What Are The Financial Checklists To Keep In Mind Before You Become NRI

If you are an Indian citizen and are planning to settle down abroad, there are some financial checklists that you should keep in mind before you move. Moving to a foreign country is not just about changing your address; you are also going to transition into a non-resident Indian (NRI), and you are required to complete certain processes to avoid any unexpected taxes or penalties.

Here are a few things you need to keep in mind to help you smoothly transition into an NRI.

KYC for Banking and Mutual Fund Investments

While changing your residency status, one of the first tasks that you need to take is to update your status with your bank. Depending on how long you have lived abroad, your status in your bank will change from a resident Indian to an NRI. The status of your bank account needs to be changed to a non-resident external (NRE) account from a non-resident ordinary (NRO) account.

An NRE account is used when your income is from foreign assets or a foreign entity. This means that these accounts essentially bring foreign inflow from the earnings into Indian. In contrast to this, for an NRO account, the income is sourced in India.

Similar to your bank account, the KYC to continue your mutual fund investments also needs to be updated. The mutual fund folio is changed to a non-resident folio from a resident folio. Note that this change is only possible if you have an NRO account.

Handling Investments and Power of Attorney

While you can continue your investment in Indian assets while residing in a foreign country, managing these assets from a distance could be extremely difficult. For this purpose, you can appoint a power of attorney (POA) to a relative you can trust, who can coordinate with you locally or handle the physical signatures required for your investments and assets.

While certain investments allow both fresh contributions as well as NRI interest, some investments cannot be taken up once the NRI status is achieved. For example, NRIs are not allowed to open a fresh PPF account. However, if a PPF account existed beforehand, NRIs can continue to operate the account and continue to make fresh contributions and receive interest on them as well. It must be noted, though, that for existing accounts too, NRIs cannot extend after the initial 15-year term is completed.

Taxation and Insurance

Taxation is one of the most important aspects that changes after you become an NRI. Your tax liability could change once you move abroad. Taxpayers should update their residency status on the income tax portal to avoid double taxation on their income or any unnecessary penalties for any income not disclosed earlier. NRIs are taxed in India only on any income sourced within the country, and not on their foreign income.

Any change in residency also needs to be communicated to insurers. Even if you become an NRI, you can continue to have insurance coverage that you had in India, and this needs to be communicated to you by the insurance companies.

Assets and Liabilities

Another important checklist to keep before moving abroad is to clear any outstanding liabilities. If you have any unpaid credit card bills, you should clear them to avoid any reflection in your credit card score in India. If the credit score declines, it could be difficult for you to get loans at a later date.

Meanwhile, if you are planning to stay in a foreign country for a long period, you should keep in mind any depreciating assets you own and possibly liquidate them before moving. Keeping these depreciating assets, such as cars, idle may be a problem for you to liquidate at a later date.

These steps could allow you to begin a new chapter in a foreign country without leaving any financial loose ends. Bon Voyage!