Are You Planning to Settle in Abroad? Tips to Manage Your Finances

Whether you are moving because of a job, study or for any reason, Settling Abroad is an exciting and life-changing moment. Settling Abroad offers numerous opportunities, challenges, and adventures that not only help you to grow in your career but also help you to grow wise. It is most important for the individual to have a clear plan regarding the management of finances. In this article, we will discuss some valuable tips tips to manage your finances that help you to go through the financial aspects of Settling Abroad.

Before we move on to discuss some valuable tips to manage your finances help you navigate the financial aspects of Settling Abroad, it’s essential to look into other financial aspects regarding Income Accrued India and Portfolio Investment Scheme.

Understanding Income Accrual

When an individual settles abroad, they might still have financial relations with their home country, including property ownership, investments, or business interests. This means that income will continue to be generated from these sources in India even after relocating. 

The accrued income may be obtained from different sources in the form of rental income from property, interest paid on investments, dividends received from stocks, or profit gained from a business venture.

Indian tax laws, specifically the Income Tax Act, of 1961, govern the taxation of global income earned by Indian residents. 

The concept of “residential status” plays a significant role in determining how income is accrued and taxed for expatriates.

• Residential Status: In India, the residential income of an individual is categorized as Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), or Non-Resident Indian (NRI). The status is analyzed based on an individual’s physical presence in India during a financial year and the preceding years.
• Taxable Income: For RORs, global income is taxable in India. This includes income yield abroad, such as salaries, business income, rental income, and capital gains. However, for RNORs and NRs, only income earned or accrued in India is taxable.
• Double Taxation Avoidance Agreement (DTAA): Double Taxation Avoidance Agreement or DTAAs are the instrument introduced by the Income Tax Department that helps the individual avoid the payment of dual taxation.When an individual settles abroad for work or any reason for the matter then he is eligible to pay the tax on the income incurred by him in the foreign country. However, it becomes very painful for many taxpayers who have not settled abroad but are living in a foreign country for a short duration to pay the tax in a host as well as in the parent country. To avoid this scenario India has signed DTAA Agreements with several countries to prevent double taxation of income.

Understanding the Portfolio Investment Scheme (PIS)

The Portfolio Investment Scheme (PIS) is one of the regulatory frameworks which was established by the Reserve Bank of India (RBI). By using Portfolio Investment Scheme the NRIs and PIOs can invest in the stock markets of India. 

The PIS was introduced to simplify the process of investments by NRIs and PIOs, providing an organized path to invest in the Indian stock market. This scheme has enhanced the participation of Indian immigrants in the country’s economic growth and development.

Key Features of the Portfolio Investment Scheme

The following are the key Features of the Portfolio Investment Scheme:

• Eligibility Criteria: NRIs and PIOs are eligible to invest under the PIS. NRIs are individuals who hold an Indian passport, while PIOs are individuals who have foreign citizenship but can trace their Indian origin.
• Investment Limits: The RBI sets investment limits for NRIs and PIOs under the PIS. These investment limits are dependent upon the changes and are usually analyzed of the individual’s citizenship, residency status, and investment type. 
• Designated Bank Account: To invest under the PIS, the individual is required to open a designated bank account known as a Non-Resident (External) Account (NRE Account) or a Foreign Currency Non-Resident (FCNR) Account. This account is used for routing transactions regarding stock market investments.
• Reporting Requirements: Investors under the PIS are required to submit their transactions to the designated bank, which in return, reports these transactions to the RBI. This practice of reporting ensures transparency and compliance with regulatory guidelines.
• Repatriation of Funds: One of the significant advantages of the PIS is the ease of repatriation of funds. Being subject to the RBI’s guidelines, Investors are eligible to repatriate the proceeds of sale from their investments, along with capital appreciation.
• Tax Implications: Investors should be aware of the tax implications of their investments under the PIS. Laws about Taxation may vary based on the investment type, the duration of the holding period, and the investor’s country of residence.

The Portfolio Investment Scheme offers a path for individuals to explore international investment opportunities and potentially realize their dream of Settling Abroad.

Settling Abroad: Tips to Manage Your Finances

The following are the tips to manage your finances that you should keep in mind regarding managing your finances in case you are Settling Abroad:

• Redesignate or Close Bank Accounts

You shall be regarded as a non-resident of India as of the day that you left the nation to make your home in a foreign country. You must either close or convert your savings bank account, fixed deposit, and recurring deposit into a Non-Resident (Ordinary) Rupee Account (NRO).

All the money earned in India in the form of Rent, interest, dividends, etc., in India will all be kept in your NRO account. After you move to a foreign country and in case you wish to send your money back to India, then take the help of a Non-Resident Rupee (NRE) Rupee Account. 

Both the NRE and the NRO accounts are in rupees and you are obliged to furnish all the necessary required documents to verify that your accounts are aligning with the Know-Your-Customer (KYC) standards.

• Repayment of current Debts and Loans

It’s crucial to pay off any outstanding debt or credit card obligations before departing India.

• Avoid immediately terminating all Insurance

Many people are in a hurry to cancel their Life and Health Insurance before travelling abroad. As a result, they are no longer covered until new insurance is purchased abroad. By granting your bank an ECS mandate for prompt payment, you can keep making premium payments. 

If you have the intention to come back to your home country then, you should keep your health insurance working in India. You can also consult with your insurer if the policy concerned is still in effect in the country to which you are moving.

• Give a reliable individual a Power of Attorney

By granting the Power of Attorney (PoA) to a reliable individual, who can then manage any legal or financial work in India on your behalf, you can maintain such financial accounts without any issue.

• Create an account for a Portfolio Investment Scheme

You are eligible to invest in the Indian Stock Market once you have successfully created your Portfolio Investment Scheme (PIS) account with a bank. To purchase and sell stocks, a person is allowed to have only one PIS account open at a time. 

Please note that NRIs cannot engage in day trading or short selling. When investing in mutual funds, confirm if the respective fund houses permit investments from NRO Accounts. 

After you become an NRI, you must close your DEMAT account. It is pertinent to note that NRIs are not permitted to invest in government programmes like PPF, NSC, or NPS. If you already have these accounts, though, you can keep investing.

• Stay Informed About Taxation

The number of days spent in India throughout the fiscal year will determine how much tax is due to you. To guarantee a smooth transition from an Indian resident to an NRI, consider consulting a tax professional who has expertise in international taxation to ensure compliance with all applicable laws.

Connect with our Tax Experts at Legal Window regarding any Taxation, Our Experts will efficiently guide you and will try to resolve your concern as per the latest Income Tax Rules prevailing in the Country.

Way Forward

Settling Abroad can be rewarding yet challenging, and effective financial management is key to making the most of your new life. By creating a realistic budget, understanding local costs, opening local bank accounts, and being informed about financial planning, you can set yourself up for success in your new country. With the right planning, you can confidently direct the financial aspects of your international journey.