Financial planning for NRIs is equally important as for Indian resident. There’s not much difference between them as both have their goals which needs to be achieved with the cash flow they have. But in the case of NRIs extra precaution to be taken in the form of understanding the currency fluctuation, taxation and income/expenses pattern in the country of residence and where they want to enjoy that goal. Financial Planning for NRIs becomes more important when they have plans to come back to India in the near term or after retirement.
Some of the investment options are government securities, treasury bills, mutual funds, bonds issued by PSU, certificate of deposits, perpetual bonds, stocks, ETF, money market mutual funds, real estate property, company deposits and more.
But for money to be parked for short term or long-term investments, an NRI needs to have any one of three following types of banks accounts:
Non-Resident Ordinary Rupee Account (NRO)
This account is not suitable if you want to transfer Indian earnings abroad freely as it has USD1million limit .It also needs tax paid certificate from certified CA before repatriation. Foreign funds can also be deposited in this account. The interest earned through this account is liable to be taxed in India. The interest is subject to income tax deduction at source at 30%, plus applicable surcharge and education cess, says an article published in Money Control in November 2012. It should primarily be used for depositing/managing your earnings in India.
Non-Resident External Rupee Account (NRE)
In this type of account, your funds in foreign currency are converted into Indian rupees and the rate prevailing at the time of conversion is applicable. Funds in the NRE account as well as the principal amount and interest are completely repatriable. You can open an NRE savings, recurring or fixed deposit account.
Foreign Currency Non-Resident Bank Deposits (FCNR)
These are term deposit or fixed deposit accounts, where you can deposit your money in foreign currency. This account can help you avoid the fluctuations in the exchange rate. The account can be opened jointly with an Indian resident. The deposits must be made for a minimum maturity period of one year and maximum maturity period of 5 years. The interest earned under this account is tax free, while the principal amount is taxed under wealth tax. Interest earned on FCNR fixed deposit is close to 1.5-2.0%.
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