What should you be doing about your taxes: A glimpse into NRI taxation

A large number of NRIs do not file taxes, as they live overseas and therefore believe that there is no need. However, there are two major situations when NRIs should file returns in India. Firstly, if the income earned in India exceeds the maximum permissible limit as basic exemption. At this point, the maximum exemption limit is Rs. 250,000. Incomes like salary arising from services provided in India, income from house property, capital gains arising from sale of property in India, income from deposits held in India will be taxable in India. Secondly, they should be filed to claim return if deducted tax is more than what was payable, so that you can claim a refund.

There are two major situations when NRIs should file returns in India. Firstly, if the income earned in India exceeds the maximum permissible limit as basic exemption. At this point, the maximum exemption limit is Rs. 250,000. Incomes like salary arising from services provided in India, income from house property, capital gains arising from sale of property in India, income from deposits held in India will be taxable in India. Secondly, they should be filed to claim return if deducted tax is more than what was payable, so that you can claim a refund.

A lot of NRIs are unaware of the fact that in order to track expenses and investments above a certain threshold for all individuals – residents or NRIs, Annual Information Reports (AIRs) have to be filed by various entities in India like banks, Mutual funds,  bond issuers, registrars for real estate purchases above a certain value, amongst other transactions. Therefore, you could get a notice due to these reasons if your name appears in an AIR and you are not filing tax returns. Whilst this may not mean that taxes are due, you will need to respond to the notice, which can be rather challenging if you are out of the country. Thus, it is advisable to have your taxes in India in order.

If you are a tax resident in geographies where you may be able to take tax advantage of the double taxation avoidance treaty between India and that country, you must take advantage of that. If you sell direct equity/stocks, short term capital gain applicable is 15%. The long term capital gain on sale of direct equity is Nil ie for equities held over 1 year. NRIs have to trade through a broker if they wish to invest in direct equities. They can trade only on delivery basis and intraday trades are not allowed. They have to open a Portfolio Investment Scheme (PIS) account where their trades get reported within 24 hours.

If you are a tax resident in geographies where you may be able to take tax advantage of the double taxation avoidance treaty between India and that country, you must take advantage of that.

Debt and Equity Mutual Fundshave different tax rules. For equity Mutual funds the tax rate applicable is 15% for holding period of less than 12 months and for holding period of greater than 12 months it is Nil. Non equity mutual funds ie debt funds, gold funds, are taxed like real estate ie the tax rate for a holding period of less than 36 months is as per the marginal rate. If you hold them for a period greater than 36 months a long term capital gain tax rate of 20% with indexation is applicable .

If you are looking at investment options to save for your retirement goal then New Pension Scheme is an option you can look at. NRIs are allowed to invest in NPS.

NPS is useful for NRIs living in Middle Eastern countries, since they do not have mandatory social security benefits in their countries of residence unlike many other geographies. NRIs own contribution is eligible for tax deduction u/s 80CCD (1) of income tax act up to 10% of gross income with overall ceiling of Rs. 1.50 lakhs u/s 80CCE of income tax act.From FY 201516investors are allowed tax deduction of additional Rs. 50,000 under 80CCD1(B).

NRIs wishingto invest in FDs can look at Foreign Currency Non Resident ( FCNR) deposits. It is in the form of a fixed Term deposit account denominated in foregin currencies. In this case NRIs can park overseas income as foreign currency in India without having toconvert it to Indian Rupees. The rates on these deposits depend on tenure of investment and the currency in which you park your funds. Principal and interest are fully repatriable. For NRIs interest is not taxable in India. However, they could be taxed in the country of residence of the NRI, for example in the US. Similar is the case with NRE accounts.

A resident foreign currency account (RFC) account can be used by NRIs who are returning back to settle in India, to park overseas income as foreign currency in India without having to convert them into rupees. Funds are fully repatriable and can be transferred from RFC to NRE and vice versa. Interest earned on RFC account will be exempt from income tax as long as you are Resident but not ordinary resident (RNOR).

Image credit: www.taxinsightworld.com

 

 

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Should NRIs invest in a commercial property?

NRIs looking for higher rental yield should consider investing in a commercial property in India. Here is a look at the pros and cons of such an investment and advice on what to do and what to avoid while making this investment.

Image Source:www.bangalorebest.com

NRIs keen to invest in a property in India should evaluate the prospects of the commercial (office) segment. This segment offers several advantages vis-a-vis the residential segment. The rental yield is currently higher at 7-9% p.a. compared to the 2-3% p.a. yield that the residential segment offers. Rental yields drop when one comes to smaller commercial spaces though, but are still likely to be higher than those offered in the residential segment. Whereas residential real estate in India is caught in a downturn which may last for quite some time owing to the high inventory levels in most leading cities, there is greater equilibrium between demand and supply in the commercial segment, and rentals are inching up in most leading metros. As the economic recovery gathers momentum, as is widely expected to happen in 2016 and 2017, the demand for commercial space should increase further.

This segment offers several advantages vis-a-vis the residential segment. The rental yield is currently higher at 7-9% p.a. compared to the 2-3% p.a. yield that the residential segment offers.

Another advantage of investing in a commercial property is that NRIs can use it to run their own venture if and when they return to India. However, be warned that the capital appreciation in office property tends to be lower than in residential property over the long term. And if you are looking for a loan to buy the property, that too may be harder to get than a loan for purchasing a residential property. While the Indian economy is on the cusp of a cyclical recovery, be warned that a downturn in the economy has a negative impact on the demand for office space. The office space you have bought could remain vacant or you may find it difficult to revise rentals upward.

Capital appreciation in office property tends to be lower than in residential property over the long term. And if you are looking for a loan to buy the property, that too may be harder to get than a loan for purchasing a residential property.

Outlook for office segment

According to CBRE South Asia’s third-quarter 2015 report on the office segment, sentiment within this segment is positive, with the ongoing economic recovery supporting the demand for office space. Leasing demand is expected to be steady in the coming months. Demand will be driven chiefly by IT-ITeS and banking and financial services. To a lesser extent, it will also come from manufacturing and engineering, e-commerce, research and consulting and pharma companies.

According to CBRE South Asia’s third-quarter 2015 report on the office segment, sentiment within this segment is positive, with the ongoing economic recovery supporting the demand for office space.

While demand in the central business districts of all the major cities will remain strong, there will also be demand in the peripheral markets from occupiers looking for cost-effective spaces.

The report from CBRE adds that demand for quality office buildings will be high and such spaces are likely to get leased out even before they are completed.

What to do? And what to avoid?

When buying commercial property, choose a location where the pace of economic growth and job creation is likely to be high in the future. While capital values tend to be lower in the peripheral areas of a city, the availability of empty land in the vicinity means that there is no limit on the supply that can come in. This has the potential to cap the growth in rentals in these areas.

When buying commercial property, choose a location where the pace of economic growth and job creation is likely to be high in the future.

