It is quite a step to move abroad from India for a considerable duration. The opposite is equally cumbersome.
There is no easy way out, and you would have to plan your financial matters carefully. It is best to have a plan and proceed according to that. A good strategy is half the battle. If you keep it all pending until the last minute, you’re setting yourself up for a disaster.
We help you with some tips.
Change in NRI Status and Your Finances
- Savings Account
As a resident Indian, it is easy to open a savings account. Walk into any bank branch (there are a few thousand across the country), present your KYC evidence (basic identity and address proof) and passport-sized photos, and walk out with a checkbook and passbook (or the promise of getting your checkbook delivered to your home within 7 days).
Unfortunately, as an NRI, you can no longer operate a regular savings account. This is prohibited by the FEMA Act of 1999. There are quite stiff financial penalties in place.
An NRI can take advantage of two kinds of accounts. The first is an NRO or Non-Resident Ordinary account. It is, in essence, a savings bank account for anyone who is not a resident Indian. The only practical difference is that foreign currency deposits can be made to an NRO account. However, you cannot transfer money out of India using an NRO account. An NRO can be held as a joint account with an Indian resident.
For transfer of funds, you would need a Non-Resident External account that allows outward remittances. At this moment, the maximum amount per year is $1 million.
The opposite is equally valid. When you return to India, you can no longer operate your NRO and NRE accounts. They have to be liquidated and the amount transferred to one or more savings accounts that you open.
- Demat Account
If you are going abroad for more than six months, you have to think about your stock holdings, too.
An NRI cannot operate a resident Indian Demat account. In any case, the Demat account would become inoperable because the savings account to which it is linked must change to an NRO or NRE account.
Fear not, since all brokers provide easy means to change a resident account to an NRI account. However, the process can only happen once they have moved abroad and are able to provide proof of address from the destination country.
Remember that the onus of changing a Demat account lies firmly with the owner and not the brokerage company. In case of oversight, you would have to pay a fine.
Usually, an NRI has to apply for a Portfolio Investment Scheme account. A PIS allows anyone to buy and sell shares in Indian stock markets, regardless of their location around the world.
Of course, a Demat account can be frozen. All bonuses and dividends would continue to be deposited, but the account itself will be inoperable. If you are not planning to buy shares in the near future (say, a few years), you could use this easy option.
When you return to India, the opposite applies. Your PIS account has to be surrendered and converted to an ordinary Demat account.
- Mutual Funds
Mutual funds require no extraordinary change in status as an NRI. Of course, you have to inform the asset managers that you are intending to go abroad and would, in the future, become an NRI.
If you are moving to the U.S., the asset managers would have to file FATCA, or Foreign Account Tax Compliance Act, declarations. This allows the U.S. and Canadian governments to track the assets of that resident in their country.
Many mutual funds do not want this complication. In that case, you would have no choice but to liquidate your position. If the fund does allow NRIs, you can continue as usual. The linked bank account would change from savings to an NRE or NRO account, as the case may be.
Is it easy?
There is nothing unusual about it. However, it is to be noted that all of the above are linked to an NRE or NRO account.
An Indian bank would not permit such an account opening unless you can provide proof of NRI status (copy of passport and visa) and foreign address. Neither are available until you are actually abroad.
Although the overseas branches of banks and brokers do help as much as possible, it is best to provide a parent or relative with a Power of Attorney. In the worst-case scenario, they can act on your behalf and terminate a savings account, Demat account, or mutual fund in India, and you could start from scratch with a new NRI-based account opened from abroad.
The other fact is that TDS rates applicable to NRO accounts are different. Even as an NRI, you would have to file an income tax return regularly to claim any tax credit in India.
