Indian Income Tax Act Redefines NRI Status: New Timelines Announced
The Income Tax Act of India has made changes to how many days an Indian national has to stay out of India to be called a Non-Resident of India. Indians now have to stay abroad for over 240 days to be called an NRI unlike the previous 182 days. This will also reflect in how he will be taxed.
Additionally, if the NRI is in any foreign country that is not considered a resident by that country, he will be deemed a resident of India and taxed on his worldwide income.
This stay could be for purposes of travel, work or the pursuit of some vocation. This does not imply a change of citizenship. India has a very few countries that fall under the purview of dual citizenship wherein the person can hold both Indian as well as citizenship of a foreign country. USA, for example is not a country that is granted dual citizenship under the Indian laws.
Have you recently moved to the US or another foreign country? Or are you in the process of making this huge move? It takes more than just packing your bags and boarding a flight. You have a few essential formalities to complete before you make that long-stay trip abroad.
Steps NRI Should Take Before Moving Out of India
- Notify all financial institutions
Once your travel plans are confirmed and you are sure your move will be more than 182 days out of India, be sure to notify all insurance, banking, safety deposit lockers and other financial institutions including long-term savings and retirement accounts about your move and subsequent change in NRI status.
- Open a NRE Account
A Non-Resident External Account (rupee denomination) allows you to remit funds herein outside India and has the added benefit of being tax free. Another alternative is opening a Foreign Currency Non-Resident (Foreign Currency Denominated) Account (FCNR) which allows you to bring in your foreign earnings to India.
- Power of Attorney
You may want designate a trustworthy and reliable person as a Power of Attorney. This could be a trusted friend or a close member of your family wo can act in your lieu and conduct any formalities on your behalf in India. This covers all activities which require your signature, including any financial authorizations required in India.
- Convert existing Indian bank accounts to NRO
Your local bank should be notified of your change in status. Consequently, your existing bank account should be converted to a Non-Resident Ordinary account. This will function as a regular savings account and can be used to make regular rupee payments within India. This account accepts foreign earnings which is converted into Indian rupees.
This includes any joint accounts you may hold. If you are the primary operator of the account, you will have to give affidavits and power of attorney to the secondary account holder to act in your absence.
- Convert Demat Accounts to PIN accounts
If you held a DEMAT account before change of status to NRI, you will be allowed to continue owning but will be non-repatriatable. NO equity investments on agricultural or real estate activities can be conducted on these accounts. Instead, it is advisable to open up a Portfolio investment scheme account should be opened that is mandated for NRIs who want to invest in securities listed on stock exchange.
- PPF and NSC accounts
Per a recent missive by the Indian government, all Provident funds and National savings certificates that acts as long term savings will only be allowed to run its course until expiration. NRI aren’t permitted to start a new one, to extend it or withdraw from it and take it to a foreign country. Instead it has to be deposited into a NRO account.
- Repayment of Loans
Once abroad there are several ways to ensure repayment of loans are continued However, once your status changes to a NRI, you have to find reliable remittance tools. CompareRemit is an ideal marketplace of remitting agencies that help send money back to India.
- Insurance policies
NRIs, in most cases are not covered abroad for medical insurances. It is advisable to take traveling medical insurance plan that is globally covered. VisitorsCoverage, for instances has many options that cover travelers abroad. Depending upon factors like age, and length of stay and physical condition, there are many options plans like Cover America Gold that take care of most travelers’ insurance needs.
The terms and conditions of life insurance policies should be reevaluated if going out of India.
- Income reporting
Once you are a NRI and living in the US, the US government has mandated that you report all incomes earned outside of the US. This applies to anything earned from rental properties or fixed deposit accounts in India. FBARs have to be submitted annually and not doing so can accrue severe penalties from the US government. Under $10,000 there is no taxes liable, just reporting is mandated.