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You cannot deposit Indian earnings in an NRE account

  • NRE account can only receive funds from your overseas account or proceeds from investments made through it
  • You may continue to hold your existing investments in MFs as well as continue investments in SIPs. However, you need to link the mutual funds with the new NRO account

I have got an on-site job opportunity, for which I have to relocate to another country. What are the financial details I should know about before leaving? How do I convert my status to non-resident Indian in bank accounts? How should I handle my provident fund (PF) account assuming I will not return for another six to eight years? I want to ensure the amount becomes non-taxable given that the amount would be substantial as I have worked for close to 13 years. What should I do with my existing systematic investment plans (SIPs) and equity holdings in demat format? What kind of bank account should I operate in India assuming there is a treaty that I will not be double taxed here in India?

—Abhilash

An Indian citizen’s residential status is determined by Section 6 of the Income-tax Act. In your case, as an Indian citizen, you plan to move out of the country for employment and the intent is to stay out for the next few years. As per the Act, you continue to be a resident Indian if you are able to stay in the country for more than 182 days in the relevant previous year. This means that in FY 2019-20, you need to stay in India for 182 days and more to qualify as a resident Indian, else you will become a non-resident.

Once you are a non-resident, you need to convert your bank accounts to non-resident (ordinary) or NRO accounts. This account is similar to a savings account and both the Indian income—dividends from shares, proceeds from mutual funds, provident fund etc. can be credited to the said account. Likewise, you can remit funds in it from abroad to continue your investments in India or for any other expenses.

Also, you may consider opening an NRE (non-resident external) account if you think you will need to repatriate funds from India as the process of repatriation is easier with NRE accounts.

However, you cannot deposit Indian earnings in the said account as this account can only receive funds from your overseas account or proceeds from investments made from NRE account. At the same time, you can make payments like any other savings or NRO account.

For your PF, once there is no fresh contribution to the account, the income earned on it post no contribution will be taxable on an accrual basis. Hence going forward, it is recommended that you redeem and reinvest the PF corpus. The reinvestment can be made in accordance to your risk profile. You can choose to invest in mutual funds which could be a combination of debt as well as equity.

You may continue to hold your existing investments in mutual funds as well as continue investments in SIPs. However, you need to link the mutual funds with the new NRO account.

You will also need to convert your demat account into an NRO demat account or open a new account after closing the existing account. Once converted or opened, you can transfer shares to the new demat account.

Surya Bhatia is managing partner of Asset Managers.

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