Whether you're heading overseas for a new job, higher education or planning to settle abroad, your move involves more than just visas and travel bookings. Once you qualify as a Non-Resident Indian (NRI) under Indian law, several financial, tax and legal obligations change.
Failing to update your banking, investments or tax records can lead to regulatory issues, higher taxes or complications in managing assets back home. Here's a guide on six important steps every Indian must take before relocating overseas.
1. Convert savings account into NRO, NRE accounts
Under the Foreign Exchange Management Act (FEMA), a person who becomes an NRI is not permitted to continue operating a regular resident savings account. Existing resident accounts should be redesignated as either a Non-Resident Ordinary (NRO) account or a Non-Resident External (NRE) account.
An NRE account is meant for income earned abroad and allows funds to be repatriated subject to RBI rules. An NRO account is used to manage income generated in India, such as rent, pension, dividends or fixed deposit interest, which may be subject to Indian taxes.
2. Update your KYC and tax residency details
{{/usCountry}}An NRE account is meant for income earned abroad and allows funds to be repatriated subject to RBI rules. An NRO account is used to manage income generated in India, such as rent, pension, dividends or fixed deposit interest, which may be subject to Indian taxes.
2. Update your KYC and tax residency details
{{/usCountry}}NRIs are required to update their residential status with mutual fund registrars, banks and other financial institutions. The change is important because tax deduction at source (TDS), reporting requirements and investment rules differ for resident Indians and NRIs.
Your residential status should also be updated on the Income Tax Department's e-filing portal to ensure that tax filings accurately reflect your NRI status.
3. Execute a Power of Attorney
Managing financial affairs in India from another country can be challenging. A registered Power of Attorney (PoA) allows a trusted family member or representative to handle transactions such as selling property, signing legal documents, operating bank accounts or collecting rental income on your behalf.
While not mandatory, a PoA can significantly simplify property and financial management during your stay abroad.
4. Obtain a Tax Residency Certificate
If you become a tax resident of another country, obtaining a Tax Residency Certificate (TRC) from that country's tax authority is an important step.
To claim benefits under India's Double Taxation Avoidance Agreement (DTAA), NRIs generally need to furnish the TRC along with Form 10F while filing their Indian income tax return. These documents help prevent the same income from being taxed twice, subject to the provisions of the applicable tax treaty.
5. Prepare and register a Will
NRIs with assets in India must create a Will covering their Indian properties, investments and bank accounts.
Although nominees can receive certain financial assets, they may not always become the legal owners. A properly drafted Will helps identify the rightful beneficiaries and can reduce the chances of inheritance disputes after the owner's death.
6. Review your health insurance coverage
Healthcare systems in many countries involve waiting periods, high treatment costs or limited coverage for new residents. Because of this, many NRIs continue to seek medical treatment in India.
Individuals must review their health insurance before leaving and considering a policy with adequate coverage if you intend to retain healthcare access in India. The amount of coverage required depends on individual needs, age and medical history.
Why these steps matter
Moving abroad changes your legal and financial status in India. Updating your banking arrangements, tax records, investment accounts and estate planning documents can help ensure compliance with Indian regulations while making it easier to manage your finances and assets from overseas.
For prospective NRIs, taking these steps before departure can reduce administrative hurdles and help avoid avoidable tax and legal complications later.