Mind Your Finances

Some people who live abroad and dream that life just goes on and on. Advance planning is equally important here too if the NRIs want to live happily after returning back to India. Here are a couple of points:

1. Taxation: As a NRI, if his/her is India origin taxable income is more than Rs.2.5 lacs i.e., Indian incomes like rents received, interest on NRO accounts etc. then he/she needs to file his/her  tax return. If he/she stays in India more than 180 days then he/she would be considered as ‘resident’ for Income tax purpose. All his/her interest on NRI Bank deposits is taxable from day one of his/her becoming a resident. FCNR can be changed into RFC Accounts and can be held for two years without paying any tax. Thereafter it becomes resident income and even taxable. He/she needs to declare his/her foreign properties in his/her tax return. Now with the mandatory PAN card, one cannot escape and there are penal provisions for not filing their income tax returns. Hence, tax planning is something he/she needs to consider before he/she comes for good.

2. NRIs who do not plan to return soon: If he/she has enormous NRO deposits for which TDS is being deducted and he/she filing income tax returns, he/she can convert the NRO deposit to NRE deposit and is not required to pay any taxes or have TDS deduction. Many of them may not be aware of this provision. RBI allows transfer of an amount up to USD 1 million into NRE deposits from NRO funds. What you need to prove is that the NRO amount was from foreign remittances. The process is very simple. He/she needs to submit a certificate to the Bank in this regard from a Chartered Accountant and the Banks would do the rest. In India, the interest rates are expected to come down continuously and hence, the option could be used to account higher NRE interest rate for a longer maturity. It is essential to do the cost benefit analysis which will be taken into consideration tax savings also.

3. Financial Planning: It is something very important which should not be delayed. It is like a budget with a long term view where his/her life’s goals are be matched to his/her financial needs at different stages of his/her life. Whatever investment he/she will do should be as per this plan, rather than momentary decisions based on advices from sellers of investments with vested interests. Many of them fails to do this either due to lack of time, lack of knowledge which ends up in miserable investments. There are lots of good financial Advisors and he/she needs to test them for their ideas and choose one. Trying to file the income tax returns, he/she may take help from RMs of the Banks and some independent financial advisors. An independent adviser of repute will be the best as his/her proposition includes wider net of investment options than Bankers who are only focused on products related to their Banks. The independent adviser are also cost effective.

4. Investing: Essential rule in any careful investing is ‘do not keep all your eggs in one basket’. Hence expand. Keep suitable insurance for both life and medical. Bank deposits are the most common place for most NRIs to invest in. But once he/she is back, Bank fixed deposits (FD) are not tax efficient. There is no rise relating the tax benefits allowed for Bank deposits. There are other avenues like mutual funds (MF) both equity and debt as underlying properties. For equity mutual funds, there is no tax on capital gains after one year. For debt mutual funds, he/she will get indexation benefit (rise deduction) on capital gains after 3 years. Thus very much tax useful as compared to Bank FD. Now debt mutual funds are much safer and yield returns higher than Bank FD net of tax. Equity mutual funds are more variable based on the Stock market. The best way to invest in equity MFs is through Systematic Investment Plan route. Here every month or every week depending on how comfortable he/she is, an assured amount is systematically invested in these mutual funds. The risk is on average. Indian economy is stabilised to grow very well in the coming years and no capital gains tax on the equity investments would yield better returns on the long run.

5. Tax free bonds: Once he/she is back and if he/she is lucky, sometimes he/she can get opportunities to invest in tax free bonds, which are 15 years of maturity and with 8 to 9% tax free interest. This is as good as getting 11.5% on the Bank deposits. He/she can also invest up to Rs.1.5 lakhs per year in Public Provident Fund. This is tax free but needs to be held for a longer period. The Tax free bonds are safe with good ratings and are tradable on the Stock exchange.

6. Real estate: It is something that many NRIs are interested in. This is definitely a very good investment. As compared to flats, holding land will output more returns in the long run, but there are a lot of issues with the management especially in Bangalore with many unpleasant incidents. He/she definitely requires somebody to look after his/her investments locally.

7. PMS: One thing which is important is to have a PMS account (Portfolio Management Account) with wealth managers of repute. Here his/her wealth manager handles his/her investment on his/her behalf with his/her Power of Attorney. The investments are explained as per the plan and he/she will have a separate Bank and a Demat account in his/her name. There will be online visibility of the investments made on his/her behalf. Moreover, there are strict rules by SEBI (Securities Exchange Board of India) which is a watchdog with quasi-judiciary powers. Later, SEBI have even come down heavily on many companies who disregarded their rules.

Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.

With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.