Check the infrastructure in the locality that you choose to invest in. The area should be well connected by highways and possibly a Metro or rail link. The inner roads in the locality should be in good shape. The building that you choose to invest in should be situated on a wide road so that it is easily accessible.

Next, the NRI should check the credentials of the builder in whose project he intends to invest. One way to do so is to have a trusted source visit a couple of his older projects and speak to owners in those buildings. They will be able to tell whether the builder had delivered the project on time and had adhered to the quality standards that he had promised. Check out the quality of maintenance in his older projects. Either the developer himself or a maintenance agency could be handling this task. The quality of maintenance is crucial since it determines the ability of a building to attract new tenants.

Next, the NRI should check the credentials of the builder in whose project he intends to invest.

NRIs should get a lawyer to do the legal due diligence. This includes determining that the developer has acquired and is the rightful owner of the land on which he is developing the property, and has obtained all the statutory clearances for developing the property.

NRIs should get a lawyer to do the legal due diligence.

The stage of development at which the NRI invests in a commercial property also determines its level of risk. If he invests in a property that is under construction, he is likely to get more capital appreciation in it. But he will also have to face what is known as development risk—the risk that the project may be delayed or may not be completed at all. On the other hand, if he invests in a property that is completed but not rented, or completed and rented out, he is likely to get lower capital appreciation in such a project. But his risks will also be much less.

If he invests in a property that is under construction, he is likely to get more capital appreciation in it. But he will also have to face what is known as development risk—the risk that the project may be delayed or may not be completed at all. On the other hand, if he invests in a property that is completed but not rented, or completed and rented out, he is likely to get lower capital appreciation in such a project. But his risks will also be much less.

Owing to the slowdown in the real estate market and their inability to raise cash either from buyers or banks, developers nowadays offer assured return schemes on their commercial projects. It would be best for NRIs to avoid such schemes . In fact, the very offer of such a scheme indicates that the developer is probably in a tight corner financially. To avoid the risks that such schemes carry, NRIs should instead invest in a developer who has a strong track record and has the financial wherewithal to complete his project.

NRIs should also avoid investing in the soft launch of a commercial project. Developers offer a discount of 7-10% to investors who invest in their project at this early stage. This is the stage when the developer may not have completed the acquisition of land or acquired the permissions for developing the project. Due to the high risk involved, NRIs should avoid investing at this stage as well.

NRIs should also avoid investing in the soft launch of a commercial project. Developers offer a discount of 7-10% to investors who invest in their project at this early stage. This is the stage when the developer may not have completed the acquisition of land or acquired the permissions for developing the project. Due to the high risk involved, NRIs should avoid investing at this stage as well.

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The NRI guide to succession planning

NRIs need to give serious thought to estate planning to ensure that the wealth they have accumulated through a lifetime’s hard work gets transferred smoothly to their heirs. The challenges in estate planning are greater for NRIs since they are likely to have assets in two geographies: India and the country of their residence. They, therefore, need to navigate the succession laws of two countries.

The challenges in estate planning are greater for NRIs since they are likely to have assets in two geographies: India and the country of their residence.

 

 

 

Image Source: propertyupdate.com.au

 

Write a Will

The most important point to keep in mind is to write a Will. For NRIs it is advisable to write a separate Will for their assets in India and another one for their assets in their country of residence. In the absence of a Will, the assets get distributed among heirs according to the succession laws of the country. In India the law of succession depends upon the religion you belong to. A person must write a Will if he wants his wishes to take precedence over the inheritance laws.

For NRIs it is advisable to write a separate Will for their assets in India and another one for their assets in their country of residence.

Know the difference in inheritance laws

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NRIs must acquaint themselves with the succession laws of the country where they reside. In the UAE, for instance, two laws are applicable in the matter of succession: Personal Affairs Law No. 28 of 2005 and the UAE Civil Code. If a person of any religion dies intestate (without leaving a Will), his assets will be distributed according to Sharia laws. The Personal Affairs Law No. 28 of 2005 allows non-Muslim expatriates living in the UAE to opt to use the law of their own countries to distribute their assets in the UAE. However, the UAE Civil Code says that the law of the home country of expatriates will apply only to determine how movable assets are distributed. Regarding immovable property, Article 17 (5) of the code states that “the law of the UAE shall apply to Wills made by aliens in disposing of their real property located in the state”.

In the UAE, for instance, two laws are applicable in the matter of succession: Personal Affairs Law No. 28 of 2005 and the UAE Civil Code.

US-based NRIs should be aware that if they receive inheritance from a non-US based person whose value exceeds a certain amount in a given calendar year, they have to file information in this regard with the Internal Revenue Service (IRS). Inheriting property in India could also give rise to inheritance tax liability in the US. US-based NRIs should consult a tax advisor if they receive assets in India that are worth a lot of money.

US-based NRIs should be aware that if they receive inheritance from a non-US based person whose value exceeds a certain amount in a given calendar year, they have to file information in this regard with the Internal Revenue Service (IRS). Inheriting property in India could also give rise to inheritance tax liability in the US.

If US-based NRIs receive assets in India which subsequently start generating income, they will need to pay tax in the US on that income. There are also very strict rules for US taxpayers regarding declaring the existence of foreign accounts. They need to file an FBAR (foreign bank and foreign account) report every year. If they have inherited a bank account or an investment account, they need to report it, even if they plan to close the account shortly. Failing to do so can invite severe penalties.

Inheritance of real estate in India

While there are restrictions on the types of property that NRIs can buy in India (they are not permitted to buy agricultural land, plantation or farm property), there is no restriction on the type of property they can inherit. Both resident Indians and NRIs can bequeath a property in India to an NRI. The only condition is that the property should have been purchased in adherence to FEMA (Foreign Exchange Management Act) guidelines.

While there are restrictions on the types of property that NRIs can buy in India (they are not permitted to buy agricultural land, plantation or farm property), there is no restriction on the type of property they can inherit.

NRIs do not need to pay any inheritance tax in India on the real estate they have inherited. They will first have to get the title of the inherited property transferred in their name. If a Will exists, their right to the property cannot be disputed. But if no Will exists the NRI will have to get a succession certificate from a court. The ownership documents of the property must also be available. Next, the NRI will have to get the mutation of revenue records done, so that his name gets entered in the books of the development authority as the owner of the property. The NRI will also have to get his name recorded in the municipal records. The services of a local lawyer or a professional agency may have to be used to get the title transferred. Power of attorney may have to be given for this purpose.3

NRIs do not need to pay any inheritance tax in India on the real estate they have inherited.

Once the title has been transferred, the NRI can choose to rent or sell the property. If he decides to rent it, 30% TDS will be deducted on rental income. He will also be entitled to 30% deduction on the rental income (for maintenance of the property). If the NRI is also liable for taxation on this income in their country of residence, he should try to avail of the benefit of double taxation avoidance agreement (DTAA).

