How should an NRI handle investments and accounts in India before shifting?
This article shows you the steps to follow to once you become an NRI regarding your accounts in India.
This article shows you the steps to follow to once you become an NRI regarding your accounts in India.
Disclaimer: Taxation and NRI related rules is a dynamic concept, and the content of this article is valid on the date of publication (02-Feb-2022, post budget 2022). The list here is meant to provide a checklist and is not meant to be exhaustive or handle all edge cases. Readers should perform their due diligence, specifically in the context of taxation laws in their respective countries.
There are several steps to be followed when you become an NRI to ensure things run smoothly and you follow applicable laws. Also, you do not wish to waste time in banks and government offices every time you visit India, and so do these now before you shift. Once you shift abroad, follow these steps to take care of your elderly parentsā finances in India: How can NRIs easily manage their parentsā finances in India?.
Join our WhatsApp community: You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.First, you need to update the new KYC (resident > NRI) and FACTA status with the KYC Registration Agency (KRA). You can locate the form here.
Second, you need to inform each bank, Demat account, credit card, loan provider, AMC, insurer and NPS provider regarding your status change.
To comply with Foreign Exchange Management Act (FEMA) rules, an NRI cannot have a regular savings accounts in India. Therefore, you must convert existing accounts to NRE or NRO accounts. Excess accounts must be closed.
This account is used to send money to India. The features and uses are:
This account is used for any income and investments in India. The features and uses are: The features and uses are:
FCNR accounts come later and is not a step when emigrating.
This bank account, also called a FCNR(B) account, can be used to have tax-free FDs in India:
As per FEMA rules, the resident demat account must be closed and a new NRI demat account must be opened and shares transferred the new account. Two types of accounts are available for stock trading:
The PIS account is also known as Portfolio Investment (NRI) Scheme or PINS.
PIS account have restrictions like not being able to sell bonus shares (which have to be transferred to a non-PIS account for selling).
If you are an NRI wishing to buy stocks in India, a Non PIS account is the recommended route:
While dividends can be credited to both NRE or NRO accounts, things might be complicated in case a transfer to the NRE account fails and a cheque needs to be sent to the registered address.
Due to these reasons, a NRO bank account and a non PIS account is the recommended combination for stock investment.
You need to inform the AMC of the KYC change. The rules here are a bit more complex depending on the country you are shifting to.
Due to the Fair and Accurate Credit Transactions Act (FACTA), there is a requirement of reporting of financial transactions of all US-linked citizens, including NRIs, to the US government. If you are shifting to the US or Canada, you can only invest in funds run by Aditya Birla, ICICI, Franklin Templeton, PPFAS, Reliance, SBI, Tata, and UTI. The list may change, so please check the latest rules. Investors shifting to other countries will not have such issues.
Do not mix and match folios and type of accounts to avoid problems:
Taxation of mutual funds will be identical as residents, like this, but there will be TDS on the redemption amounts at the same rates. The proceeds of the sale will come to the NRE or NRO account. NRIs have an option of using DTAA to avoid paying tax again on the same income in their home countries.
Tax filing, compliance and investing for global income can be complicated for NRIs. Instead, assets held by the family in India, received as remittance and then invested, can be simpler to manage. LRS rules ($250,000/year) apply if you plan to remit that money out of India again.
It is important that the rules for creating PIS/non-PIS accounts and mapping folios to NRE/NRO accounts are done carefully to avoid delays and hassles. It will be easier to handle customer service
This section uses the amendments in the PPF act made in 2019.
A PPF account offers tax-free growth of capital and offers tax-free (no tax in India) withdrawals, even in the case of NRIs. The account stays active once you shift outside India and can accept further contributions on non-repatriable basis. NRIs, like Resident taxpayers, can also claim 80C deduction for PPF in case they are filing returns in India. The account will provide the same rate of interest that residents get.
The account will mature in the usual way after 15 years and the maturity amount will be deposited in the NRO account. This is not taxable in India but you should check, depending on your resident country, if you need to pay any tax on foreign income.
If the account has been operating for more than five years, NRIs can close it after producing a passport and visa copy or IT return.
