- Date : 27/09/2018
- Read: 6 mins
Stepping into a new and exciting chapter of your life abroad will become easier if you take care of your financial matters first
So you’ve realised your dream. Whether it’s studying in a foreign university, bagging a job opportunity overseas, or marrying someone who lives and works abroad, your family is proud of you and you’re on cloud nine. But before you head off to become an NRI, there’s a list of things you should do.
1. Bank accounts
Make a list of bank-related products that must be dealt with before you leave.
a. Non-resident ordinary (NRO) account
- As an NRI, it would be mandatory for you to convert your savings account into an NRO account. It works like any other savings account but with a few restrictions. With an NRO account, you can do the following:
- Deposit any income generated in India – be it rent, or earnings from investments, such as interest and dividends
- Pay your EMIs and insurance premiums
- Repatriate or transfer money to an account outside India. However, you can only repatriate up to $1 million per calendar year from your NRO account.
- You can also use your NRO account to handle your travel expenses within India and provide for your parents and other family members.
b. Non-resident external (NRE) account
- Your NRO account won’t allow you to send money from a foreign country to India. If you plan to do this often, open an NRE account. This can be a savings account, current account, or a fixed deposit account.
- NRE accounts don’t have any upper limit on deposits and transactions. You cannot make payments in India through this account, but you can make payments from whichever foreign location you choose to move to.
c. Cards and loans
- While you’re allowed to continue to hold both domestic and international credit cards issued by banks in India, you should only consider this as a short-term measure, or at least until you have built up a good credit score in the country you’ve moved to. Expenditure abroad on your card must be settled through your NRO or NRE account. If you have any credit card debt, it is advisable that you pay it off before you leave.
Similarly, you can continue settling your loans through your NRO or NRE account.
2. Life insurance
If your stint abroad is for a limited period and you intend to return home, it makes sense to stick with your existing policies. Ensure the direct debit facility is activated through your NRO account to pay for your insurance plan. But if you don’t plan to return, you should consider buying a fresh plan in the country you’re moving to.
f you have a term plan, check whether your insurer provides coverage in your chosen foreign location. If not, buy a new insurance policy abroad.
If you have a savings-cum-insurance scheme, such as unit-linked insurance plans (ULIPs) or traditional investment products, you need to look at the costs and ease of administering it. If the premiums are large and returns relatively low, you may be better off discontinuing a few policies and investing either in new ones or in products in your new country.
3. Health insurance
Your health insurance policy bought in India would be valid only in India. So, unless you are planning to go abroad only for a short period, buy health insurance in whichever country you’re making your new home.
a. Update your KYC
When it comes to investment and saving products, this is probably one of the first things you should do, as there are different procedures for Indian residents and NRIs. If you don’t inform institutions you have a relationship with about your new residential status, you’re likely to face problems if you want to make any changes to your portfolio.
As an NRI, you’re not allowed to source funds from a resident Indian account – all dealings must be through your NRE account.
b. Take stock of Mutual Funds
Not all fund houses allow you to hold your investments after your residential status changes to NRI. So check with your provider(s). If they let you continue, you can hold those investments through your NRE account.
c. Shares, stocks and bonds
If you wish to continue trading in Indian stocks, you’ll have to do so through the Portfolio Investment Scheme (PIS) – a Reserve Bank of India (RBI) scheme that allows NRIs to invest and trade in the Indian stock market.
This now happens as a matter of course for most financial products, but you should review the situation and confirm that you have nominees for all your financial assets. You wouldn’t want the fate of your assets to be uncertain, with nobody to claim them!
6. Communication and alerts
You may not be able to retain your local mobile number when you go abroad. Even if you do, you may incur exorbitant charges on maintaining the number. For alerts related to banking, insurance, and utility payments, it is best to use e-mail as the primary mode of communication.
Auto debits and transactions can be securely managed through the banking portal or mobile applications.
Be sure to communicate and discontinue mobile contact with all said parties to ensure that no misuse or fraudulent activity is carried out with your mobile number.
7. Tax implications
- The change in residential status will impact your tax liabilities as well.
- All income generated in India (transacted through the NRO account) will be liable for taxation as an ordinary resident citizen.
- Interest earned on the NRO account is taxable too.
- You can avail of reduced tax benefits under Double Taxation Avoidance Agreement (DTAA)
- Income, gift, wealth, and interest income from NRE accounts are exempt from tax.
- Considering all assets and income sources, it is best to seek advice from an expert who can help streamline and optimise your tax liabilities.
Getting your finances in order before boarding your flight will ensure a smooth transition. Getting things sorted can be a time-consuming process, so it is advisable to start as early as possible so you can enjoy a stress-free last few days in town with your loved ones.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or insurance or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.