When Debabrata and Bipasha Bhattacharjee moved to Canada in 2018, things happened too quickly for them to get their financial lives in order. “What prompted our decision was a vacation that we took in Canada in 2018," said Debabrata (31), a marketing professional. The couple fell in love with the Canadian cities and countryside and decided to move, and their permanent residency requirements were processed in no time. But with only three months between the decision and the move, the couple didn’t have enough time to tie up all the loose ends.
Like the Bhattacharjees, many Indians venture abroad in search of better opportunities and a change in lifestyle. In fact, an estimated 17 million Indians were living abroad in 2017, up from 7 million in 1990, according to data from the United Nations Department of Economic Affairs. If you are planning to join the growing number of non-resident Indians (NRIs), here is a check list of all the financial loose ends you should tie up before leaving.
One of the first things you need to do when you start planning your move abroad is to get your bank accounts in order. As an NRI, you will no longer be able to maintain your resident bank accounts. You will need to have them redesignated as non-resident ordinary (NRO) accounts. “If you have multiple resident bank accounts, rather than converting all of them to NRO, consolidate them. Managing multiple accounts and ensuring all of them are correctly reported for taxation purposes can be challenging," said Vishal Dhawan, founder, Plan Ahead Wealth Advisors.
You only need one account to receive any income you accrue in India like rent and dividends. Once you decide which account you want to hold on to, fill up and submit a conversion form signed by all account holders as well as a fresh account opening form, along with copies of your passport, valid visa or work permit. If the account was a zero balance one, you might need to deposit a minimum balance as per the bank’s rules. Some banks may also levy additional charges for the conversion. Once your account has been reassigned, any interest earned will be repatriable after deducting applicable taxes. You should also close any bank lockers that you are not going to use. Hold on to one only if you want to store any documents or valuables.
TIME TO LIQUIDATE
If you are moving abroad for good, it might be wise to liquidate some of your investments in India if you think you might not have the time to track them. However, this is subject to several factors. “It depends on which country you are moving to and what levels of tax compliance applies. Say, if you move to the US or Canada, Foreign Account Tax Compliance Act (FATCA) will govern earnings and remittances from your investments. So evaluate if the convenience of moving your investments supersedes the compliance mandates," said Amit Kukreja, founder, Amitkukreja.com, a financial planning website. While it is a very subjective decision, according to Kukreja, it makes sense to divide your investments in a ratio of 50:50 between Indian and global instruments. “You can move your investments gradually if you are settling abroad, but how much of it you move depends on your overall financial goals," he said.
Another asset that might be difficult to manage from a distance is real estate. “While you may choose to temporarily rent out your real estate, maintenance bills, utilities and equated monthly instalments may need to be provided for, to avoid future challenges," said Dhawan. There are risks of theft and squatting if the property remains unoccupied. If you can pay for maintenance and security services, trust your tenant to take care of it, or have relatives who can pitch in, it might make sense to hold on to the property. But if you don’t, it’s best to sell it before you make the move.
You will also need a good lump sum to see you through the initial period in a new country; so liquidate what you can and have the money at your disposal. “We were fortunate enough to land jobs immediately. We moved with just about C$13,000. But things might get difficult during the initial phase when you’ll have to find a place to stay, buy furniture, clothing, and so on. So I would recommend moving with as much money as possible but spending it conservatively," said Bhattacharjee.
If you wish to continue holding your equity portfolio, your demat account will have to be redesignated as an NRO or NRE (non-resident external) account. “If you are making any fresh investments in the country of residence, the earning will be sent to India via the NRE account. Similarly, if you have made investments in India in stocks or equities, the earning will be routed via the NRO account," said Harsh Jain, co-founder and COO, Groww.
“You could also consider setting up a PIS (portfolio investment scheme) account, so you continue to have exposure to equities even after becoming an NRI," said Dhawan. PIS is an RBI scheme that allows NRIs to purchase and sell shares and convertible debentures of Indian companies on a recognized stock exchange by routing the purchase or sale through their NRI savings account with a designated bank branch.
With your mutual fund portfolio, you will have to provide fresh KYC details to reflect your new residential status. “Get your folios changed to non-resident and have your NRO bank account linked to the folio to avoid mismatches. Evaluate the need for professional help, as you may not find it easy to manage your portfolio from a different geography," advised Dhawan. Jain added that there might be restrictions to this.“A few AMCs do not allow NRIs in the US and Canada to invest in mutual funds owing to compliance issues," he said.
According to government mandate, once you change your status to NRI, you can't open a new Public Provident Fund (PPF) account or make fresh deposits in National Savings Certificate (NSC). But, if you already have an account, you can continue holding it till maturity and it will keep earning interest. So unless you need the money, it's best to let the money compound.
HOLD ON TO INSURANCE
Evaluate all the policies you have. Some, like car insurance, are likely to become redundant; so get rid of them. As you will no longer be able to monitor premium payments, set up electronic instructions if need be. It’s a good idea to keep your term policy, especially if you have dependants in India.
Get rid of your health plan if you are going to be covered by your new employer or take your own cover in the country you are moving to. But there can be exceptions. “Avoid giving up your health covers in India immediately as there could be the need to come to India for medical treatment and pre-existing illnesses tend to have waiting periods in most parts of the world," said Dhawan. But these policies can’t be revived once they lapse, so be careful about paying the premiums on time.
KNOW THE NRI TAX RULES
When you move, make sure your taxes have been paid for the current financial year. To avoid being taxed both in India and the country you are moving to, you have to check if a double tax avoidance agreement (DTAA) has been signed between India and the country in question. “Residents of countries who have a DTAA with India are not liable to pay double tax in India and the resident country. Tax treatment on mutual fund capital gains is the same for NRIs and Indians. However, for NRIs, TDS will be deducted by AMCs and sent to the government," said Jain.
If you don’t have a very clear idea of NRI taxation, it might be a good idea to seek the help of a tax adviser.
If Bhattacharjee had a chance to do things over, he would start planning much earlier than he did. “The move was permanent, and in a way like starting over from scratch. We should have taken that into account and planned it better," he said. When planning a life altering move to a different country, make sure you plan ahead and tie up all the loose ends to avoid hassles in the future.