If he decides to rent it, 30% TDS will be deducted on rental income. He will also be entitled to 30% deduction on the rental income (for maintenance of the property)

If the NRI decides to sell the property, he will be liable to tax. If three years have passed since the date of purchase, he will be liable to long-term capital gains tax at the rate of 20% with indexation. In case of inherited property, the date and cost of purchase for the purpose of computing the holding period and the cost of purchase is taken to be the date and cost to the original owner.

In case of inherited property, the date and cost of purchase for the purpose of computing the holding period and the cost of purchase is taken to be the date and cost to the original owner.

If the NRI sells before three years, short-term capital gains tax will be incurred. Here the gains will be taxed depending on the tax slab to which the NRI belongs.

NRIs can get exempted from payment of capital gains tax by reinvesting the capital gains either in another property or in tax-exempt bonds.

For repatriation of the money obtained from sale of house, it has to be first deposited in an NRO account. Up to US$ 1 million can be repatriated in a financial year from this account.

For repatriation of the money obtained from sale of house, it has to be first deposited in an NRO account. Up to US$ 1 million can be repatriated in a financial year from this account.

NRIs should pay attention to the income tax implications of the sale of inherited property in their country of residence. Some countries tax their residents irrespective of where the capital gains have originated from, while others provide total or partial exemption on capital gains earned outside their geography.

Inheritance of financial assets

When NRIs inherit financial assets, they may have to sell some of them immediately as they are not allowed to invest in certain assets, such as National Savings Certificates (NSC), Senior Citizens Saving Scheme (SCSS), Post Office time deposits, and PPF (which they can’t open or extend but can hold the current one till maturity). Next, they must decide whether they want to hold these assets or sell them. If an NRI leaves his financial assets in India, he will have to manage them and also file annual income tax returns in India, and may also have to declare that income in his country of residence. If he decides to repatriate the money, again he can do so up to $ 1 million in a financial year. He must also provide documentary proof that he is the lawful inheritor of those assets.

Estate planning could also include the use of trusts in certain cases, and the use of financial guardians for dependants. It is critical to think through each of these items carefully as a part of your estate and succession plan.

When NRIs inherit financial assets, they may have to sell some of them immediately as they are not allowed to invest in certain assets, such as National Savings Certificates (NSC), Senior Citizens Saving Scheme (SCSS), Post Office time deposits, and PPF (which they can’t open or extend but can hold the current one till maturity).

 

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Is this a good time for NRIs buy a residential property in India?

NRIs may want to buy a residential property in India for self-use—for the time when they decide to return to the country eventually. Whilst buying residential property in India, especially in the metros, has become an expensive proposition, it makes sense for NRIs to make this purchase in advance only if they are absolutely sure about the fact that they will return, and are clear about the geography and amenities that they will require on their return.

 

 

Image Source:   dir.indiamart.com

Image Source:   dir.indiamart.com

With the residential real estate segment witnessing a slowdown, there are multiple bargains and discounts to buy homes.

Long-term investors, having an investment horizon of 10 years plus, may go ahead and invest in residential real estate despite the current slowdown. Since the Indian economy is growing more rapidly than the developed countries of the West, NRIs are likely to earn a higher return on their real estate investment in India than abroad.

Long-term investors, having an investment horizon of 10 years plus, may go ahead and invest in residential real estate despite the current slowdown.

Outlook of the residential sector

The real estate sector in India continues to witness a slowdown, whose intensity, however, varies from one geography to another. Markets in the North, such as the NCR, have been affected more. When the bull market was on, these markets had witnessed higher price appreciation. These are also markets that were more investor-driven. On the other hand, markets in the South, such as Bangalore, where the price appreciation was more moderate, and which are more end-user driven, have been affected less.

Owing to the slowdown, developers are now focusing more on project completion and delivery rather than on launching new projects. A recent report from Cushman and Wakefield , an international real estate consultancy, states that between January and September 2015, 77,900 residential units were launched in the top eight metros of the country, a decline of 36% over the corresponding period last year.

A recent report from Cushman and Wakefield , an international real estate consultancy, states that between January and September 2015, 77,900 residential units were launched in the top eight metros of the country, a decline of 36% over the corresponding period last year.

Delhi NCR and Bengaluru together accounted for 35% of the total launches across the top eight cities. Delhi NCR witnessed a drop of 18% in new launches compared to the previous year, but still contributed 19% of total launches during the year. In 2015, Pune overtook Mumbai, Kolkata and Chennai in total units launched, although it barely witnessed an increase over the last year, suggesting a steep fall in new launches in other cities. Ahmedabad and Hyderabad were the only cities that recorded significant increases in the number of units launched.

Capital values showed a mixed trend across cities based on local market forces. In September 2015, capital values in Bengaluru saw y-o-y appreciation in four sub-markets in the range of 3-7%. Prices remained stable in the mid-segment in most sub- markets since September last year. Delhi-NCR, on the other hand, witnessed softening of capital values in two of its sub- markets by 5%, namely in South-East and South-Central Delhi. Gurgaon and Noida witnessed stable capital values in the mid segment. In Mumbai, quoted capital values have largely remained range bound in the last one year. However, the closing value of transactions, after negotiation and taking into account the schemes offered by developers, is definitely at a discount, thereby indicating that prices are under pressure.

The report however also highlights that in the long run demand for housing will far outstrip supply in most major metros. Due to this supply shortage, capital appreciation is likely to be good over the long haul.

The report however also highlights that in the long run demand for housing will far outstrip supply in most major metros. Due to this supply shortage, capital appreciation is likely to be good over the long haul.

Do’s and don’ts

 

Image Source: www.silcotek.com

Many developers hold exhibitions in foreign destinations aimed at wooing NRI buyers. The latter should not get taken in by the jazzy presentations and brochures of developers. Instead, they should get a friend or relative in India to visit the project site and offer feedback.

NRIs should not get taken in by the jazzy presentations and brochures of developers. Instead, they should get a friend or relative in India to visit the project site and offer feedback.

If the NRI buyer plans to return to India eventually, he should buy the property in the city where he intends to settle down. It is also preferable to buy in the city where the NRI has a relative or friend who can look after the property and manage it.

It is also preferable to buy in the city where the NRI has a relative or friend who can look after the property and manage it.

Like local buyers, NRIs should do the legal due diligence. They should hire a lawyer to find out whether the developer is the rightful owner of the land on which he is developing the project. Land acquisition for the project should be complete before he invests in it. The developer should also have obtained all the clearances for developing the project.

NRIs should do the legal due diligence.

The NRI buyer should get his representative to visit the builder’s past projects and check whether he had delivered them on time, and whether he had delivered the promised facilities and specifications.

If the NRI buyer is buying the property primarily as an investment (for rental yield and capital appreciation), he should choose a city where a lot of economic development and job growth is expected in the future. The project should be located at a convenient distance from an office or manufacturing hub and should be well connected to it. This will make it easier for the NRI owner to find tenants.

If the NRI buyer is buying the property primarily as an investment (for rental yield and capital appreciation), he should choose a city where a lot of economic development and job growth is expected in the future.

