Tips to manage your finances if you are settling abroad.
Tips to manage your finances if you are settling abroad.
It’s quite common these days to see people move abroad to settle down. Settling abroad is an exciting, but a complex task, especially when it comes to your finances. Taking care of a few financial things, among others, will ensure a smooth transition. Here are some financial steps you must take before you leave the country.
- Close or re-designate bank accounts- From the day you leave the country to settle abroad 180 days later,, you will be considered a Non-ResidentIndian. Your Savings Bank Account, Fixed Deposits, and Recurring Deposits either need to be closed or converted into non-resident (ordinary) rupee accounts (NRO).
- Any income generated in India -including rental income, interest, dividends etc. will be deposited to your NRO account thereafter.. If you plan to send money back to India after moving overseas, you need to do it through a non-resident rupee (NRE) account. Both NRE and NRO are rupee accounts and you would need to submit relevant documents to ensure your accounts are know-your-customer (KYC) rules compliant.
- Clear existing loans and debts- If you have any existing debt orCredit Card bills, it is important to put provisions in place to clear all dues before you leave India.
- Do not discontinue all insurance abruptly- Many individuals end their Life and Health Insurance plans abruptly before moving abroad. This leaves them unprotected until new plans are bought overseas. You can continue paying premiums by giving an ECS mandate to your bank for timely payment. In fact, it is advisable to continue Health Insurance in India if you have plans to come back. You can also check with your insurer if the plan is valid in the country you are relocating to.
- Close PPF Accounts- In case you have PPF accounts, NRIs are not allowed to add to the same. Its best these accounts are closed and money withdrawan before the status changes to NRI.
- Give power of attorney to a trustworthy person- While you might decide to close most of your accounts, there can be some financial connections which you might want to maintain. You can maintain such financial accounts smoothly by giving the power of attorney (PoA) to a trustworthy person, who can then overlook any legal or financial work in India on behalf of you.
- Open a portfolio investment scheme account(PIS)- You can invest in the Indian stock market by opening a portfolio investment scheme (PIS) account with a bank. However, an individual can open only one account for buying and selling stocks. Also, remember that NRIs are not permitted to carry out day trading or short selling. For Mutual Fund investments, check if the respective fund houses allow investment from an NRO account. Your DEMAT account needs to be closed after becoming an NRI. Don’t ignore taxation.
- Taxation will depend on the -number of days spent in India in the financial year. Check with a tax consultant to understand your tax liabilities for the year to ensure a smooth transition from being an Indian resident to an NRI.
- Before you move out of the- country, be aware of the effect the shift will have on your money and make a checklist to ensure your transition is smooth.
- Update your bank account- Your savings bank account is meant for resident Indians. When you move abroad, your residency status will change from resident Indian to non-resident Indian. In such a scenario, you need to either update the existing savings account to non-resident (ordinary) account or open a new account as a non-resident while closing the existing one.
There are three types of-
1.Non-resident accounts that you can operate in India: non-resident ordinary (NRO) account, non-resident ‘external’ rupee account (NRE), and foreign
currency non-resident (FCNR) account.
2.An NRO account allows you to hold- the income accrued from India. The upper ceiling for repatriation to an NRO account is up to $250,000 per year. An NRO account pays an interest rate similar to a normal savings account, which is 4 per cent presently. This account can be opened by submitting a copy of your passport, a photograph, and a copy of your visa or work permit.
3.An NRE account, on the other hand- allows you to repatriate a higher amount without the limitations applied to an NRO account. The deposit in this account is held in rupees, therefore the corpus kept in such account is subject to currency risk. An NRE account allows an interest around 7-8 per cent. You can deposit both the income accrued from India as well as abroad in an NRE account.
An FCNR account is similar to an NRE account with the difference that it also allows deposits in foreign currencies. The interest income from NRE and FCNR accounts are not taxed in India.
- Manage your investments - Take stock of all your investments before moving out of India. Make a decision about which investments you want to hold and which ones you want to liquidate.
If you have a DEMAT account with a resident status, you need to close it once you become an NRI. You have the option to open an account called Portfolio Investment Scheme (PIS) and transfer all your holdings to it before you get an NRI status.
- If you have a property in India- you can continue to hold it or liquidate it before shifting. There is no restriction on holding a property when your residency status changes. You are also allowed to sell the property once your residency status changes to non-resident but subject to restrictions that agricultural land or a farm house cannot be sold to a person other than a resident citizen in India.
- If you have somebody in India- whom you can trust completely, give them the power of attorney (PoA) to act on your behalf to execute your transactions related to property, investments, and insurance.
- Update your KYC status- It is very important to update the KYC status for every financial product you hold, such as mutual funds, insurance policies, bank accounts, etc. Once you leave the country, your address and residency status, both, change, and therefore it’s important to update your KYC.
- Evaluate the insurance cover- Before your status changes to non-resident, ensure what all is covered in your health insurance policy outside the country limits. Normally, health insurance companies allow treatment within the country. But there are policies that also cover medical treatments in foreign lands. It is also important to evaluate your cover size. If it not adequate, increase it before your residency status changes. You can also decide to continue with your current policy if you want to retain a health cover when you return to the country.
- In case of a term insurance- policy, companies usually cover death risk at all locations in the world, but it is important to read the terms and conditions of the insurance policy to better understand if any locations may be excluded.
- Do not forget to update your KYC- details with your existing insurance company before you move to another country.
- Debt and tax management- Try to close loans before you shift to another country. In case you have outstanding loan balances after shifting, try to ensure timely repayments since any instances of default would stay on your credit record for several years. You can provide a trusted person the PoA to manage your debt, and this would help you immensely after you leave the country.
- You might have income-generating- assets and properties in India. Any income accrued from India after you move to another country will continue to be taxed in India. Therefore, if you have a PoA looking after your responsibilities here, they can be asked to fulfil your obligations every year. While leaving India, you may be asked to provide clearances from the tax department in a specified format.
- Before you shift out of the- country, enlist the tasks you need to complete before you leave. Once left undone, those things may remain pending for a long time after you shift. Also,if you hold a credit card with geographical limitations, get it converted to an international credit card or surrender it. Keep in touch with your Indian care takers regularly once you get shifted to the foreign country.
- Many Indians who have decided or- are planning to move abroad have worked in the country at some point in time. Additionally, they would have made investments and would be unsure as to what would happen to them when they change their residence to another country.
- While the interest earnings won’t-be taxable in India, you will have to find out your tax implications in the country you chose to settle down based on their rules regarding foreign investments.
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