Financial Planning Steps for Non Resident Indians

by Vpalkar CA V Paalkar & Co.

Are you planning to go abroad and become an NRI? Today you are a Resident Indian. Tomorrow you may become an NRI if your employer provides an opportunity. When an opportunity like this knocks at our door, are we ready to face the change? Are we prepared?

Have You Taken These Financial Steps Before Becoming An NRI?

Creating a Checklist or ‘to-do list’ helps to ensure consistency and completeness in carrying out a task. Becoming an NRI is a major transition that definitely needs a checklist. Here is a personal finance checklist to be taken care of before departing from India.

NRO & NRE ACCOUNT:

The first thing to do is to convert your savings bank account to an NRO or NRE account. An NRO or non-resident ordinary account is like an ordinary savings bank account that gives a domestic rate of interest. This account can be used for depositing your domestic earnings like rent, interest and dividends, and remittances from abroad into this account. Cheques can be issued for EMI and investment, but there are restrictions for transferring money to the country of residence. Money in this account is non-repatriable.

You can transfer current income earned in India, but the transfer of sales proceeds of property and investments can be only to the extent of 1 million $’s a year. A certificate from a chartered accountant, declaring that all taxes have been paid has to be furnished. It is important to note that an NRO account invites a tax of about 30.9% at source.

An NRE or non-resident external account can be opened with foreign currency when you wish to transfer substantial money to the country of your residence. There is neither restriction to remittance nor any taxes in this account, but you would only get a low rate of interest. This account offers no facility to receive incomes in the shape of rent, interest, and dividends, but you can make local payments in rupees, invest money and receive proceeds from the sale of investments and property.

It is much easier to open both these accounts in India, with you requiring giving 2 passport size photographs along with a copy of your passport and visa. In case you are already abroad, it is mandatory to get an attestation from the Indian Embassy or Notary before sending it to the bank branch.

DEMAT ACCOUNT

The next step is to close your domestic Demat account and open a non-resident ordinary (NRO) Demat account under the Portfolio Investment Scheme (PINS). This is mandatory, as there are restrictions to the amount of investment that an NRI can make in the shares and stocks in Indian companies; it should not exceed 5% of the paid-up capital of any Indian company. You need to transfer your existing shareholdings also into this account.

You have the option of 2 types of separate Demat accounts namely for repatriable and non-repatriable shares and this account is to be separate from other bank accounts. Your Demat service provider would help you with the submission of copies of your passport and visa. Once you return back to your country you can close the PINS Demat account.

Power Of Attorney:

The third step is to give the power of attorney to someone you trust in India to manage financial transactions in bank accounts, buying and selling real estate, renting out a property, and signing up tax forms. The power of attorney could be general, where the authority entrusted holds good for banking as well as real estate transactions, or could be specific, where the authority is restrictive to only certain transactions. Consulting a lawyer and submitting attested copies to the concerned people like banks and mutual funds proves essential.

Update your NRI status in Various KYCs:

The last step is to inform the mutual fund, bank, and insurance companies by submitting the updated Know Your Customer forms stating your change of status as a non-resident Indian. Your Financial Planner and Iagent and bank branch could help you best regarding the different formalities that are required.

By:- V Palkar & Co