Owing to the slowdown, most developers, especially in the North, are facing a cash crunch. Consequently, project delays have become common. To circumvent what is known as “development risk”, NRIs should consider investing in completed projects.

To circumvent what is known as “development risk”, NRIs should consider investing in completed projects.

Developers are offering discounts to push sales amid the slowdown. NRIs should not agree to pay the initial price quoted by the builder but should get their representative to negotiate and get the best possible price.

NRIs should also avoid paying a high percentage of the total cost of the apartment upfront, even if the developer offers a discount on such payment schemes.

NRIs should also avoid paying a high percentage of the total cost of the apartment upfront, even if the developer offers a discount on such payment schemes.

Finally, an NRI investing in residential real estate in India should not expect quick and easy returns. He should have an investment horizon of at least 10 years if he wants to enjoy a reasonable return on his investment.

 

 

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Is this a good time for NRIs buy a residential property in India?

NRIs may want to buy a residential property in India for self-use—for the time when they decide to return to the country eventually. Whilst buying residential property in India, especially in the metros, has become an expensive proposition, it makes sense for NRIs to make this purchase in advance only if they are absolutely sure about the fact that they will return, and are clear about the geography and amenities that they will require on their return.

Image Source:   dir.indiamart.com

Image Source:   dir.indiamart.com

With the residential real estate segment witnessing a slowdown, there are multiple bargains and discounts to buy homes.

Long-term investors, having an investment horizon of 10 years plus, may go ahead and invest in residential real estate despite the current slowdown. Since the Indian economy is growing more rapidly than the developed countries of the West, NRIs are likely to earn a higher return on their real estate investment in India than abroad.

Long-term investors, having an investment horizon of 10 years plus, may go ahead and invest in residential real estate despite the current slowdown.

Outlook of the residential sector

The real estate sector in India continues to witness a slowdown, whose intensity, however, varies from one geography to another. Markets in the North, such as the NCR, have been affected more. When the bull market was on, these markets had witnessed higher price appreciation. These are also markets that were more investor-driven. On the other hand, markets in the South, such as Bangalore, where the price appreciation was more moderate, and which are more end-user driven, have been affected less.

Owing to the slowdown, developers are now focusing more on project completion and delivery rather than on launching new projects. A recent report from Cushman and Wakefield , an international real estate consultancy, states that between January and September 2015, 77,900 residential units were launched in the top eight metros of the country, a decline of 36% over the corresponding period last year.

A recent report from Cushman and Wakefield , an international real estate consultancy, states that between January and September 2015, 77,900 residential units were launched in the top eight metros of the country, a decline of 36% over the corresponding period last year.

Delhi NCR and Bengaluru together accounted for 35% of the total launches across the top eight cities. Delhi NCR witnessed a drop of 18% in new launches compared to the previous year, but still contributed 19% of total launches during the year. In 2015, Pune overtook Mumbai, Kolkata and Chennai in total units launched, although it barely witnessed an increase over the last year, suggesting a steep fall in new launches in other cities. Ahmedabad and Hyderabad were the only cities that recorded significant increases in the number of units launched.

Capital values showed a mixed trend across cities based on local market forces. In September 2015, capital values in Bengaluru saw y-o-y appreciation in four sub-markets in the range of 3-7%. Prices remained stable in the mid-segment in most sub- markets since September last year. Delhi-NCR, on the other hand, witnessed softening of capital values in two of its sub- markets by 5%, namely in South-East and South-Central Delhi. Gurgaon and Noida witnessed stable capital values in the mid segment. In Mumbai, quoted capital values have largely remained range bound in the last one year. However, the closing value of transactions, after negotiation and taking into account the schemes offered by developers, is definitely at a discount, thereby indicating that prices are under pressure.

The report however also highlights that in the long run demand for housing will far outstrip supply in most major metros. Due to this supply shortage, capital appreciation is likely to be good over the long haul.

he report however also highlights that in the long run demand for housing will far outstrip supply in most major metros. Due to this supply shortage, capital appreciation is likely to be good over the long haul.

Do’s and don’ts

Image Source: www.silcotek.com

Many developers hold exhibitions in foreign destinations aimed at wooing NRI buyers. The latter should not get taken in by the jazzy presentations and brochures of developers. Instead, they should get a friend or relative in India to visit the project site and offer feedback.

NRI’s should not get taken in by the jazzy presentations and brochures of developers. Instead, they should get a friend or relative in India to visit the project site and offer feedback.

If the NRI buyer plans to return to India eventually, he should buy the property in the city where he intends to settle down. It is also preferable to buy in the city where the NRI has a relative or friend who can look after the property and manage it.

Like local buyers, NRIs should do the legal due diligence. They should hire a lawyer to find out whether the developer is the rightful owner of the land on which he is developing the project. Land acquisition for the project should be complete before he invests in it. The developer should also have obtained all the clearances for developing the project.

NRIs should do the legal due diligence.

The NRI buyer should get his representative to visit the builder’s past projects and check whether he had delivered them on time, and whether he had delivered the promised facilities and specifications.

If the NRI buyer is buying the property primarily as an investment (for rental yield and capital appreciation), he should choose a city where a lot of economic development and job growth is expected in the future. The project should be located at a convenient distance from an office or manufacturing hub and should be well connected to it. This will make it easier for the NRI owner to find tenants.

If the NRI buyer is buying the property primarily as an investment (for rental yield and capital appreciation), he should choose a city where a lot of economic development and job growth is expected in the future.

Owing to the slowdown, most developers, especially in the North, are facing a cash crunch. Consequently, project delays have become common. To circumvent what is known as “development risk”, NRIs should consider investing in completed projects.

To circumvent what is known as “development risk”, NRIs should consider investing in completed projects.

Developers are offering discounts to push sales amid the slowdown. NRIs should not agree to pay the initial price quoted by the builder but should get their representative to negotiate and get the best possible price.

NRIs should also avoid paying a high percentage of the total cost of the apartment upfront, even if the developer offers a discount on such payment schemes.

NRIs should avoid paying a high percentage of the total cost of the apartment upfront, even if the developer offers a discount on such payment schemes.

Finally, an NRI investing in residential real estate in India should not expect quick and easy returns. He should have an investment horizon of at least 10 years if he wants to enjoy a reasonable return on his investment.

 

 

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Headline: Does an NRI need to file tax return in India?

Even if a non-resident Indian (NRI) lives abroad, he may still have income in India. If the income is above a certain exemption limit, he needs to file his income tax return in India just like a resident Indian.

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Who is an NRI for tax purposes?

Before an NRI decides whether or not to file income tax return in India, he needs to first ascertain his residency status for tax purposes (which is different from the definition of residency status under FEMA). An individual is said to be resident in India if he has been in India in that financial year for 182 days or more, or if he has been in India for 60 days or more during the current financial year and for 365 days or more in the preceding four financial years. A person who does not fulfil these conditions would qualify as an NRI.

