Implications on investments after moving to another country
Lovaii Navlakhi, Mint 25/6/2013
When someone moves abroad for work, they are at times unaware of their long-term future plans.
Suchira lives in Dallas and has a very fulfilling life as a yoga instructor, budding glass maker and a loving wife to Arjun.
She moved to Dallas 15 months ago after marriage. Frustrated with not getting a job as a software engineer, apart from the struggle of adjusting to a new environment, Suchira started teaching yoga at the community centre for free.
Soon, she started another class for “stay-at-home” mothers, and a third followed. The number of people she met, the friendships she struck and the social life she and Arjun developed more than made up for the lack of earnings. Suchira discovered glass making from a student. Life is suddenly much more meaningful for both Suchira and Arjun.
However, on the money front, Suchira wants to fend for herself. She was financially independent in India; she does not want to change that now. During her work tenor in India, she saved all that she earned (the advantage of living with parents); and she has figured a way of using those funds for her personal needs.
Let’s fast forward to five years later. Suchira now has a work visa, a full-time employment and a two-year-old son. She makes trips to India, and as usual accesses her Indian savings account to meet some of her expenses. Through her friend, she meets an Indian financial adviser who understands international taxes and realizes that she needs to correct quite a few things.
Bank account: As she has moved abroad after marriage, she needs to convert her resident account to a non-resident one. Since the amounts have been funded in rupee, she should open a non-resident ordinary (NRO) account and transfer the balance from the savings account to NRO account.
Before she does that, it is best to check what direct debits as well as credits (investments, dividend income, interest credits, etc.) are linked to this account. Not many people are aware, but you are eligible under general provisions to transfer $1 million every financial year out of an NRO account overseas. For this, you need to fill in the relevant remittance forms, obtain a certificate from a chartered accountant that taxes on this income have been paid in India and ensure that the funds are transferred through regular banking channels. You may be glad to know that if you did retain the NRO account, you could add one of your family members or friends who is a resident Indian as a joint holder with signing authority. Many non-resident Indians (NRIs) like to have their parents who are in India have access to this account and even give them a debit card to fund some of their regular expenses.
Public Provident Fund (PPF) account: Her father had opened a PPF account for her when she was a minor. After completion of the first 15 years, the account was renewed for a further five-year period. To keep the account active, annual deposits were made in this account. However, once she became an NRI, the account cannot be extended. She signed the forms for closure of the account which her father will submit when the extended period matures after a few months.
Employees’ Provident Fund (EPF) account: Since her marriage and move abroad happened at short notice, Suchira was unable to apply for withdrawal of her EPF. Thereafter, on advice of her father she retained the amount in the account as the tax-free accumulation was attractive. She now understood that a recent notification allowed for accrual of interest on the EPF balance only for three non-contribution years. She now needs to withdraw these funds.
Taxation: Suchira is a law-abiding citizen. She has been diligently filing returns on the income she has earned in India. She was in for a rude shock when she realized that the country she was now a tax resident of required world income to be subjected to tax, while allowing credit for taxes paid in India.
She also realized that some heads of income which were exempt in India, such as dividend income or long-term capital gains on equities, were taxed in her “home” country. There were also differences in tax rates on other heads of income between the two countries. She vowed to connect to a local certified public accountant when she returned.
(Note: In some countries, returns are filed jointly with the spouse. Ignorance of taxability of world income could lead to serious repercussions.)
When someone moves abroad for work, they are at times unaware of their long-term future plans. If there is an inclination to return to India some time in the future, they like to maintain their links—which also includes bank accounts and investments. It is important to have a financial adviser who understands legal and tax implications in both India and your current “home” country.
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