Given the rise in employment opportunities and a global workforce, you can see people going out of India for pursuing opportunities. However, a person who is a resident outside India has to comply with certain laws and regulations enshrined in FEMA and to ensure the the legal and regulatory compliances, some financial tasks should be completed before going abroad and in this article, let us check out some of those steps:
#1: Re-designate bank accounts and investments as “non-resident”:
As per FEMA rules, a person resident in India when leaves for any purpose indicating his intention to stay outside India for an uncertain period, his existing accounts should be designated as a non-resident accounts within a “reasonable time”. What is reasonable time has not been defined under the Act.
So, you’ll have to re-designate all your existing resident bank accounts to Non Resident Ordinary (NRO) accounts. You’ll need to submit the application along with a self-attested copy of passport and visa. NRO account is just like a resident bank account and may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts. The principal of NRO account is non-repatriable, current income and interest earning is repatriable. The account may be held jointly with residents and / or with non-residents and can also be operated by a resident power of attorney holder subject to conditions. Further, as an NRI, you may remit an amount, not exceeding USD one million per financial year, out of the balances and credits in that account. Bank will deduct a flat 30.90% TDS on interest from NRO account.
Similarly, you’ll have to update the KYC in your mutual funds to convert the residential status from resident to non-resident. Copy of passport/ PIO Card/ OCI Card and overseas address proof is mandatory.
#2: Open a demat account under Portfolio Investment Scheme (PIS):
FEMA guidelines require that NRI can invest in Indian shares only through the Portfolio Investment Scheme (PIS) on a repatriable/ non-repatriable basis. So, in case you have a resident trading account, you cannot transact from that account once your status changes to NRI and it needs to be closed. So, you should open a new PIS account (separate for repatriable and non-repatriable) and transfer all your holdings in that account and then close your resident trading account.
#3: Evaluate your insurance needs & buy it before leaving India:
Bear in mind that it is not so easy to buy insurance in India after you become an NRI. So, if you’re planning to return back to India in some years time, it makes sense to evaluate your insurance coverage and buy the right insurance policies BEFORE becoming NRI. Check the geographical coverage & read the fine print before buying these policies. While life and personal accident insurance policies cover death globally, in case of mediclaim, only the treatment is taken in India is covered. If you already have an insurance policy, you should inform insurer of the new address to ensure continuity in service updates, if any.
#4: Open a Public Provident Fund (PPF) account:
As per extant PPF rules, a person cannot open a PPF after becoming NRI. Even if he/she already has a PPF account, it cannot be extended on maturity. However, if you have a PPF account before becoming NRI, you can continue to invest till its maturity. Hence, it makes good sense to open a PPF account before becoming NRI. Open the account with a bank so that after moving out of India, you can transfer funds from your overseas/Indian bank accounts to that PPF account by adding it as a beneficiary. Interest earned in PPF is tax-free in India however if you qualify as a tax resident of your host country, you might have to offer it for tax there (check more about this with a local CPA professional). Contributions can be made through your NRO or NRE account. Investment in PPF is on a non-repatriable basis however you can repatriate the amount from your NRO account subject to max. USD 1MN outside India.
#5: Open a Non Resident External (NRE) account:
If you’re going to earn money in your stay out of India, it makes sense to open an Non Resident External (NRE) account. Reason is: whatever money is available in NRO account cannot be repatriated beyond a limit, and if you are looking at funding some of your goals like child’s education etc. in non-INR currency, you should open a separate (NRE) account. Proceeds in this account can be repatriated freely without any limit. This is a rupee account hence note that your savings corpus will still remain exposed to currency risk. Interest rates on NRE account is de-regulated and presently stands around 8%. Interest is tax free and there is no TDS till you maintain your NRI status.
Some other points that you may consider:
- Give a power of attorney to a trusted person in India. Alternatively, you can add a resident close relative to your non-resident bank accounts.
- Convert your credit/ debit card to international card. In case of pre-paid card, load foreign currency in that card. While buying a new card, ensure that there is no mark-up fee for expenses in India or abroad.
- Activate international roaming on your existing India number and carry it with you outside India. This is to ensure that you receive the One Time Password (OTP) while transferring funds from your bank accounts in India.