Next, it has to be determined whether such a person is “ordinarily resident” or “not ordinarily resident” (NOR). A person is not ordinarily resident in the previous year if he has been a non-resident in India in nine out of 10 previous years preceding that year; or has during the seven previous years preceding that year been in India for a period of, or periods amounting to 729 days or less. As an RNOR (resident but not ordinarily resident), a returning NRI needs to pay tax in India only on his Indian income. His income outside India will not be taxed in India. Interest earned on FCNR bank account will not be taxed until maturity, and the same will apply to resident foreign currency (RFC) accounts. After that the person reverts to filing tax as resident and ordinarily resident (ROR) and his global income also gets taxed in India. A person can file tax as RNOR for a maximum of three years.

As an RNOR (resident but not ordinarily resident), a returning NRI needs to pay tax in India only on his Indian income. His income outside India will not be taxed in India.

Which income is taxable?

An NRI should go by the rule that any income that arises or accrues in India, or is deemed to arise or accrue in India, will be taxed in this country. If an NRI receives his salary income in an account in India, he will have to pay tax on it in India. If he renders services in India, even in that case his salary income will be taxed here. Rental income earned from housing property in India and capital gains arising from the sale of an asset situated in India will also be taxed here, as will capital gains on investments and interest earned from bank accounts in India. NRIs can hold three types of accounts–NRO, NRE and FCNR. Of these the interest income from NRO account is taxable.

NRIs can hold three types of accounts–NRO, NRE and FCNR. Of these the interest income from NRO account is taxable.

When does filing return become compulsory?

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NRIs have to file tax return if their gross income in India (before making any deduction) exceeds the basic exemption limit of Rs. 2.5 lakh. They don’t get the benefit of a higher exemption limit based on age, as resident Indians get.

In case TDS has been deducted on an NRI’s income but his gross total income is less than Rs. 2.5 lakh (in which case he is not liable to pay any tax), he must file tax return to claim a refund from the tax department. E-filing is compulsory for claiming refund. Returns must also be filed to carry forward a loss.

NRIs have to file tax return if their gross income in India (before making any deduction) exceeds the basic exemption limit of Rs. 2.5 lakh. They don’t get the benefit of a higher exemption limit based on age, as resident Indians get. In case TDS has been deducted on an NRI’s income but his gross total income is less than Rs. 2.5 lakh (in which case he is not liable to pay any tax), he must file tax return to claim a refund from the tax department.

When is filing of return not required?

If in a given financial year an NRI’s income consists only of investment earnings and/or capital gain from the sale of an asset, he need not file tax return, provided TDS has been deducted on those earnings and gains.

NRIs should, however, remember that an annual information report (AIR) is filed for investments in real estate, mutual funds, bonds, amongst other items, which the IT Department uses to trigger a tax notice. Hence, it is advisable to file a tax return even if your income is below the exemption limit in case you have engaged in high value transactions. Short-term capital gains also do not get the benefit of the exemption limit on income, and hence you should file tax return if you have these gains.

Procedure for tax filing

In case an NRI’s taxable income exceeds Rs. 5 lakh in the previous year, he will have to e-file his income tax return. In case his income is less than the above limit, he also has the option to file the return of income in paper form.

In case an NRI’s taxable income exceeds Rs. 5 lakh in the previous year, he will have to e-file his income tax return. In case his income is less than the above limit, he also has the option to file the return of income in paper form.

The return of income can be filed online through the income tax web sites www.income taxindiaefiling.gov.in or www.incometaxindia.gov.in. He may also take the help of a  professional tax advisor. An NRI may file his return with his digital signature. If he does not have a digital signature, he needs to print ITR-V, which is an acknowledgement that return has been filed online, sign it and send it by ordinary or speed post to the Central Processing Cell, Bangalore. The last date for filing tax returns is usually 31 July.

Avail the benefit of DTAA

Double Taxation Avoidance Agreement (DTAA) is a bilateral agreement entered into between the governments of two countries in order to avoid taxation of the same income twice. Under the Income Tax Act, 1961, NRIs are subject to tax deduction at source (TDS). However, if the NRI is a tax resident of a country with which India has entered into a DTAA, then the provisions of the IT Act or the DTAA, whichever is more beneficial to the NRI, will apply. Even if an income is taxable under the IT Act, if the DTAA provides relief from taxation on that income or provides for a lower rate of taxation, the provisions of the DTAA will prevail. For instance, in case of interest income from bank, TDS as per IT Act is 30.9%, whereas the rate under DTAA with most countries is 15%. By opting for the DTAA rate, an NRI can reduce his tax burden.

To claim the benefit of DTAA, an NRI needs to furnish the TRC (tax residency certificate) of the country where he is a tax resident. The TRC should contain his name and address, status, nationality, tax identification number, residential status for tax purposes and the period for which the certificate is valid. You can’t avail of DTAA unless you provide the TRC and a declaration in Form 10F. To avoid TDS being cut at a higher rate (say, on your bank interest income) and for the DTAA rate to apply, you need to submit a TRC in advance to your bank.

Even if an income is taxable under the IT Act, if the DTAA provides relief from taxation on that income or provides for a lower rate of taxation, the provisions of the DTAA will prevail. For instance, in case of interest income from bank, TDS as per IT Act is 30.9%, whereas the rate under DTAA with most countries is 15%. By opting for the DTAA rate, an NRI can reduce his tax burden. To claim the benefit of DTAA, an NRI needs to furnish the TRC (tax residency certificate) of the country where he is a tax resident.

 

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How can NRIs repatriate money from India?

Most NRIs tend to have immovable assets in India which they had acquired when they were residents. They may also have inherited such assets or received them as gifts. If an NRI doesn’t plan to return to India and visits the country infrequently, he may find the management of these assets difficult. In that case, he may be eager to dispose them and repatriate the proceeds. Returns from investments made in financial instruments may also need to be repatriated. We will focus on sharing some rules governing repatriation of money by NRIs.

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Selling real estate

An NRI can sell his residential or commercial property in India to anyone—a resident Indian, an NRI or a PIO (person of Indian origin). However, agricultural land, plantation property and farm houses can only be sold or gifted to an Indian citizen resident in India.

Agricultural land, plantation property and farm houses can only be sold or gifted to an Indian citizen resident in India.

The bank that the NRI deals with will allow repatriation of funds obtained from sale of immovable property provided a few conditions are met. Any money that was brought in from outside for the purchase of the property can be repatriated. So an equivalent of the amount that came in through normal banking channels, or was paid out of a foreign currency non-resident (FCNR) account or out of a non-resident external (NRE) account, can be repatriated. Sales proceeds of only two residential properties can be repatriated.

Any money that was brought in from outside for the purchase of the property can be repatriated. So an equivalent of the amount that came in through normal banking channels, or was paid out of a foreign currency non-resident (FCNR) account or out of a non-resident external (NRE) account, can be repatriated. Sales proceeds of only two residential properties can be repatriated.

