Going to be an NRI? Checklist of financial tasks to avoid monetary or legal hassles
Khyati Dharamsi, Economic Times 8/11/2011
Have you just got a job abroad or are you planning to migrate for some years? In the tizzy of completing the paperwork, packing and taking care of a hundred different things, it’s easy to forget an important errand—financial tasks.
So, after acquiring the job offer letter and visa, and before you hop on to your flight, remember to complete your financial chores. This is because your status will change to a non-resident Indian and this will impact how you bank, invest or pay tax. Here’s a list of things you need to do.
Changing your bank account is crucial. Once you are an NRI, you cannot hold a regular savings bank account in India. Sanjay Nair, head, NRI Services, HSBC India, says, "An NRI will require a non-resident external ( NRE) account. Credits to this account can be through remittances from overseas or foreign currency deposits.
The NRI’s existing accounts will be converted to non-resident ordinary (NRO) accounts, wherein he can deposit his earnings in India, such as rental income, pension, etc." You can request the bank to retain the same account number, which will save you the hassle of notifying various agencies about the change.
Some banks also provide additional facilities. For instance, HSBC offers Premier Assist to its NRI customers, which includes property rental assistance, airport lounge access and emergency hospitalisation. However, the minimum account balance in such cases is high. "To avail of these benefits, you need to maintain a total balance of Rs 25 lakh on a quarterly basis," says Nair.
You will need to close other bank accounts as these will become inactive if you don’t use them for a year, and dormant after 6-12 months of being inactive. "Many people don’t close the accounts through which their insurance premium and EMIs are paid. However, this isn’t allowed and they may have to pay a fine," says Sandeep Shanbhag, director at investment advisory, Wonderland Consultants.
As an NRI, you can continue to service a home loan. However, you may need to give fresh post-dated cheques or if the EMI goes through ECS, you will have to route it through your NRO account. Also, register for receiving e-alerts and loan account statements through Net banking. This will allow you to know the principal and the interest portion paid when you file your tax returns abroad.
If you want to continue to trade in India, you will need to open a PINS account with the depository participant (DP). However, you will not be eligible to invest in all instruments, such as the Public Provident Fund, small savings or certain shares (which are listed by the RBI).
"When you change the status to NRI with the DP (share broker), you need to distinguish between shares that can be repatriated and those that cannot. For this, you will need permission from the depository (NDSL/CDSL) and separate accounts," says Shanbhag. Adds Vivek Rege, a financial adviser: "The non-repatriable securities will be linked to the NRO bank account and you’ll be able to withdraw up to $1 million (Rs 4.92 crore) from it."
If you are not going to use your demat account while abroad, you can freeze it. While it will continue to receive credits, such as bonus shares and dividends, the transactions will be blocked till you give written permission. If you do not want to freeze the entire account, you can do so for a select number of stocks.
In the case of mutual fund investments, you will have to fill up a know your customer (KYC) form, mentioning the change in your residency status as well as the bank account number, so that the SIP debits take place from your NRO account. "If you do not inform the mutual fund house about this, you may suffer a loss as SIPs for NRIs cannot be debited from resident savings bank accounts," says Rege.
If you own a house, where you’ve kept valuables, you should buy a home insurance policy. "Home/home contents insurance policies have to be renewed annually, so you need to keep track of this. You can take these policies even if the house is given on rent," says Amarnath Anantanarayanan, CEO, Bharti AXA General Insurance Company. In the case of life covers, most insurers do not offer term plans to NRIs, so you could take an endowment plan or a Ulip.
Another important insurance need is mediclaim. "If you already own a health plan, you should not close it unless you are sure that you will never come back. However, keep in mind that claims are not met for hospitalisation abroad," says Rege. This might tempt you to discontinue the policy, but Rege suggests, "You must consider the age at which you return and whether any insurer will provide a cover at that age. If you are in the older age group, it may charge a high premium."
Power of attorney
If you want a family member or financial adviser to manage things when you are not around, you will have to provide them the power of attorney. "A limited power of attorney for specific transactions should be registered. For instance, if you want to rent out a flat, you can nominate someone to operate the bank account for handling the rental income," says Rege. However, a power of attorney can only be used to handle existing accounts or investments, not to open new ones.
Before leaving, you will need a certificate from a chartered accountant stating that ‘no taxes are pending’. Ensure that you also have a permanent account number, for you will need to pay tax when you redeem certain investments. While the mutual fund or DP will intimate you via a letter, you may not be able to collect the TDS certificate. However, it is essential to know who has cut taxes.
"Registering for the annual tax statement or Form 26 AS, which reflects all the taxes paid cut from your income or paid by you, is essential," says Rege. This can be done online through the NSDL Website of (tin-nsdl.com).