Impact of Residential Status on Indian Investments

Impact of Residential Status on Indian Investments

Knowing what impact your residential status might have on your Indian investments can aid you in managing your investments better.

Investments like mutual funds and stocks require updating your KYC details as and when your residential status changes.

Also, becoming an NRI means you can no longer continue investing in your PPF.

Hence, in such scenarios, you should act quickly by notifying the relevant department about your NRI status.

Following are the investments that might have an impact due to changes in residential status & how to respond to it

‍

Mutual Funds

Mutual fund investments are among the most sought-after investments in India. 

Whenever your residential status changes, it is your duty to update your residential status with the KYC Registration Agency (KRA).

‍

From Resident Indian to NRI

Change in your residential status might have an impact on your mutual funds made as a resident Indian.

All you need to do is change your residential status, update your KYC details and convert your resident Indian bank account to NRO.

If you plan to continue investing in these funds then,

• You need to check whether the fund house accepts investments from the country you reside in.

If the fund house is allowing investments from the country you reside in then,

• Investing your foreign earnings requires you to open an NRE account (funds are freely repatriable)
•  Investing your income earned in India requires you to open an NRO account (repatriation of funds has a limit of USD 1 million per year)

‍

Note: Conversion and updation of your bank account is helpful while redeeming your mutual funds.

‍

From NRI to Resident Indian

Once you become a resident Indian, you need to convert NRO bank account to a resident Indian account or,

If you hold funds in an NRE/FCNR bank account, you can open an RFC account & transfer funds to it.

Next, you need to update your KYC details and update bank details with KYC Registration Agency (KRA).

Here, you have the advantage of investing in any Indian mutual fund without any restrictions and automating your SIPs.

‍

Stocks

From Resident Indian to NRI

• Change in your residential status can lead to closure of your resident Indian demat account & opening of NRI demat account.
• In order to do so, you need to submit an application form with relevant KYC details.
• Before transferring securities to an NRI demat account, the broker might ask you to furnish a contract note as proof-of-purchase.
• Opening of a Portfolio Investment NRI Scheme (PINS) is mandatory if you plan to repatriate investments made as NRI.

Note: You can operate only one PINS account in India

‍

From NRI to Resident Indian

If you hold any shares in your NRI demat account, it is mandatory that you close your existing NRI demat account. Next, you need to open a resident demat account.

Here, the securities held in your NRI demat account are transferred to the resident demat account as per SEBI guidelines.

‍

Bank Fixed Deposits

Bank FDs are among the safest & easily accessible investment options offered by the banks that are fully backed by RBI.

As per the FEMA guidelines, you must redesignate your FDs when your residential status changes, failing to do so can attract penalties.

From Resident Indian to NRI

To convert your resident FD to an NRO deposit account, 

• You need to submit an application form to the concerned bank.
• The submitted form has to include your basic details, bank account number, customer ID, nominee details, contact number, signature, etc.,
• The bank representative contacts you for verification purposes.
• Upon successful verification, you get to transfer your old resident Indian FD to a new NRO FDs

Most of the banks also offer you the benefit of

• Availment of overdraft facility on the FD 
• Auto-renewal on maturity
• Tax benefit if you opt for an NRO FD with five years of maturity (conditions apply), however, this is eligible only if you are filing taxes under the old tax regime. 

‍

Note: After becoming an NRI, you have to redesignate any RFC (Resident Foreign Currency) FD held by you to an NRE/FCNR account.

‍

From NRI to Resident Indian

Upon becoming a resident Indian, you must immediately opt for a conversion of NRO/NRE FD to a resident bank account.

‍

To convert your NRO or NRE FD to resident FD,

• You need to submit an application form to the bank (you can do so by visiting the concerned bank’s web-portal)
• Submitted form has to include, PAN-card, KYC documents, photograph, FATCA/CRS declaration, self-declaration stating that you’re now a resident Indian.
• In case of any premature closure of NRE/NRO FD within a year, you shall remain ineligible for receipt of any interest.

‍

National Pension Scheme (NPS)

To continue investing in the National Pension Scheme (NPS), you must change your residential status by contacting your POP service provider/ associated Nodal Office.

Next, you may have to provide the necessary documents as proof to show a change in your residential status.

From Resident Indian to NRI:

• As a NRI, you can continue investing in a Tier 1 account.
• And to continue investing you will need to change your bank details to an NRE/NRO account.
• You can opt for an NRE account if you plan to repatriate your investments (subject to tax deductions)

• To register for a Tier 1 account, you must submit ‘overseas address proof.’
• Once you become an NRI, you are ineligible to invest in a Tier 2 account 
• Hence, PFRDA treats funds present in Tier 2 as a standard NPS account (Tier 1 account)
• Your investments will be subject to TDS deduction if you plan to redeem these funds.

From NRI to Resident Indian:

• Here, updating your bank account details is necessary to continue investing in an NPS Tier 1 account.
• As a resident Indian, you now have the opportunity to invest in an NPS Tier 2 account.

