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Going abroad? How to take care of your finances
Veena Venugopal, Outlook Money |
October 30, 2007
Going abroad to work is not just about the correct stamps on your passport. Your investments, in India or abroad, need to go through the appropriate entry and exit points.
Deepak Khanna, 40, is leaving for Australia on a new work assignment soon. He doesn't plan to emigrate now, but wants to work abroad for a few years. While the thought of a new life in a new country is exciting, Khanna is also worried about what he is leaving behind - his investments, assets, and loans.
The paperwork that he needs to do before he goes, while he is in Australia and once he comes back, in order to rightfully own what is his, is mind boggling. The answer to "Who is a non-resident Indian?" depends on whether you are asking an income tax guy or a foreign exchange guy. Even though Khanna's employers are helping him with some of this, he has to rely on hearsay and amateur advice for most things.
Khanna is not alone. With the world's employment markets opening, many of us are taking the exciting opportunity of working abroad for a few years. What is a dampener, however, is not knowing what needs to be done to ensure that we are not, unwittingly, violating any laws. Here's what to do to make sure your finances are above board when you are abroad.
Before you set sail. Legally, there is not much you need to do before you leave. However, you must make sure that the bank accounts you will operate are Internet enabled and allow electronic transactions. If you have any systematic investment plans (SIP), or if you are paying off a loan, then automatic debit facility should be enabled.
If you hold Indian credit cards and intend to use them internationally, ensure that you can pay these online from your Indian bank [Get Quote] account. Ideally, hire a chartered accountant who you can trust as you would need to file income tax returns while you are abroad and it would be easy to execute these through him.
While you live it up. The first year is the worst, things get easier after that. For ease, begin by dividing yourself into two people - the tax you and the Fema you (foreign exchange). If you have been living in India for nine out of the 10 previous financial years (all years mentioned are from April to March) and for more than 729 days (two years) in the previous seven years, you are a resident and ordinarily resident (ROR) of India. So, during the year that you move abroad, if you have spent more than 182 days abroad you become a non-resident for that year. If your total stay abroad in the first year is less than 182 days, for that year you continue as an ROR.
If you are a non-resident for the first year, you can file your returns with only the income earned for the duration that you were in India. Your income from your salary abroad is not taxable in India. However, if you fall under the ROR category in the first year, your tax returns in India should also show your global earnings and you would be taxed on it. Some countries provide double taxation avoidance benefits.
The Fema you is a little less complicated. As long as your intent of going abroad is to take up a job there, you are a non-resident Indian (NRI) for Fema purposes on the day you reach your foreign shores. So, you should inform your bank accordingly and they would change your account into a non-resident ordinary (NRO) account. This could be a savings, current, fixed or recurring deposit account. You can, subsequently, also open a foreign currency non-resident account (FCNR) and non-resident rupee account (NRE). FCNR accounts allow you to deposit your foreign currency earnings in an Indian bank and NRE accounts allow you to repatriate your rupee funds abroad.
If you hold shares, debentures or other securities, you should inform the company about your change of status and give them your overseas address. You can continue to own property and earn rental or sale income from it. You can earn income from these and sell these as well, while you are abroad.
Your insurance policies in India can continue and you can pay the premium from your NRO account. If you have given any loans, you must inform the borrower and his repayments must necessarily be to your NRO account. You can continue to invest in Indian shares, mutual funds and even participate in IPOs as an NRI.
If you have taken any loan here, you can continue with them so long as the bank or the lender has no problems with you being abroad. However, you cannot extend the repayment schedule of this loan, and must pay it all up as per the original agreement. You can continue with your trusteeship or directorship in India, but the relevant trust and company must be informed about your change of status.
You do not need to declare jewellery and other moveable assets in India. If, however, you are carrying jewellery abroad, you must take permission for it in order to avoid paying duty when you bring it back.
If you earn any interest income or rent from India, or get money from the sale of shares or any securities, you can repatriate up to $1 million per calendar year to your foreign account. However, if you sell a house or any other immovable property, you can repatriate that only after keeping it in the NRO account for 10 years. You also have to continue filing your tax return on the income you earn in India.
Back on home shores. On your return, your income tax status changes to resident, but not ordinarily resident (RNOR). You are then taxed in India for all the income you generate here. However, for two years, all that you earn abroad such as interest or profits on business, would not be taxed in India. From the third year on, your income generated within and outside India will be taxed in India and your status will become resident Indian.
You become a resident as per Fema on the day of arrival in India. You can continue to hold foreign currency, security and immovable property abroad. You should, however, inform the Reserve Bank of India [Get Quote] about holding foreign currency accounts abroad. You can also repatriate income earned on your overseas assets to India.
On your return, you must inform your bank and change your account to a resident account. You can then open a resident foreign currency (RFC) account and transfer funds from your NRE and FCNR accounts to this. Things like your income from overseas assets, pension paid by foreign employer or foreign currency carried at the time of return can also be held in the RFC account.
You must also inform the companies whose shares, debentures and securities you hold about your return to India and provide the new address. If your overseas stint was more than two years you can also bring back some household effects without paying duty. These include computers, refrigerators, DVD players and washing machines.
As the memory of your expatriate living fades, the status of your finances as a resident Indian will also get firmed up over the next two years. Arguably, by then your friends would have tired of your "when I was in �" stories too.