If the NRI had taken a home loan to buy the property, his bank will allow him to freely repatriate an amount equivalent to what he brought in from abroad to repay the loan.

If the property was acquired out of the NRI’s rupee resources or the loan was repaid by close relatives of the NRI in India, the sales proceeds are credited into the NRI’s non-resident ordinary (NRO) account. Each financial year an NRI is allowed to repatriate an amount of up to $ 1 million from the balance in his NRO account.

Each financial year an NRI is allowed to repatriate an amount of up to $ 1 million from the balance in his NRO account.

To be able to repatriate proceeds, the NRI must produce documentary evidence supporting his acquisition or inheritance of the property. He must also produce a certificate from a chartered accountant in a specified format (discussed below).

There is no lock-in period either on the time for which a property must be held by an NRI, or on repatriation of proceeds.

If the NRI sells a property that was gifted to him, the proceeds can be repatriated via the NRO account channel. Rental income of NRIs must also be credited and repatriated via the NRO account.

Investments in financial instruments

Interest earned and balances held in NRE and FCNR accounts are not taxed and can be freely repatriated abroad.

Interest earned and balances held in NRE and FCNR accounts are not taxed and can be freely repatriated abroad.

The RBI allows NRIs to transfer money from NRO to NRE account, subject to the overall ceiling of $1 million per financial year, and after applicable taxes have been paid.

Proceeds of investments made by an NRI in Indian financial instruments can be repatriated provided the investment was made from funds brought in from abroad, i.e., the money was remitted from abroad via banking channels, or the purchases were made out of money in NRE or FCNR accounts. Capital gains tax, if applicable, will have to be paid before repatriation.

Proceeds of investments made by an NRI in Indian financial instruments can be repatriated provided the investment was made from funds brought in from abroad, i.e., the money was remitted from abroad via banking channels, or the purchases were made out of money in NRE or FCNR accounts. Capital gains tax, if applicable, will have to be paid before repatriation.

Fill form 15 CA and 15CB

Whenever money is being remitted by an NRI, Form 15CA has to be submitted online at the income tax department’s web site. Usually, a certificate from a chartered accountant provided in Form 15CB is also required before uploading Form 15CA online. In Form 15CB, a chartered accountant certifies details of the payment, TDS rate and TDS deduction applicable as per Section 195 of the IT Act, whether DTAA (double tax avoidance agreement) is applicable, and other details of the remittance. Banks will not remit the money until this certificate is provided.

Form 15CB is not required when a single remittance does not exceed Rs. 50,000 and total remittance in a financial year does not exceed Rs. 2,50,000. In this case only Form 15CA has to be submitted. Form 15CB is also not required if lower TDS has to be deducted and a certificate is received under Section 197 from the assessing officer (AO). In all other cases, if remittance is taking place outside India, the person making the remittance will have to take a chartered accountant’s certificate in Form 15CB and submit it along with Form 15CA online.

Form 15CB is not required when a single remittance does not exceed Rs. 50,000 and total remittance in a financial year does not exceed Rs. 2,50,000. In this case only Form 15CA has to be submitted. Form 15CB is also not required if lower TDS has to be deducted and a certificate is received under Section 197 from the assessing officer (AO).

From 1 June 2015, any remittance of funds to an NRI (an NRI transferring funds from NRO to NRE account, and remittance of even non-taxable funds like long-term capital gain on equity shares) will require the remitter to provide a certificate from a chartered accountant in Form 15CB and filing of Form 15CA at the IT Department’s web site. Earlier, CBDT regulations required these forms only for taxable transfers, while bank personnel asked for these forms even for non-taxable transfers. This created confusion. This confusion was cleared by Finance Bill 2015 which said that these forms have to be filled for all remittances (taxable or non-taxable).

From 1 June 2015, any remittance of funds to an NRI (an NRI transferring funds from NRO to NRE account, and remittance of even non-taxable funds like long-term capital gain on equity shares) will require the remitter to provide a certificate from a chartered accountant in Form 15CB and filing of Form 15CA at the IT Department’s web site.

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How does a PINS account for NRIs work?

If an NRI wishes to participate in the India growth story by investing in its secondary stock market, he needs to do so via the Portfolio Investment Scheme (PINS). The RBI has imposed a ceiling on the ownership that NRIs can have in Indian companies at the individual and aggregate level. To ensure that these ceilings are not exceeded, it requires all NRI transactions to be conducted via the PINS account.

The RBI has imposed a ceiling on the ownership that NRIs can have in Indian companies at the individual and aggregate level. To ensure that these ceilings are not exceeded, it requires all NRI transactions to be conducted via the PINS account.

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How to open a PINS account?

If an NRI has an existing demat account which he had opened as a resident Indian, he needs to close that first. All the shares in this account have to be transferred to an NRO demat account where they can be held on a non-repatriation basis.

A PINS account can be opened at the designated branches of authorised dealer banks which the RBI has appointed to administer the PINS scheme. The NRI then has to open an NRE or NRO account exclusively for PINS-related transactions. He needs to have a separate bank account for his personal banking needs and for all his non-PINS transactions.

An NRI can have only one PINS account at a time. If he wants to open a PINS account with another bank, he needs to close his old PINS account.

The NRI then has to open an NRE or NRO account exclusively for PINS-related transactions. He needs to have a separate bank account for his personal banking needs and for all his non-PINS transactions.

An NRI can have only one PINS account at a time. If he wants to open a PINS account with another bank, he needs to close his old PINS account.

Documents required for opening PINS

If the NRI is trying to open the account from abroad, all the copies of documents will have to be attested by the Indian embassy in that country and sent to the branch in India. If he is present in India, he may show the originals of these documents to the bank staff for verification. Some of the documents that are required include photograph, address proof in India, copy of Permanent Account Number (PAN) card, proof of address abroad, copy of visa and passport and cancelled cheque leaf of NRE/NRO bank account.

If the NRI is trying to open the account from abroad, all the copies of documents will have to be attested by the Indian embassy in that country and sent to the branch in India. If he is present in India, he may show the originals of these documents to the bank staff for verification.

The bank will then issue a PINS approval letter to the investor.

Operating PINS

NRIs can purchase shares and debentures on both repatriation and non-repatriation basis (separate demat accounts are required for these). They can purchase shares on repatriation basis if the funds for this purpose have been remitted from abroad or have come from an NRE account. For purchase of shares on non-repatriation basis, NRIs can utilise the funds available in their NRO account.

NRIs can purchase shares and debentures on both repatriation and non-repatriation basis (separate demat accounts are required for these).

When the NRI sells the shares held on repatriation basis, tax is deducted and then the sale proceeds are credited to his NRE account. Sale proceeds of shares purchased on non-repatriation basis can only be credited into an NRO account.

When the NRI sells the shares held on repatriation basis, tax is deducted and then the sale proceeds are credited to his NRE account. Sale proceeds of shares purchased on non-repatriation basis can only be credited into an NRO account.