‍

Public Provident Fund (PPF)

The following rules shall be applicable to you due to change in your residential status,

‍

From Resident Indian to NRI:

Firstly, you need to inform the concerned department about your NRI status (within one month) & provide necessary NRO bank details.

Once you become an NRI, you can maintain the PPF till its maturity but you remain ineligible to extend it.

Moreover, the proceeds from the PPF are transferable only to NRO accounts and repatriation is subject to tax deduction.

‍

From NRI to Resident Indian

As an NRI, you remain ineligible to open a New PPF account.

Also, you can contribute to the existing investments or opt for a premature withdrawal as an NRI.

Once you permanently return to India, your NRI status ceases to exist.

To continue investing or extend maturity you need to change your residential status & convert your bank account to resident bank account.

‍

Sukanya Samriddhi Yojana (SSY)

As an NRI, you remain ineligible to open a Sukanya Samriddhi Yojana account for your girl child.

If such an account was present before your girl child became an NRI, you must intimate the same to the bank.

The intimation should reach the bank within one month of change in your girl child’s residential status.

Also, the account shall remain closed from the date of change in residential status & is ineligible for interest thereon.

‍

LIC/ Life Insurance

You might need to be aware of the following info, for any change in your NRI status or vice versa,

‍

From Resident Indian to NRI

• If you bought an LIC policy in India, you can continue paying the premiums through various approved channels to LIC.
• You will need to inform your concerned servicing branch of LIC about your residential status along with an overseas address.
• Also, you will need to fill-out, sign and submit NRI questionnaire form 

‍

From NRI to Resident Indian

• You can continue holding the LIC policy bought as an NRI
• You might need to inform your concerned servicing branch of LIC to continue paying LIC premium but in Indian currency.

‍

Sovereign Gold Bonds

If you hold any investments in Sovereign Gold Bonds, here is what you should do,

‍

From Resident Indian to NRI

If you invested in SGBs as a resident Indian and became an NRI, you can continue holding them until they reach early maturity.

‍

From NRI to Resident Indian

The RBI restricts any NRI or OCI or PIO from investing in Sovereign Gold Bonds.

‍

Conclusion

Change in your residential status might have an impact on your investments held in India. 

You need to update the concerned department where you hold your investments when your NRI status changes.

Lastly, before submitting an application for updating your status, it might be beneficial to you to open an NRO/NRE account.

‍

‍

Impact of Residential Status on Indian Investments: Frequently Asked Questions (FAQs)

‍

What happens to my investments if I move abroad from India?

Your investment made as a resident Indian might have an impact at the time of redemption.

Also, investments like mutual funds and stocks may allow you to continue investing through NRE/NRE bank accounts.

However, it is essential that you notify about change in your residential status in order to smoothen your transaction process.

‍

Can I keep my Indian savings account if I move abroad?

No, when you move abroad, the FEMA mandates you to convert your resident savings bank account to NRO account.

‍

What happens to my FD if I become NRI?

Once you become an NRI, you must redesignate your resident Fixed Deposit account to NRO FD.

‍

What happens to my mutual funds if I become NRI?

You can continue holding your existing mutual funds by intimating about your new residential status to the fund house.

Also, you need to update your savings bank account to NRO account as it is helpful while redeeming these funds.

‍

What happens to my stocks if I become NRI?

As an NRI, you need to opt for the closure of your resident demat account and open a new demat account.

Your new broker or bank might ask you to furnish documents like contract notes as proof of purchase of shares. 

The broker or bank after performing due diligence will transfer old shares to your new NRO demat account.

Note: To invest in new stocks on a repatriable basis you might need to open one single NRE PINS account. You must route all your purchase and sale through this account alone

‍

What happens to LIC when you become NRI?

You will continue as LIC policy holder but you need to fill-out an NRI questionnaire to the concerned servicing branch.

While filling-out an NRI questionnaire form, it is necessary that you include your overseas address proof.

‍

Is there any impact on your tax liability due to change in your residential status?

Yes, the tax deducted at source (TDS) can vary significantly depending on your residential status.

Also, depending on the country you reside in, you might need to comply with DTAA, FATCA and CRS.

‍

Can I continue to use my resident Indian credit card after becoming an NRI?

No, FEMA restricts you from holding resident Indian credit cards, instead, you can apply for a non-resident credit card.

‍

Why should a US residing NRI fill-out a self-declared FATCA form?

FATCA (Foreign Account Tax Compliance Act) is set up by the US Internal Revenue Service (IRS).

India and USA are signatories to the Intergovernmental Agreements (IGA) aimed at preventing US taxpayers through foreign financial accounts.

If you are an NRI residing in the US region & invest in India, you must self-declare by filling-out FATCA forms.

FATCA helps the tax authorities in India to figure-out where the investments are coming from & reports it to the US.

‍