Financial planning is slowly getting to be as common place as a commodity, though there are subtle underlying complexities. These could be factors like life expectancy, return expectations and rate of inflation, to name a few. For a non-resident Indian (NRI), financial planning becomes even more complex as the variables increase manifold.
Apart from additional financial aspects that need to be considered, there are softer aspects which need to be paid attention to. Here’s a glimpse of some of theirs as well as our experiences.
Goals spread across countries
One set of people is those who have worked for a while in India, and then worked overseas. If they are entrepreneurs, or in a consultancy role, they want to be able to straddle India and their current home to get the best of both worlds, in terms of work as well as a more salubrious climate. What we need to consider is the allocation of time between the two countries, the differing rates of inflation and the impact of currency depreciation. Further aspects that we have faced is:
– What happens to the property they are staying in? Will they be able to rent it out during the time it is vacant – is the travel to India in smaller time slots or at a stretch?
– Where will they stay while they are in India? Is there an emotional connect with “home”?
– Will they be able to adjust to living in India if they have lived abroad for long? We have faced a situation where despite a strong commercial interest in India, a client could not reconcile with the infrastructure issues in India, and hence wanted to have an option to go back.
– Are they able to predict the expenses that might be required in India to maintain their lifestyle? We have had extremes of both under-estimation and over-estimation of Indian expenses, as either big “comfort” expenses are missed out, or excessive buffers are created.
– What happens if an opportunity comes along to work in a third country? Even though this may be a temporary opportunity, currency issues may play a big role in tweaking their financial plan.
Assets spread across countries
The first issue that comes up as absentee landlords is the need to get property management services in place. There is a strong need to have competent, local financial advisors and tax consultants in countries where assets are held; as we do know, ignorance of the law is no excuse. We have faced situations where our clients have got wrong advice because the tax consultant has never dealt with cross-border issues and may be unaware of Indian tax laws.
Investors must plan for both receipt and transfer of inheritance. Awareness of how to reduce the impact of “death taxes” during their lifetime; and creating appropriate structures could help in substantially reducing the government share in their estate. It is suggested that you have a will registered locally for each of the countries where you own assets, with a cross reference made in each will of the other. Execution of such wills is much easier than with one master will.
The first thing to be checked is if a Double Tax Avoidance Agreement (DTAA) exists between India and their country of residence. This allows for claiming tax credits for taxes paid in the other country while filing of your tax returns and hence improving the liquidity by not paying excess taxes in both countries.
For many US “tax persons” investing in India the advantage of the tax-free nature of the NRE (non-resident external) fixed deposit is nullified as global income is subject to tax in the US. In another situation, Indian residents can invest to save capital gains tax in India, but this benefit is not available to NRIs residing in UK where you get credit for taxes paid and not for taxes saved.
One of the important aims of financial planning is to help protect risks for an individual. Having adequate health insurance covers in place which can settle claims locally is crucial when one is traversing different countries, while on work, and more so, while in retirement. A review of life insurance from the aspects of coverage (maximum age, amounts) and costs is not out of place either.
A complete scan of the investment products available in different countries requires working with multiple advisors so that each can bring his local expertise to the fore. The focus has to be on the financial goals, and to the extent possible, local goals ought to be met locally to avoid any issue of currency fluctuation.
You can read more here on, Exchange rate fluctuations: How to overcome the palpitations?
Financial planning is indeed the bedrock on which your dreams and aspirations are achieved. Find the right expertise so that you do not miss these aspects as a global citizen.