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

1. 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.

2. 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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3. 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.

4. 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.

The post 4 Points to remember when you go onsite – NRI first appeared on finvestor - news and views.

So what are the points an NRI needs to remember while operating a PPF account. The below images shows how with current interest rate of 8.7%, and the maximum deposit of Rs 1,50,000, Over 15 years, an annual contribution of Rs 1,50,000 grows to over Rs 52 lakhs!  

1. An NRI can’t open a new PPF Account in India. However, (s)he can maintain the existing PPF Account opened when (s)he was a resident. ie if you are a Resident Indian (RI) and you have a PPF account, you can continue to maintain the PPF account. However, if you have not opened a PPF while you were an RI, then once you get the NRI status, you cannot open a PPF account. It is prudent to have a PPF account because this is one of the few options that gives you tax free returns. While you may have a great prospect outside of India, there could be unforeseen circumstances where you lose your job or due to external political factors you may have to come back to India after a decade or so. Having a PPF account will be beneficial after 15 years because of the power of compounding of interest and the safety that Government of India provides.

2. Payment to PPF existing account: Till 2003, NRIs were not allowed to contribute amount into existing PPF accounts opened when they were resident. However, in 2003, government allowed NRIs to continue investing in existing PPF account (notification (MOF (DEA) No GSR 585 (E) dated 25.7.2003). You need to have an NRO account from which you can make payments to your PPF account. Remember, that once you become an NRI, your bank status also changes to NRI, so remember to update your bank details too.
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3.  Closure of account : You can not close the account before maturity or until death. Also, after the PPF account matures, NRIs cannot extend the PPF account. It has to be mandatory closed.

4. Withdrawal of Amount: Only possible at maturity. Partial withdrawal is possible, but not preferred. Keep PPF for your retirement. Retirement means living in uncertain times and having a certain/secure fund makes sense for uncertain times.

5. Taxation: No tax on PPF interest or at withdrawal! You may need to pay any tax in the country of residence as per the country’s taxation rules.  NRIs are allowed to remit /repatriate upto USD 1 million per financial year from their NRO account subject to certain procedures.

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 investors.

The post Public Provident Fund (PPF) and NRIs first appeared on finvestor - news and views.