Some of my NRI blog readers have reached out to me in the past asking me to put together a list of key Industry Best Practices in the context of Personal Finance for a US-based NRI.
I am listing a few Best Practices which would be useful to the US-based NRIs in various stages of their life cycle:
Before moving out of India
- Consolidate your existing Savings Bank accounts. Convert existing Saving Accounts to NRO account.
- Close Bank lockers as you would be unnecessary paying the maintenance charges
- Open an NRE account
- Continue your existing Term Life Insurance and Health insurance policies if you plan to return back to India
- Open / Continue your PPF account if you want to use that as part of your Fixed Income strategy
- Dispose of passive investments such as Mutual Funds as the taxation of PFIC investments is punitive for a US person (for tax purposes).
- If you want to invest in stocks in India, open Portfolio Investment Scheme (PIS/PINS) account
- Reduce your Real Estate exposure because it is difficult to manage/dispose it off from abroad.
- Assign POA (Power of Attorney) to a person whom you trust to operate the financial transactions which you may not be able to do from abroad
After you have moved to the US
- You can use NRE Fixed Deposit as part of the Fixed income strategy as India does not tax NRE income from NRE Savings / Fixed Deposits
- Take advantage of qualified retirement plans such as 401 K, IRA, 403b which may have matching contributions from your employer and will help you build your equity faster
- While in the US, take advantage of Equity investment as it is one of the best markets to provide global investment opportunities at a very competitive cost
- You can take exposure to the Indian Equity market from the US using India specific Mutual Funds / ETFs
Planning to come back to India
- If you are planning to come back to India and you are closer to earning 40 social security credits (40 credits will make you eligible for social security), consider delaying your move to get those credits
- Leave a bank account and a credit card active, which can be operated from India and will make your future travel to the US easy
- Sell all your illiquid assets (e.g. Real Estate) as it is difficult to manage that from India
- You can consider leaving qualified retirement plans in the US including 401 K, IRA, 403b as the tax is deferred when your income is high and you can control the withdrawal post 59 ½ to pay optimal tax.
- Judiciously decide the amount of the assets you want to leave in the US, as the Estate Tax for the non-resident alien is high
- If Capital gain can be deferred till the RNOR period, do so to manage tax better
- Some states in the US may continue to tax your income post your move back to India considering you to be a domicile of the state. Terminate the domicile status.
- Purchase health insurance from Indian Insurers 3-4 years before your move so that your pre-existing diseases are covered once you move back to India
On Return to India
- Convert NRO account (Savings Bank, DMAT) to Resident Account
- Convert NRE account (Savings Bank, DMAT) to Resident Account
- If you want to keep foreign currency for future usage abroad, you can convert your FCNR account to an RFC account
- Apply for W8-BEN in your US brokerage to stop TDS
- Do not forget to pay taxes in India on the interest earned on NRE FDs and FCNR once you have become an Indian Resident
- Plan sale of Capital Assets (e.g. Equity) in the US during the RNOR period in such a way that you do not have to pay taxes in the US and in India
- Do not forget to update the mailing address in US accounts so that you receive the tax statements and act on it
- On an ongoing basis, do not forget to file taxes in the US if you have US sourced income (e.g. Interest, Dividend, Rental Income)
- While in India, if you are offered RSUs of a US-based company, please do not move the sale proceeds to your US-domiciled Accounts directly as that will be a violation of FEMA. Bring that money back to India within 90 days and then move the money to a US-domiciled account through the LRS scheme.
- Ensure that you report foreign assets in your Indian tax filing
- Under DTAA, you should pay taxes in the country where income is earned and then take credit in the other country
Note – This blog is meant for the Indian NRIs who are planning to travel or have travelled to the US on work visa but have not taken US Citizenship or are not Green Card holders. While most of the suggestions are common, the US Citizens and Green Card holders have few unique requirements. This information is on the best effort basis. Please reach out to SMEs before taking any investment decision.
You may also like to read Investing for the US based NRI.
The writer is a SEBI Registered Investment Adviser and Founder of FinMyn (https://finmyn.com).
He provides Fee-Only Financial Planning and Investment Advisory services. He has helped many NRI clients across the globe including those from the US, Europe, Australia, Middle East and South-East Asia).
To know more about him, click on https://finmyn.com/about/.