Friday, August 11, 2017

What happens to bank account, Fixed Deposit, and Insurance Policy When you become NRI?

One of the most common doubt among new NRIs are about their bank accounts e.g. what happens to their bank account, Fixed deposit, Demat accounts, brokerage accounts, and insurance policies when they become non-resident Indian? Well, once your residential status changed from resident Indian to non-resident there are certainly few changes in your financial accounts. For example, your resident account needs to be converted into NRO account. You also become eligible to open NRE (Non-resident external) account. Similarly, once you become NRI you need to inform your bank about your fixed deposits, brokerage accounts, and insurance policies.


As per RBI regulation, once you become NRI, you need to re-designate the Fixed deposits opened as a resident to NRO FDs. What that means? quite a lot because interest earned on NRO fixed deposits are charged at the rate of 30.9% which is quite high.

I think the best option for you is to transfer those fixed deposits in name of your parents or your wife if she is still resident Indian. If she is with you in abroad then you can always open new FDs in name of your parent, you might even get better interest rate if your parent is a senior citizen, because most of the banks give .5% more interest on fixed deposits to senior citizens.

Similarly, your brokerage account will also be required to link with your NRE account but thankfully there is no change in insurance policies, though it's better to inform your insurer and find out whether you are covered outside India or not.

Let's see them in little more detail.





What happens to your bank account when you become NRI?


You have only a resident account: In case you have only a resident account then you will have to fill in a new account NRI relationship opening form. Click here to know more. While filling in the relationship details please mention your resident account number/ s that can be used to convert the resident account to NRO. The account number will remain the same for your convenience.

In case you simultaneously hold a non-resident account and resident account and your status are that of non-resident Indian, you need to convert your resident account to NRO. This is in line with the applicable FEMA guidelines. For the same, you will have to fill-in a resident to NRO conversion request form. Click here to know more.

Note:
After re-designation of your resident savings account to NRO savings account, the account number will remain the same and funds from a resident savings account will automatically be transferred to NRO savings account. If your Indian resident address is same i.e. you are not changing your permanent address then you would not be required to submit the proof. However, if it has changed then you would be required to submit the proof. btw, current (i.e. overseas) address proof is mandatory.



What happens to your Fixed deposit once you become NRI?

As per RBI regulation, once you attain an NRI status, you need to Re-designate the FDs opened as a resident to NRO fixed deposits. Please note that tax @ 30.9% will be levied on interest earned on NRO fixed deposits.


What happens to your brokerage account after you attain NRI status?

As per RBI guidelines, an NRI needs to have a separate bank account exclusively for Portfolio Investment Scheme (PIS) purposes. This account can be jointly held.

NRIs should also have separate bank accounts for PIS and Non-PIS transactions.  Hence, after your request, your Resident brokerage Account will be delinked. Your Trading Account will be deactivated and your holdings will be transferred to the NRI PIS Account.


What happens to your Public Provided Fund (PPF) Account?

If you have an active PPF account which you opened when you were resident Indian then you can still contribute 1.5 lakhs INR per annum and earn the tax-free interest rate of 8% or whatever applicable for that year. Even though NRIs cannot open new PPF account, they are allowed to keep investing in existing Public Provident Fund account.

What happens to bank account, Fixed Deposit, and Insurance Policy When you become NRI?


What happens to your insurance policies when you become NRI?

Insurance policies bought as a resident continues to be as is. However, it is advisable to inform the insurance company about the change in status from resident to NRI. Some insurance policy covers you all over the world and some only in India, so it is also good to check that.


That's all about some important things you should know after becoming NRI. Remember to inform your bank about your residential status change and asked them to convert your resident account into NRO account.

You also need to open an NRE account, not just to take advantage of tax-free NRE fixed deposits but also for transferring your overseas income into it, remember interest earned on NRO fixed deposit is charged @ 30.9%, which is quite high.

There is no change in your insurance policies but its good to inform them that you are now an NRI and confirm if you are covered abroad or not. You also need to inform your brokerage about your residential status change.

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