“Finally!” You get the ticket to go onsite, after years of hard work, the day has arrived! Going onsite and earning money. This marks an important step in your life. It should be noted that since you will start to earn more, it would be wise option to execute a financial plan. The other crucial factor, that we shall discuss here, is the change in your status – from a resident Indian to a Non-Resident Indian.
Who is considered an NRI, according to the Foreign Exchange Management Act (FEMA) 1999.
An individual is treated as a Resident in India in any previous year, if he/she was in India:
- for at least 182 days in that year or
- for at least 365 days during a period of 4 years, preceding that year and at least 60 days in that year.
Any individual, who does not satisfy the both above mentioned conditions, will be treated as ‘non-resident’ in that previous year.
In case you are expected to be out of the country for more than a year or so as typically assignments could be 2+ years, remember the following points
- Bank Account status:
All resident accounts in your name should be converted into NRO accounts. This change will impact your taxation. The interest income that you earn on your NRO accounts will now be taxed at 30.9 per cent. NRO (Non Resident Ordinary) accounts are Rupee accounts opened for the purpose of depositing income earned in India once you move overseas. Ie income from rental in India etc.
If you hold an account jointly with your spouse/any other resident Indian where you are the first holder and your spouse is the second or the joint holder, then that account will also be converted into an NRO account on you informing the bank.
If your spouse or any other resident Indian is the first holder of the accounts and you are a joint holder then once you update your status as an NRI, your operating pattern will be on a former or survivor basis, which means that you cannot operate the account until the first holder of the account lives.
- Bank deposits:
All your resident deposits will be designated as NRO deposits. NRI/PIO may remit from the balances held in NRO account an amount not exceeding USD one million per financial year, subject to payment of applicable taxes.
If you wish you can open an NRE (E stands for External) account. These accounts are opened for the purpose of depositing income earned overseas. Income from interest on balances held in NRE accounts is exempt from Income Tax in India. Likewise balances held in such accounts are exempt from wealth tax. The funds held in these accounts can be remitted back overseas freely subject to terms and conditions of the resident country.
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- Demat and securities:
An NRI customer can invest or trade in shares and stocks through the secondary market only through a designated account called as PIS (portfolio investment services). The bank from where you open/operate the NRE/NRO account will help you in getting the PIS operational. Any existing shares that you have prior to becoming an NRI will need to be transferred to the PIS, so that they can be sold via the PIS. The following points need to be remembered.
- NRI can trade only delivery based. No intraday trading on equity/stocks allowed.
- NRI can trade only equity and equity F&O. No currency or commodity trading allowed.
- PPF accounts:
You can continue to maintain your PPF accounts even if you become an NRI. You may not be able to continue the PPF after maturity and also not be allowed to open a new account. You can continue to invest in your current PPF account. Notification (MOF (DEA) No GSR 585 (E) dated 25.7.2003) was issued permitting NRIs to continue investing in existing PPF accounts till maturity.
An NRI can use funds in the NRE account or the NRO account to make investments in the PPF account.
Are all these needed? There are many who have not done these and are in no way caught by the law. Perhaps, in the past when much of the data was not connected, it was not possible for the Government of India to track down each activity. But with increased focus on black money and the improved data connection between various departments, it is better that you follow the rules.
The Author, Krishna Rath, is the founder of finvestor.in a place for financial investors to get their answers on what and where to invest. An avid technologist, Krishna is an MBA from IIM, ALMI from LOMA and is a SEBI Registered Investment Advisor (RIA). He was worked with several financial firms in building critical information systems and now has taken up the challenge to build systems around financial planning for investor.
Bhoi Smrutirekha Dharanidhar