Before leaving India to work in a foreign country, it makes sense to close some ' to do' money issues.
Soham Financial Planners
Ritesh was at his desk, both elated and confused. Being an IT professional, the news of being considered for a top-notch onsite assignment was something he was looking forward to since a long time, however he was a bit perplexed as to how is he impacted by change in residential status changes and what all paperwork & formalities are required which he can close before leaving India.
Increasing globalisation has enabled exponential rise in employee mobility and unlike the past, now-a-days its commonplace to hear that so and so is going to US or UK for a long term assignment. For a person who is planning to leave India, there is not a great deal of awareness on the regulatory angle involved & how he/she can organise better to take care of the same. Hence, in this article, I’ll be suggesting some to-do’s that one can add to his/her list while planning to move out of India.
1. Re-designate your savings bank account as NRO:
RBI rules categorically state that when a person resident in India leaves India for any purpose indicating his intention to stay outside India for an uncertain period, his existing account should be designated as a Non- Resident (Ordinary) – NRO Account.
NRO account is just like a bank account which may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts. The account may be held jointly with residents and / or with non-residents and can also be operated by a resident power of attorney holder subject to conditions. While the principal of NRO account is non-repatriable, current income and interest earning is repatriable. Further NRI may remit an amount, not exceeding USD one million per financial year, out of the balances and credits in that account.
NRO accounts generally earn savings bank rate of around 4%. Interest earned is taxable at the rate of 30.90% and bank deducts TDS at this rate. To open an NRO account, you need to submit self-attested copy of passport, photograph, and copy of visa/ work permit.
2. Open an NRE account:
Since whatever money you put in NRO account cannot be repatriated beyond a limit, if you are looking at funding some of your goals like child’s education etc. in a foreign currency, you should open a separate Non Resident External (NRE) account. Proceeds in this account can be repatriated freely without any limit. This is a rupee account hence note that your savings corpus will still remain exposed to currency risk. Interest rates on NRE account is de-regulated and presently stands around 8%.
3. Purchase the right insurance covers:
It makes good sense to evaluate your insurance coverage and buy insurance policies BEFORE becoming NRI given the fact NRIs do face issues in buying insurance once they shift outside India. Read the fine print & check the geographical coverage of policies: while life insurance policies cover death globally, in case of health insurance and personal accident policies, it states that claim is payable only if treatment is taken in India. If you already have an insurance policy, it’s a best practice to inform the insurer concerned of a proposed re-location and address updation to ensure continuity in servicing and claims.
4. Open a PPF account, if you haven’t:
Public Provident Fund (PPF) is a great investment avenue for long term wealth creation. As per extant rules, NRIs cannot open PPF. However, they can continue investing in the existing PPF accounts. So, open a PPF account before becoming NRI. If possible, open the PPF account with a bank which will ensure that even after moving out of India, you can transfer funds to that PPF account by adding it as a beneficiary to your bank account. Contributions can be made through your NRO or NRE account and maturity amount is allowed to be repatriated to your country of residence subject to limits. Also note that while interest earned in PPF is tax-free in India, it might be taxed as per local tax laws of the host country.
5. Demat account:
As per extant RBI guidelines, an NRI can invest in Indian shares only through the Portfolio Investment Scheme (PIS) on a repatriable/ non-repatriable basis. So, in case you have a resident trading account, you cannot transact from that account once your status changes to NRI and it needs to be closed. So, plan of action can be as follows: open a new PIS account and transfer all your holdings in that account and then close your resident trading account.
6. Other useful points:
• Give a power of attorney to a trusted person in India.
• Convert your credit/ debit card to international card. While buying a new card, ensure that there is no mark-up fee for expenses in India or abroad.
• Re-do your KYC in mutual funds for the new residential status and open a single folio in your short-listed Asset Management Companies (AMCs) in India & get the transaction PIN so that you can carry out the transactions from outside India as well.
• Activate international roaming on your existing number so that you do not face One Time Password (OTP) related issues while transferring funds from your bank accounts in India.
Re-locating outside India is definitely some work. While one plans the trip and associated things, if one also draws up a checklist for to-do’s on financial aspects, it can greatly help avoid the undue hassle and pain of paperwork that may result & especially where family members back in India may not be equipped to perform. As for Ritesh, as he was waiting at the airport for his flight, a realisation that he’s closed most of the open items in the financial checklist brought a smile on his face & he felt a lot happier, calmer and confident of his financial well-being.
The author is a member of The Financial Planners’ Guild , India (FPGI). FPGI is an association of Practicing Certified Financial Planners to create awareness about Financial Planning among the public, promote professional excellence and ensure high quality practice standards.