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Nest egg: How NRIs save to fly back for their sunset years

The primary motivation for most of the returnees is quite evident—the desire to be surrounded by family and friends. (iStockphoto)
The primary motivation for most of the returnees is quite evident—the desire to be surrounded by family and friends. (iStockphoto)

Summary

The financial benefits for non-resident Indians become apparent when they earn in foreign currencies and convert them to Indian rupees to invest and save, leading to significant growth in rupee terms.

You may have heard anecdotes of friends and family members who packed their bags to pursue opportunities overseas, but planned to eventually settle down in India after retirement. The financial benefits for non-resident Indians become apparent when they earn in foreign currencies and convert them to Indian rupees to invest and save, leading to significant growth in rupee terms.

Let’s consider the case of individuals A and B, both aiming to accumulate a nest egg of 8.8 crore for a comfortable life in their sunset years. To achieve this, they would need to save approximately 4.67 lakh every year, starting at 30 years to retire at 60 with the desired corpus.

Assume A earns 40 lakh per annum in India, while B works in the US with an annual package of $100,000. Some Indian tech professionals based in the US, whom we previously interviewed, asserted that a $100,000 salary in the US can provide a lifestyle akin to what 40 lakh would offer in India due to the difference in cost of living.

Although A and B may enjoy similar lifestyles in terms of expenses, A must allocate a larger portion of her income toward retirement savings. In this case, A needs to invest 11.6% of her earnings, while B can contribute less than half of that amount or just 5.6% of her annual income, to achieve the target corpus.

However, this financial advantage for NRIs dissipates if they decide to retire outside India, especially in developed countries. In such instances, the savings rate may need to exceed 11% to cover the higher cost of living in those countries.

In this article, we delve into the experiences of four individuals who pursued better opportunities abroad but have either returned or are planning to return to India for retirement (see gfx). The primary motivation for most of the returnees is quite evident—the desire to be surrounded by family and friends.

Social security contributions in most parts of Europe typically range from 20% to 25% of the gross salary, at times even more. This includes various components such as health insurance, pension contribution and other social benefits such as unemployment insurance. The employer also contributes a portion to the social security benefits.

Balamurugan Kandasamy, (37), who migrated to France nine years ago is planning to retire in India with the help of the pension he will receive from the French government. “There are certain conditions members have to fulfil, say, a minimum period of stay in the country to get pension from the government. I will have that, and I would also earn some amount in foreign currency (euros) by renting my property here."

“Unlike India, properties in France can be managed easily by associating with a few agencies here," he added.

Almost all participants have been investing significantly in the Indian stock market to build their retirement corpus, while a portion of it is invested in foreign markets for diversification.

Mayur L, from Lucknow, and now a German citizen, is investing in India along with his wife to build a retirement corpus. Since medical and education costs are almost free, they park a significant part of their income towards savings and invest almost 90% in India, and 10% in the US (as of today).

 

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Varun Aggarwala, (36), and his wife both professors, decided not to apply for a green card in the US so that they could come back and settle in India. The family recently moved from New York to Navi Mumbai, and is happy with their decision. “As a US resident, I couldn’t invest in mutual funds in India. I found NPS (National Pension Scheme) a brilliant product with no constraints on the maximum amount and came at a very low cost. After moving to India, we started investing in mutual funds, mostly in passive funds. On the debt side, we max our savings in voluntary provident fund. We keep our portfolios simple," he said. The investments in the US stocks was retained to pay for the education costs of their children during their years abroad.

Sumanta Banerjee, (70) who moved back after working in Dubai for almost two decades, could be a good case study on how to plan a smooth flight back to India. Banerjee, a chartered accountant, availed the services of his financial planner – Kalpesh Ashar, a Sebi-registered investment advisor, to manage his money. Banerjee planned to transition his assets invested in Dubai at least two years before he moved to India. On asking if he is happy with his periodical income from investments set aside for retirement, he said: “There is no limit of expecting more but I am more of a content person when it comes to money." He is now indulging time in his passion for writing and travelling.

When an NRI returns, there are two laws that must be adhered to: Foreign Exchange Management Act (FEMA) and the Income Tax Act. Under FEMA, which differ from IT rules, the primary factor is the ‘intent’ to settle in India rather than the residential status—period of stay in India, said Neetu Singh, director, direct taxation, Nangia & Co LLP. When it comes to I-T Act, one can be considered a resident not ordinary resident for 2-3 years during which global income is not taxed in India.

During this period overseas income will not be taxed in the hands of RNOR, but she will be liable to disclose foreign assets in income tax returns. Then the individual becomes a resident and ordinary resident, or resident, when the global income is chargeable to tax in India.

“When liquidating assets abroad to move to India, it is advisable to consult a chartered accountant, to ensure the individual is not be liable to pay tax in both countries. If assets are liquidated after coming back, there is a specified period before which the sale proceeds have to be brought back to India as per FEMA rules. An expert will be in a better position to guide on such aspects on a case-to-case basis," added Singh.

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