Are you planning to migrate abroad in the near future? It is time you start preparations early on. No, I am not taking about completing paperwork for migration, packing, etc. While people usually focus on the regulatory and travel issues, they forget to organise their financial affairs. What happens to your life and health insurance policies in India? How would you operate your bank accounts if required? Would share trading and other investment rules change if you become NRI? These and many such questions need to be addressed and acted upon before you become NRI.
Here is a financial checklist of the important financial tasks that need to be taken care of till you are physically present in India.
- Convert your primary savings account into NRO account: As per RBI guidelines, it is mandatory for an individual to re-designate his existing savings account as Non-Resident Ordinary (NRO) account when he/she plans to leave the country. An NRO account can be operated just like your regular savings bank account. You can deposit the income earned in India in the form of rent, interest, dividend, capital gains, etc, into this account. The account can also be used for all local payments including EMIs, investments, insurance premiums, etc. Further, an NRI can remit up to a maximum of USD 1 million per financial year from this account under foreign remittance scheme.
- Open NRE account: If you want to invest your forex earnings into India and later get it back in the foreign country (repatriation) without any limit, then you would need a Non-Resident External (NRE) account. Unlike NRO account, you are not required to submit any tax certificate on the repatriable funds. Also, interest earned in NRE account is tax free compared to NRO account where it is taxable as per the applicable slab rate.
- Make arrangements for clearing loans & other payables: You may have ongoing loans which need to be serviced as you move abroad. Instead of your local savings account, you will have to reroute your EMI payments through your new NRO account. Also, register for receiving e-alerts and e-statements so that you can keep a tab on your regular EMI payments while you stay abroad. As your potential earning capacity increases in a foreign country, you may want to prepay your loans back home and become debt free. Check with your bank if it is possible to prepay the loan through NEFT (National Electronic Fund Transfer) and be aware of the formalities to close the loan.
- Have adequate term insurance: Life insurance is covered globally. So it is prudent to continue with your term cover in India even as you plan to migrate abroad. But if you have a traditional insurance policy like an endowment, money back or unit linked plan, you need to look at the costs involved. It may not be worth the time and money to pay huge premiums and monitor them. It is mandatory to update your KYC details with your insurer. Ensure that your residential status after becoming NRI is communicated to the insurer for continuity in servicing and claims. Further, review whether your term cover is adequate to cover your family’s expenses, liabilities and financial goals during any unfortunate event. If not, it is better to buy additional term insurance abroad.
- Have adequate health insurance: In case of health insurance, mediclaim is payable only if the treatment is taken in India. If you are moving abroad for a short stint and intend to return to India, then it makes sense to continue your health insurance policy in the resident country. But if you intend to permanently stay abroad, it is better to discontinue the existing policy and buy a new one in the foreign country.
- Continue/Open PPF account: Many investors have the wrong notion that NRIs cannot invest in PPF account. A resident turned NRI can continue to invest in his/her existing PPF account till the maturity period of 15 years. However, an NRI cannot extend indefinitely thereafter for a block of 5 years as in the case of resident Indian. If you do not have a PPF account, open one before leaving the country. It is one of the best tax free investment options which will not be available in foreign countries. The PPF contributions can be made by an NRI from his/her NRO account.
- Open PIS account: If you already have a resident trading account for shares, you cannot transact from that account once your status changes to NRI. So if you want to continue trading after settling abroad, you will have to mandatorily open a portfolio investment scheme (PIS) account. You also need to open a new demat account and trading account. You need to transfer all your holdings into the new account and then close your resident trading account. In the case of mutual fund transactions, you will have to update your KYC details mentioning the change in residency status and bank account to ensure smooth debits of SIPs and other transactions through NRO account.
- Create a power of attorney: In your absence, someone might be required to perform your financial tasks related to banking, insurance, investments, etc. You can give a family member or some other trusted person power of attorney (PoA) to act on your behalf. A PoA holder can operate bank accounts, do stock/mutual fund transactions, even sell your property, etc.
- Give your house on rent: If your flat is probably going to remain idle and no other family member is going to stay in it, it is better to rent it out. Finalise all paperwork with your tenant before you go abroad. You can create a specific power of attorney and nominate a trusted person to operate the bank account to manage rental income on your behalf.
There are hundred things to take care of while migrating abroad. Being prepared in advance will spare the pain of co-ordinating with your family members and financial service providers while sitting thousands of miles away. So do not forget to perform the necessary financial errands before leaving the country.