Non-PINS account

NRIs have to maintain a non-PINS bank account for all those transactions that are not reported to the RBI. Shares purchased in an IPO, those received as gift, or those purchased as a resident Indian can be transacted through a non-PINS account. Mutual fund purchases can also be done through a non-PINS account.

Shares purchased in an IPO, those received as gift, or those purchased as a resident Indian can be transacted through a non-PINS account. Mutual fund purchases can also be done through a non-PINS account.

Limits on purchase under PINS

An NRI can purchase up to 5% of the aggregate paid-up capital or up to 5% of the paid-up value of each series of debentures of listed companies. The aggregate paid-up value of shares or convertible debentures by all NRIs and OCBs (0verseas corporate body) cannot exceed 10% of the paid-up capital of the company or paid-up value of each series of debentures of the company. The designated bank branch monitors the individual holdings while the RBI monitors the holdings of NRIs and OCBs at the aggregate level. Once the aggregate holdings in a company reaches 2 percentage points below the ceiling, the RBI puts that stock on its caution list. And once the ceiling is touched, the stock is put on the ban list and NRIs can’t make further purchases in it.

The designated bank branch monitors the individual holdings while the RBI monitors the holdings of NRIs and OCBs at the aggregate level.

TDS applicable

 

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NRIs are subject to tax deducted at source (TDS) on their capital gains in the secondary market. No TDS is deducted on long-term capital gains. TDS is charged at the rate of 15% on short-term capital gains. TDS is deducted at the time of crediting the sales proceeds. It is deducted in any transaction where the source of fund for the purchase was an NRE or NRO account.

NRIs are subject to tax deducted at source (TDS) on their capital gains in the secondary market. No TDS is deducted on long-term capital gains

NRIs must remember that they can only purchase and sell shares on delivery basis in India. They are not permitted to do either day-trading or short selling.

If the NRI decides to return to India and his status changes to resident, he will have to inform the designated branch through which he was investing in the PINS scheme and the depository participant (DP) through which he had opened the demat account. A new demat account under resident status will be opened for the NRI and securities will be transferred from the NRI demat account to the resident demat account and the NRI demat account will be closed. He will also have to stop operating through the PINS account and his NRE and NRO accounts will change to resident accounts.

NRIs must remember that they can only purchase and sell shares on delivery basis in India. They are not permitted to do either day-trading or short selling.

 

 

 

 

 

 

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Is rate of return the most important thing when deciding where to invest as a NRI?

Non-resident Indians (NRIs) should take advantage of their roots in India to invest and thus profit from the India growth story. However the importance of picking the right investment options when choosing their investments in this country should not be underestimated.

Pros and cons of investing in India

 

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The Indian economy has emerged as among the fastest-growing economies in the world. With a reform-oriented government at the centre, there is optimism about this rapid pace of growth continuing. Indian stock markets have rewarded long-term investors with returns in the mid-teen range. Interest rates in India being high, the returns from fixed income oriented instruments are also higher than in the developed world.

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Weighed against these advantages are some disadvantages that NRIs should take into account. The first is currency risk. The rupee has tended to depreciate against currencies like the US dollar over the long term. It can also fluctuate in a volatile manner. This could erode some of the returns earned on investments in India.

The tax processes are also a little disadvantageous for NRIs. Income and capital gains in India from multiple instruments are subject to tax deduction at source (TDS). If NRIs are eligible for a lower tax rate or for exemption, they have to file tax return and only then do they get a refund. This can take some time.

If NRIs are eligible for a lower tax rate or for exemption, they have to file tax return and only then do they get a refund.

Finally, managing investments in India can be an issue, since NRIs live thousands of kilometers away and visit India irregularly.

Wide range of options

A wide range of investment options is available to NRIs in India: among physical instruments there are real estate and gold, while on the financial side they can invest in deposits, equities, mutual funds and bonds. In subsequent columns, we shall cover each of these investment options in detail. Let us now turn to the challenges of managing investments in India.

Managing investments

Most NRIs typically pass through three stages in managing their investments in India. Here we offer some advice on how best to negotiate each of them.

 First stage: In the earliest phase, he has a relative, usually the father or sometimes a sibling, who is knowledgeable about investment options in India and is willing to help the NRI with his investments in this country.

In this stage, NRIs should avoid buying physical assets in joint name with the individual who is helping them out. At best, they may give a power of attorney (PoA) to the person to manage their affairs. This should ideally be a special PoA for specific purposes and not a general PoA.

NRIs should avoid buying physical assets in joint name with the individual who is helping them out. At best, they may give a power of attorney (PoA) to the person to manage their affairs. This should ideally be a special PoA for specific purposes and not a general PoA.

In case he wishes to buy real estate, the NRI may want to settle down upon his return in a city which is different from the one in which this person (who is helping out) is based. In that case, it may be practical to defer the decision to buy real estate, as managing real estate remotely, even for a person in India, can be challenging.

One mistake that NRIs commonly make in this stage is to send money into their parents or sibling’s account and ask them to invest the money in financial assets in their own name. This is sometimes driven by the desire to avoid paperwork and make it practically easier.

In addition, there could be some product level restrictions. For example, many mutual funds houses in India don’t accept investments from US-based NRIs or a large number of fixed income postal schemes are not available to NRIs. By investing in their parents’ name, NRIs sometimes try to circumvent this hurdle.

Investing in your parents name can lead to several complications. If the father passes away without writing a will, all your siblings could claim a share to the father’s investments. You may have difficulty in reclaiming the money you had given to your father to invest.

Investing in your father’s name could also lead to questions from the IT Department on the source of income.

Investing in your parents name can lead to several complications. If the father passes away without writing a will, all your siblings could claim a share to the father’s investments. You may have difficulty in reclaiming the money you had given to your father to invest.

Investing in your father’s name could also lead to questions from the IT Department on the source of income.

A number of these complications can be avoided by the NRI if he invests his money in his own name in the first phase.

Sometimes, though the person who is helping you out may be knowledgeable about investment options and tax laws in India, he may not have knowledge about tax provisions abroad. For instance, the returns from NRE fixed deposits are tax free in India but may be taxed in the NRI’s country of residence. Thus, even though someone in the family may be knowledgeable, the NRI should seek professional advice in this phase.

Sometimes, though the person who is helping you out may be knowledgeable about investment options and tax laws in India, he may not have knowledge about tax provisions abroad.

Second stage: In this phase, the person who was knowledgeable about investments and willing to help (usually the father) may have passed away. The mother may be willing to help but may not have adequate knowledge about investing. She may also be fearful of dabbling in investment matters.

In this scenario, the use of both physical and financial assets may become difficult because of the mother’s lack of understanding.

The person who was knowledgeable about investments and willing to help (usually the father) may have passed away. The mother may be willing to help but may not have adequate knowledge about investing. She may also be fearful of dabbling in investment matters.In this scenario, the use of both physical and financial assets may become difficult because of the mother’s lack of understanding.

