US Citizens moving to India

I have penned down some of my queries and answers I got when I relocated to India. Since majority of this post details with finance and related information I decided on posting in this forum. Mods, please move it to the appropriate area if this is not the right forum for this post.
I would like to add a disclaimer - I am not a financial planner/consultant nor a dual taxation expert. These are some of my experiences. Please feel free to add to what I have stated or correct me if you find any discrepancies.

* Can I maintain my NRI status even if I transfer residence to India.
Most likely NO. You will be treated as a regular Indian Resident when it comes to Bank A/Cs,Post Office Schemes, Ration Card etc. Unless you keep travelling back and forth and do not declare TR when you move in, you cannot maintain NRI status(even if you are a US Citizen).

* Can I get a license to drive/Ration card/Gas connection/Pan Card etc
Address proof - For me it was apartment docs and electricity bill in my name. I used this as address proof to get a DL. DL can be used as address proof as well as photo id in most places. If you don't own a house, the rental agreement with electricity bill should do.
If you have a valid US DL, any RTO should be able to give you a license with a rider on the reverse(stating that you are a foreign DL holder). Most RTOs will refuse there is such a law, make your life miserable and make you run from pillar to post. Just go to a driving school and do the road test. You will get your DL sooner OR go to a driving school and show your foreign license and see if they can help you with the Indian DL.
Once I got my DL, I used that as address/id proof along with OCI/Passport copies to open regular bank a/cs.
Pan cards are for anyone filing taxes in India, even if you are not an Indian citizen. Get one(your pan card will state your OCI/PIO status).
Ration cards are also for residents, you can get one. I've not really found a use for it other than for getting a regular subsidized gas connection.

* How does taxation work?

India -
Your investments in India will start getting taxed, just like a normal resident as soon as you transfer residence and start working and earning in India(all NRI a/cs need to be closed too). This is similar to Indian citizens in the US getting taxed there.
You can and should apply for a PAN card(with your OCI/PIO) ASAP. It is mandatory to give a copy of your PAN card to the banks and other financial institutions if you make an investment greater than INR 25,000. Until you get your PAN card, you can still open bank FDs giving a PAN exempt form(which is available in the Bank). Main reason for me was that I was a non working person. Later, I had to get a PAN card for opening a Demat a/c when I decided to start diversifying and investing in equities etc. So from my experience, get a PAN card you will need one.


USA-
Big difference - NRIs outside india are not going to be taxed for earned income outside of India(in India). USCs and green card holders(yes even GC holders) have to file returns and yes earned income outside the United States is still taxable - Income from Abroad is Taxable. As of 2009 tax cycle, earned foreign income of little over $90,000(per head) is exempt from taxes but you still have to file taxes - Foreign Earned Income and Housing Exclusions. And it is best to not skip any assest anywhere while filing.
US citizens physically outside of the US before the tax deadline automatically qualify for a two month deadline extension(penalty may be charged on payments). You can apply for a further two/four month extension. This will give you the time to file taxes in India, get all the paperwork ready and then file the US taxes. All hows and whens and all about extensions - U.S. Citizens and Resident Aliens Abroad

Here is the latest IRS publication for tax payers living abroad - http://www.irs.gov/pub/irs-pdf/p4732.pdf

I got a foreign tax consultant's help to file US taxes. He was recommended by a friend. That saved me a lot of hazzles with US taxes. He is based out of the US.

Btw, here is a link to a Dual Taxation discussion from the R2Iclub forums. There are a bunch of people discussing various taxation issues. Most of it went over my head though - MT: Tax for US Citizen living in India - R2IClubForums

Another tip on tax filing, in India there is no concept of married filing jointly, everybody needs to file as individuals. If you file your India returns this way, then it may make sense to file separately in the US(Married filing separately).

* What happens to my existing NRI bank accounts/home loans etc?

The legal thing to do is to open Resident bank accounts(if you have claimed TR) move funds from NRI to resident account and then close the NRI a/cs. I walked into my bank, told them that I had moved and they got the needed paperwork and did the needful(SBI). FDs - after the tenure, it should automatically be renewed as Resident FDs. New FDs will be opened as resident FDs(banks generally will do that).NRI home loans will continue with the same EMI and tenure(fixed interest ones, not sure of floating).


* How about new loans/FDs etc

You will not get an NRI home loan(esp if you are employed in India) even if you are a USC after you have transfered residence. You can invest in FDs(resident interest).

