NRIs have comprehensive health covers in their countries of residence, it is important to remember that if and when they choose to move back to India, getting insured is not easy, especially if they have any pre-existing illness. “Thus, it is tempting to defer the purchase of this cover to when it is actually needed. But, you are running the risk of not getting this insurance coverage benefit when you would want it in uncertain times,” says Vishal Dhawan, Certified financial planner and founder of Plan Ahead Wealth Advisors. Evaluate and buy a good health insurance policy.
Defer real-estate purchase in India
Property prices are weak and home loan interest rates have gone below 2008-09 levels. But is it the right time to buy a house?
Shajai Jacob, CEO-GCC, ANAROCK Property Consultants says, “NRIs are viewing properties in India from their homes via virtual site visits, speaking to developers and channel partners through video conferences, and paying booking amounts through online digital platforms.”
Planners such as Navlakhi recommend a rental stay for 6-9 months in India after returning, instead of buying a new home during these pandemic times. It’s important to find yourself a job or a sustainable income before you make any big-ticket purchases. Also, this gives you fair amount of time to decide whether you must stay in India permanently or return abroad once global economies recover after the pandemic.
Get expert advice; revisit your financial goalsIt’s important to consult a good financial advisor to help you settle your finances once you move back. Also, you must keep your financial goals in mind. “Remember, things will change substantially in your life after joining an organisation in India and you would be earning in rupees instead of dollars. Your financial plan needs to reflect these changes,” Dhawan says. You must not dip into your overseas savings.