This stage becomes one of transition. The mother’s inability to help the NRI drives the latter to seek professional help for handling his investments.

Third stage: In this stage, the transition that began in the second phase is complete. The parents may have passed away by now. The NRI now depends entirely on professional help in the form of financial advisors, lawyers and structured services like trusts to manage his financial affairs. These professionals file his income tax return and also provide periodic reports on the performance of his investments.

If the size of the assets invested in India is substantial, the NRI could set up a trust, which would have professional trustees to manage its affairs. The trust can ensure that the distribution of assets to heirs takes place in a predefined manner. It can also be used to make sure that a huge amount of wealth doesn’t get passed on to children at a young age, but is disbursed to them at regular intervals.

Thus, besides return on investment, ease of managing investments should be an important criterion for NRIs in the choice of assets they invest in.

If the size of the assets invested in India is substantial, the NRI could set up a trust, which would have professional trustees to manage its affairs. The trust can ensure that the distribution of assets to heirs takes place in a predefined manner. It can also be used to make sure that a huge amount of wealth doesn’t get passed on to children at a young age, but is disbursed to them at regular intervals.

Thus, besides return on investment, ease of managing investments should be an important criterion for NRIs in the choice of assets they invest in.

 

 

 

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The NRIs guide to buying the right health cover

Two things that all Indians don’t like to compromise on are healthcare for their family and the education of their children. Healthcare inflation in India is usually 1.5-2 times the rate of consumer price inflation. Given the already high cost of healthcare and the fact that it will continue to spiral upwards rapidly, non-resident Indians (NRIs) who plan to return to India soon should buy adequate health insurance for their families. The cover should be purchased 2-4 years prior to their return. This will ensure that the waiting period for exclusions is crossed while they are still abroad and the family is well protected on its return to India.

Healthcare inflation in India is usually 1.5-2 times the rate of consumer price inflation. Given the already high cost of healthcare and the fact that it will continue to spiral upwards rapidly, non-resident Indians (NRIs) who plan to return to India soon should buy adequate health insurance for their families.

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NRIs who are not sure about their plans to return to India may not buy a health cover in advance. They should build a separate corpus earmarked for healthcare needs. This money will need to be invested in riskier but higher-yielding assets like equities to have any hope of keeping up with healthcare inflation.

NRIs who are not sure about their plans to return to India may not buy a health cover in advance. They should build a separate corpus earmarked for healthcare needs

NRIs also need to ensure that their aged parents living in India are adequately covered.

Get adequate cover

When trying to decide the amount of health insurance to buy, NRIs should take into account the city that they plan to settle down in. Healthcare costs are higher in the metros than in smaller towns. They should also consider the type of health care—premium or mid-level—that they would like to avail for their family when deciding on the amount of cover. Take the advice of a certified financial planner (CFP) if you can’t decide how much health cover you need.

When trying to decide the amount of health insurance to buy, NRIs should take into account the city that they plan to settle down in.  They should also consider the type of health care—premium or mid-level—that they would like to avail for their family when deciding on the amount of cover.

 

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A family consisting of two adults and one child should buy a floater policy of Rs. 15-25 lakh if it plans to settle down in a tier 1 or tier 2 city, and Rs. 7-10 lakh if it plans to settle in a tier 3 or 4 town. Review the size of the cover every five years. Remember that in the matter of deciding on how much health cover you need, it is usually better to err on the side of excess.

A family consisting of two adults and one child should buy a floater policy of Rs. 15-25 lakh if it plans to settle down in a tier 1 or tier 2 city, and Rs. 7-10 lakh if it plans to settle in a tier 3 or 4 town. Review the size of the cover every five years.

Overseas, out patient expenses also get covered by the health coverage whilst in India this is not common. When buying a cover in India, NRIs may look for a policy that covers Outpatient expenses as well, though they are expensive.

How to choose the right policy

Here are some of the factors that NRIs should give primacy to while choosing a health cover for their family.

Sub-limits: Avoid policies that come with sub-limits on things like room rent, surgery, ICU charges and so on.

Loading: In many policies the premium goes up the next year if you have made a claim in the current year. This is called loading. Look for policies without loading.

Wide network: Prefer a health insurer whose network of hospitals includes some of the major ones near where you live.

Exclusions and waiting period: Most policies don’t cover some conditions (like cataract and knee replacement) for a certain period of time. Most also have a waiting period for pre-existing diseases (2-4 years). Choose a policy that has a shorter waiting period and a smaller list of exclusions.

Claim settlement ratio: This figure tells the percentage of claims that the insurer settled in the previous year. Go with one with a better track record on this count.

Get adequate cover for aged parents

NRIs who plan to return should not include their aged parents in the family floater cover that they will buy for their nuclear family. The premium on a family floater cover depends on the age of the eldest member of the family. Including your parents will make your floater policy very expensive. Moreover, your parents need a high amount of coverage individually in their old age. Hence, buy separate covers for them.

NRIs who plan to return should not include their aged parents in the family floater cover that they will buy for their nuclear family.

NRIs who plan to take up a job in India shouldn’t rely on their employer’s group health cover for their parents. What if you change your job and the next employer’s group health cover doesn’t include parents? Employers are increasingly doing away with cover for parents to reduce the premium they have to pay on group covers. Also, at a later stage you may decide not to work in the corporate sector. To guard against these eventualities, buy personal covers for yourself and your parents. Remember that it gets harder to get a health cover as people get older. Also, more and more conditions begin to fall under the category of pre-existing diseases that will not be covered, thus defeating the very purpose of buying health cover. So buy covers for your parents at the earliest.

NRIs who plan to take up a job in India shouldn’t rely on their employer’s group health cover for their parents. Remember that it gets harder to get a health cover as people get older. Also, more and more conditions begin to fall under the category of pre-existing diseases that will not be covered, thus defeating the very purpose of buying health cover. So buy covers for your parents at the earliest.

The sum assured should be at least Rs. 10 lakh for each parent, so that the treatment cost of most major ailments gets covered. It is prudent to buy the maximum that you can afford, since insurers are reluctant to hike the cover for older people.

The sum assured should be at least Rs. 10 lakh for each parent, so that the treatment cost of most major ailments gets covered.

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 Choosing the right cover for parents

Many health covers for senior citizens (those aged above 60) are now available. In addition to the variables mentioned above, watch out in particular for the co-payment clause. This is the portion of the medical bill that the customer has to foot himself. Look at the percentage of the bill that has to be paid by you and the conditions under which this clause applies. Go with a policy where the percentage is low and the conditions most favourable to you.

Waiting period is another important consideration for senior citizens’ cover.

In the financial planning that precedes an NRI’s relocation to India, a lot of forethought must go into getting adequate health cover for their family.

Many health covers for senior citizens (those aged above 60) are now available. Watch out in particular for the co-payment clause. This is the portion of the medical bill that the customer has to foot himself. Waiting period is another important consideration for senior citizens’ cover.

 

 

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