Restrictions: Two restrictions exist for NRIs:
When the girl-childās status changes from resident to NRI, then the status of the SSY account changes to closed and interest will not be paid further. New SSY accounts can only be opened by residents or NRIs once they come back to India and become residents. The girl child needs to be a resident Indian to either open a new SSY account or continue an existing account.
Existing NPS investments can continue. The withdrawal rules are the same as residents:
There is no benefit in opening a new NPS account as NRI if an NPS account is already not present or investing large sums in NPS. However, an NRI can keep an existing account active by investing ā¹1000/year NRO accounts.
NRIs cannot contribute to the EPF account. However, the EPF account will continue to accrue interest up to age 58 and will then get paid out into the NRO account.
But given that you are shifting out now and are technically no longer employed in India, you can withdraw the EPF entirely without any restrictions or penalties. This is applicable to those shifting abroad for at least several years to deploy elsewhere or use for shifting.
If you are not in India to undertake tasks like signing lease documents (for a rented house) or similar activities, consider giving a Power of Attorney (PoA). PoA can be General (applicable to everything you want to do like banking, tax filing, real estate transactions) or Specific (applicable to a single task from the examples in the General PoA case). PoA should only be granted to trusted individuals and useful for real estate transactions. The PoA can also be done in an Indian embassy if you missed this before shifting.
For real estate transactions, it is helpful to register the PoA in the same state as the property and give PoA to a parent or close family member.
It makes sense to retain an Indian number to receive OTPs. Switch to yearly prepaid plans and leave the SIM in India with a trusted family member. It is possible that the operator may randomly disable the SIM if it is outside India for too long. There have been cases where the SIM stops working after a few months being abroad, even with payments made on time, and can be replaced only once you visit India thereby locking you out of your accounts.
ID cards like Aadhaar, PAN, voter id card and driving license can be kept as is. To prevent misuse, lock down biometrics using UIDAI website. Ensure that the SIM linked to Aadhaar stays active to receive OTP.
Any ongoing membership plans in gyms, mobile/broadband postpaid, OTT platforms must be cancelled. Mobile phones should be converted to prepaid plans.
Bank lockers should be closed unless you have someone in India who is a joint holder and will operate the locker by physically visiting the locker once a year. Banks have the option of breaking into inoperative lockers even if rent is being paid. Read more here.
It is convenient to have an Indian card to pay for local expenses when visiting or gifting online. You need to have an NRO account to pay the bill and an Indian mobile number to receive OTPs. You can close an excess number of cards and keep only one to keep things simple. Ensure that you have family in India to receive new cards and PIN letters for that card and update that address in the card issuerās records.
You can pay loans like home, car and personal loans out of either NRE or NRO accounts.
Term insurance policies generally have global coverage and should be continued. You need to ensure that the payment goes from an active bank account in your name and is not linked to a credit card that you might cancel later. Contact the insurance company to change your premium to an annual payment mode to reduce operational issues like payment failures. If there is a payment failure or something else goes wrong in renewal, there will be a requirement of a medical test to reinstate the policy which will not be possible from outside India.
Endowment, whole life and ULIPs should either be surrendered or made paid up. Do not waste additional money in paying the premiums for their meagre returns. You do not need to inform the age. Instead, visit the nearest branch to get this done.
If your health insurance provides coverage outside India, it can be continued until you get settled in the new country and have your own health insurance. If you are planning to perform some procedures in India in the future or come back after a few years, then it will be good to keep the Indian policy active.
It is good practice to let the insurer know about your change in status from resident to NRI. If there is a geographical restriction clause in the policy, then you can let the current Indian policy lapse and take new policy abroad quickly.
You must have travel insurance to cover any gaps in the time you fly out and get a local health insurance policy.
You should file returns every year since your Indian income is taxable in India. Indian income includes:
Interest income in NRE and FCNR accounts is tax-free in India.
You must file a return compulsorily if the taxable income exceeds the current exemption threshold of ā¹250,000. If there is no income, you may file a nil return.
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This post titled How should an NRI handle investments and accounts in India before shifting? first appeared on 02 Feb 2022 at https://arthgyaan.com