Are you planning to move overseas soon? If so, you should complete certain financial tasks before you become a non-resident Indian (NRI). First, let’s understand the difference between a resident individual and NRI. An individual is deemed to be a resident if (a) the person has resided in India in that financial year for 182 days or more; or (b) has been in India within the four years preceding that year for 365 days or more and been in India for 60 days or more in that year.
Exceptions to residential status are: (1) an individual who is a citizen of India and who leaves India in any financial year for employment outside India; (2) an individual who is a citizen of India or a person of Indian origin (PIO) and who is outside India comes on a visit to India in any financial year. The second condition stated above shall not be applicable and individual status will be determined only by the first condition in both cases above.
Following are some of the considerations an individual must look into before leaving the country to settle for an extended period of time:
Online banking: Before migrating, it is better to update your bank accounts to internet banking, increase your bank mandate limits and ensure that your Indian phone is still active so as not to miss any OTPs, or one-time passwords, etc. NRIs are exempted from linking their PAN and Aadhaar with their bank accounts but the same needs to be updated in the income tax portal. This is important to ensure investments can be liquid for purchase or sale at any time.
After completing 182 days of stay overseas, individuals need to update their status to NRI. Do note that rules of Fema (Foreign Exchange Management Act) will apply till such time the status is updated.
Residential status and KYC: NRIs are required to update all bank accounts, meet KYC (know your customer) norms, file income tax and make investments as per the new residential status acquired by them. As per Reserve Bank of India guidelines, their bank accounts should be updated to either non-resident external (NRE), non-resident ordinary (NRO) or foreign currency non-resident account (FCNR). NRIs can deposit foreign funds in the NRE bank accounts. Such accounts also allow full repatriation of funds overseas. Also, the interest accrued in such accounts is tax free.
NRO accounts are used to receive funds in India, such as rental incomes, interest and dividends. The repatriation limit of moving funds from India to another country is $1 million per financial year. Investments in mutual funds, stocks , insurance payments can be made through either NRE or NRO accounts. Existing resident fixed deposit (FD) accounts are updated as NRO FDs and individuals can also open an NRE FD, which is tax free for them.
NRIs can open FCNR accounts to deposit their local currency and, say, make an FD. This will reduce foreign exchange rate fluctuation.
File I-T returns: Effective July 2021, for those who are relocating overseas and who have not filed income tax returns for the last two financial years, a higher penalty would be applicable. under the income tax Act.
Power of Attorney (POA): The person relocating overseas should remember to give POA to a trustworthy person who can take care of their finances in India, especially pertaining to property. They should also be authorized to operate bank accounts and make real estate transactions and investments.
Health insurance: One must evaluate existing health insurance covers and decide whether to continue with it. Most health insurers do not cover medical treatment overseas and therefore, one must clarify this with the health insurance provider. It’s best to take a health policy for the treatments and costs overseas itself, considering exceptions on treatment and room coverage in some cases.
Life insurance: One must evaluate the life insurance cover taken in India to know whether the insurer will pay the sum insured in case of any grievance in a foreign country. Many life insurers settle insurance claim amounts in case of the death of an individual, even if that person has been living overseas. However, the amount is usually settled in Indian currency. Some insurers do not even provide coverage in high-risk countries.
