As an NRI, you are doubtless wealthy by Indian terms. A mere $100,000 annual income as a middle-class U.S. citizen translates to ₹74 lakhs per year, or more than ₹6 lakhs a month, which only upper-echelon executives earn in India.
There is an utmost need to manage your wealth and make it earn, instead of letting it sitting passively in low-return bonds.
What are the steps you must take to ensure that your savings are working for you? We have prepared a brief guide.
Best Money Management Tips for NRIs
- Open an NRE/NRO account Of course, as an NRI, you might sever all relationships with India, barring an occasional trip back home every two years. However, a large section of the Indian diaspora retains some business connection. Perhaps they buy an apartment and rent it out or receive income from ancestral land. Often, they also need to send money to India to meet expenses for aging parents. An NRE/NRO account is essential for you as an NRI.
NRO is simply a savings account meant for NRIs. It can be held jointly with an Indian resident and is ideal for sending money or receiving income from rent and allowing it to accumulate. It, however, cannot be used to repatriate money abroad. For that, you need an NRE account.
- Set up a Power of Attorney Simply put, a Power of Attorney is a delegation of authority. Using a PoA, someone can represent your interest generally or specifically in your absence. It need not be issued to a lawyer but can be given to a family member or friend. Under most circumstances, you can perform the task at an Indian consulate or high commission abroad instead of taking a trip to India.
The common uses of PoA are to represent your legal interests, e.g., file legal cases on your behalf, maintain these cases, make representations to income tax authorities, buy and sell property, engage in negotiations with renters, and so on.
The PoA essentially enables someone to act on your behalf.
- Close your resident Demat accounts If you have purchased shares in India or inherited shares, you would have a Demat account. However, when you become an NRI, you no longer have easy access to one. While you are Resident But Not Ordinarily Resident (RNOR), you can maintain an Indian Demat account, but you have to open a PIS-enabled account at the end of the period.
Otherwise, you could choose to liquidate all of your holdings and repatriate them abroad or invest them in another form – such as buying a house.
However, given that the Indian stock markets are booming (they just touched 40,000 in 2020), you might wish to spend a day and open a PIS-enabled account. It is a special type of NRE or NRO account (the former being more useful due to repatriation facilities) with permission from RBI that allows you to buy and sell shares and debentures through the secondary market.
- Investigate your investment options India offers limitless investment opportunities. As an NRI with a lot of rupees to invest, you can have access to the exclusive wealth management experts that every reputed bank provides.
Not only can you buy apartments and mutual funds—the usual avenues of investment—but you can also obtain partnerships in local businesses. The spirit of entrepreneurship rules India, and investment of a dollar today can return twenty times in a decade. High-octane startups need funding, and for as little as $150,000, you can get in on the ground floor and later sell your stake for five times that.
- Understand your tax implications As an NRI, you are not only governed by the Income Tax Act but also the Foreign Exchange Management Act. What you bring in, how you spend, and how much you repatriate is at all times scrutinized.
The tax laws are simple in essence: You are taxed for what you earn in India. However, maneuvering the maze of capital gains tax and inheritance tax can be cumbersome.
Make a shortlist of the taxes you would be subject to if you invest in India, and study the implications. For example, if you are going to buy a house and rent it out, a simple Google search would tell you that not only would rent be taxed under Indian tax slabs, but the renter would subtract 31.2% as TDS, which you later have to adjust through tax credits.
Also, you could at most repatriate $1 million USD per financial year. This includes your income from rent, shares sales, capital gains, dividends, and other heads. If you earn more, it has to be maintained as a balance of the NRO account.
A thorough understanding of these basic rules is necessary to be a successful investor.
As an investor from abroad, you have to watch out for forex fluctuations. You are not allowed to repatriate more than $1 million USD, but at the same time, if your rupee balance in the NRO account depreciates in value, you are poorer in dollar terms.
Hence, you have to maintain a watchful eye and be well aware of the macroeconomic trends. It is not as hard as it sounds. There are dozens of well-established financial blogs that regularly send out excellent newsletters. Besides, being the HNI client of an Indian bank provides you access to all varieties of expert advice and alerts.
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