Financial planning is a headache if you are in your country of origin. For NRIs, it is doubly difficult. They have to manage income with savings abroad as well as in India.
Further, there are always complex tax rules and NRE/NRO accounts to take care of. It is enough to make one weary and just invest in bullion!
Fear not. Here, we attempt to demystify the world of NRI financial planning.
Why does an NRI need careful financial planning?
If you are an NRI, you no longer have ready access to your assets back in India. Say that when you were 15, your father purchased for you 100 shares of Infosys for your birthday. Today, after 20 years, those shares are worth well over a million dollars (due to stock splits, you own much more than a hundred now), but you can’t pick up the phone to call your broker and sell it.
Nor can you sell 20 acres of prime farmland on the outskirts of Gurgaon to a resort developer.
You may have assets that are worth a fortune, but it is hard to sell them immediately. This makes it harder for you to liquidate your assets.
On the other hand, you might have come from a penniless background but always invested $1,000 a month in Indian tech stocks such as TCS, WIPRO, and Biocon. You want to move away from your job and start a venture. Yet, you cannot touch the $2 million you have in the Indian stock market because it is possible to repatriate only $1 million per year.
Besides, the rupee has sharply depreciated in value, and repatriation will hit you hard by at least a third of your profits. Add in an average of 15-20% capital gains tax, and you see the scope of the problem.
Tips for NRI Financial Planning
- Set up an NRE, NRO, and Demat account
Many NRIs neglect setting up these accounts. But without them, there is no way to sell off ancestral property and bring the proceeds back to another country.
NRE and NRO accounts can be opened in any reputed Indian bank from abroad. You must also have a Demat account that allows you to buy and sell shares in India.
- Repatriate regularly
The upper limit per year for repatriation of funds is $1 million (or ₹7.4 crores at the current exchange rate). If you have been seriously investing in India, take a good look at your investment horizon vis-a-vis your assets.
The stock market has climbed from 8,900 to nearly 40,000 in just a decade. Individual blue chips have done even better. If you have been investing responsibly, you certainly have a huge amount in the market.
However, you are not free to take it out of India. Thus, every time your corpus touches a million dollars, reevaluate your objectives. Can you afford to let $2 million sit and earn 15% a year, or would you rather repatriate half of it and earn 5% abroad?
- Keep track of exchange rate fluctuations
To keep the cost of exports down, the Indian government has let the rupee slide by quite a bit. A large deficit in 2020 would only add to that slide in the coming years.
If you invested $100 in 2015 when the exchange rate was ₹62/$1 and the investment became ₹15,000 after a few years, then repatriating it would net you $184 after 15% capital gains and the current exchange rate of ₹74/$1.
If you hold a substantial amount of assets in India, it’s good to hedge against the rupee slide with oil futures or similar.
- Do you plan to retire here?
This is a huge question. If you do, it makes no sense to repatriate funds at all. And it is better to buy property or land now since the value is sharply appreciating every year.
If you buy after a decade, it might be as unaffordable as Tokyo—quite literally.
You could also file an Income Tax Return (ITR) in India. It is not mandatory to file an ITR here unless you have an income. But this article presupposes that you have some type of passive income inside India. An ITR gives you access to a lot of benefits, the most important being a bank loan. Even the wealthiest might need a personal loan to tide them over for a few months.
Also, it allows you to take advantage of the Double Taxation Avoidance Agreement that India has with 84 different nations.
- Choose a competent financial advisor.
There are too many moving parts to the topic.
It depends on your age, income, occupation, risk profile, number of dependents, intention to move back to India, need to repatriate funds, ancestral property, and many more aspects.
Besides, there is always taxation and filing of ITR on time.
You need two advisors:
- A tax and financial lawyer with whom you should build a long-term relationship
- A financial advisor who understands the specific needs of an NRI
Do not be scared. After all, much of it is actually plain old-fashioned paperwork. An expert can take care of it and handle safe record-keeping perfectly.
All that you have to do is keep abreast of the situation back home through monthly browsing of financial blogs that put out newsletters advising NRIs of the best way to forge ahead.
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