As far as status of being non resident is concerned, there are two different laws under which you become a non resident. Let us understan...
As far as status of being non resident is concerned, there are two different laws under which you become a non resident. Let us understand what impacts a person when one becomes a non resident and what you are is required to do once you become a non resident.
Under the income tax laws
The one set of laws governing [residential status] are part of the income tax laws. Under the income tax laws an individual becomes a non resident on staying out of India for certain period during the financial year and the status is generally residential status is determined at the end of the year. When a person becomes a non resident under income tax laws, he is not per se required to do anything proactively. However a non resident under income tax laws has to file his income tax return only if his Indian income exceeds the basic exemption limit. While filing the income tax returns you have to indicate your residential status as non resident in case you have become a non resident on the basis of your stay outside India.
Under FEMA laws
Under FEMA (Foreign Exchange Management Act), the Foreign Exchange laws of India, you become a non resident not on the basis of your stay outside India but on the basis of your intention. So under FEMA, you will become a non resident as soon as you leave the country for the purpose of taking up an employment or starting any business or profession outside India or leave the country with an intention to stay outside India for an indefinite period of time. In case you are leaving India to take up an employment abroad, technically you will become a non resident as soon as your aircraft takes off. So the FEMA goes by intention. Strictly speaking as soon as you become a non resident, you are supposed to do certain things. But it is not always possible to do so these instantly and you can do these things as soon as it is possible.
First of all you have to intimate your bankers about you having become a non resident. Once the intimation is received by your bankers, all your existing bank accounts will be designated as Non Resident Ordinary( NRO) account. This applies to all your bank accounts including your saving banks accounts, your fixed deposits and even your recurring bank accounts. Once your bank accounts have been designated as NRO accounts, the bank will deduct tax, at the rates applicable to a non resident which is 30% presently at source, on interest credited. Even for a saving bank account for residents where no tax is deducted on interest credited, the bank will start deducting TDS on even on the interest credited to your NRO account.
Since as an NRI you are not allowed to open a new PPF account but are allowed to continue to subscribe in your existing PPF account for the initial 15 years tenure, it makes sense for you to open an new PPF account if you do not have one, just before you becoming an NRI. Even if you are holding a PPF account before becoming an NRI, you need to inform the banks so that the bank become aware of your residential status and do not extend the same beyond the initial period of 15 years.
Once you become an NRI, you should open an NRE account in order to maintain the wall between the money which you earned or accumulated while in India and the money earned outside India, which can be freely sent back and used outside India. Once the money received from abroad is credited to your NRO account, it loses its different character and you will have to follow the prescribed procedure to re transfer the same to abroad again and that too can be done within the prescribed limits applicable at the relevant time. So in case you have your NRE account opened, the money lying to credit of this account can freely be transferred back aboard.
As far as your existing investments in shares, bonds etc. are concerned as a resident there are no restriction as to the limit upto which you can invest in Indian companies but once you become an NRI the specific limits become applicable. In order to track these limits the RBI requires you to either re-designate the existing demat account as that with status of non resident or open a new Demat account with status as non resident and transfer all you existing investments in the Non resident demat account. The sale proceeds from such accounts can not be fully repatriated outside India so it is advisable to open another demat account designated as NRE account, with remittance from your NRE account which then becomes fully repatriable.
Like the banks, you should also inform the mutual fund houses and insurance companies and update your basic information so that their records are updated. In case of running SIPs (systematic Investment Plan) you may have to discontinue some of the SIPs in case your fund house does allow the residents of your new country of residence.
You may also consider the matter of appointing a power of attorney holder to represent you in India and to operate the banks accounts and carry out certain transactions on your behalf in your absence. Please note that you do not require any permission from RBI for earning any income outside India.
(The author is a CA, CS and CFP. He can be reached at jainbalwant at gmail.com and @jainbalwant)
By Balwant Jain (CA, CS and CFP)The author is a CA, CS and CFP. Presently working as Company Secretary of Bombay Oxygen Corporation Limited. Views are personal., He can be reached at email@example.com and @jainbalwant