* MFs in India
SEC has a catch for you. Foreign MFs are considered PFICs(Passive foreign investment companies) and are governed by tax laws that are really hazy and difficult for lay people to understand. I've been researching this for the past year and have nothing other than some explanation from various international taxation experts blogs that have simplified it a little but again it is really not clear.There is a whooping $10K penalty for any issue with foreign MFs. That's not all there are two ways to file returns for foreign MFs. All details can be googled from various sources but here is a good one I found on how to file and pay taxes on foreign MFs - Mayer & Riser, PLLC -- Taxation of Foreign Mutual Funds . If you read through this article you will realize that if you opt to pay taxes on these MFs only when cashing out, you will be taxed under the highest bracket(even if your income was at a lower bracket). Paying a 39% tax is definitely not worth it. Know your tax liability in the US before investing in any Indian MFs. None of the Indian Financial Consultants/planners/advisors are aware of US tax laws. I'm sure you will get a zillion assurances of investing in the plethora of funds available from most consultants. Be cautious, otherwise $10K is the penalty(plus taxes @ the highest bracket and a penalty - yearly compounded interest of 9%). My take, don't take the trouble of investing in MFs in India, concentrate and diversify with other funds - equities/ulips/post office funds/FDs/Real estate etc.


* Moving funds to India -
Fairly easy, everyone does it all the time. Don't transfer everything in one shot and then wonder where to invest. Do it in chunks.

* How do I move funds back to the US -
Moving it out - different story. Only one way to repartiate funds back. Go to your Indian Bank physically, get a foreign currency DD and go to the US and deposit it.
As per RBI, Indian currency is valid only in India. Which means you can't just deposit an Indian currency check in the US. You can't transfer funds online from India to the US. Indian currency transactions outside of India is illegal.
There is a $100K cap on repartirating funds as of today without RBI permission. Moral of story - Don't move all your funds in one shot from the US. Keep a balanced portfolio. It is always best to diversify and therefore some funds in the US will not hurt.Remember bringing money into India is easy but moving it out is difficult. If I had known this a year ago, I would have been a little more careful moving funds to India.

*Added - A good article on Repatriation(it says $1m but I'm not sure if that is the legal cap) - http://www.mumbaipropertyexchange.com/nri_corner/Articles.aspx?id=26
The article states banks help in repatriation. Mine does not(SBI) - I spoke to the manager, he gave me the above explanation with the $100K cap. Not sure who is right.
* What will happen to my 401K?
Here is what I did with mine - rolled over to traditional IRAs soon after I stopped working with the employer. Thanks to Suze Orman(can't find her book online, anyone have the link?), I rolled it all over to Roth the next tax cycle(since I was anyway overseas and earned income was in the lowest bracket and already exempt).I plan to keep it there for now. If you don't have a pressing need for the money, this is the part of your portfolio that you should leave in the US. If you really have to move it, wait to relocate and then withdraw yearly after you are no longer making income in the US by paying the 10% penalty(assuming that ur income is within the foreign income cap). Otherwise, pay up the 30% penalty and bring it along(not sure if it is 30% or more).
The rest of your savings a/cs etc can be moved to India. Try to keep a balance between US/India. I've heard of a 40/60, 30/70, 45/65 ratio. Think before you make it 0/100. Decide on a ratio depending on how open you are to relocating back, what are the chances that your children will go to school in the US and what are the chances that you will make short trips/medium term to the US.

*529 Plans?
I am not in favour of 529 plans for my child simply because I really am not sure if she will end up going to school in the US or elsewhere. First of all, I don't like the "some qualified foreign institution" clause in the plan, who qualifies these foreign institutions? What happens to funds in the plan if she ends up going to a non qualified foreign institution in India or some other country? I didn't get a very valid answer other than use it for a sibiling or someone else or pay the penalty and withdraw. No sibiling for her and nobody else to use it for so far and I'm not paying withdrawal tax and penalty. I have planned for college but it will sit elsewhere and be used for college. I'm with Suze Orman in this. Lesser the money in the child's name, higher the chance the child has to get a scholarship/loan or other assistance. Not that I won't spend for her college, if she is getting free funds, I might as well take advantage of that!

Finally, was it all worth it? Definitely!!!! Glad I came!

Hope this helps anyone thinking of relocating permanently.

 

Mythraeyi,
I was not sure if it would help someone. Glad you liked it.

L

 

Pavarun,
For me, when I received my shipment here, customs stamped it in my passport. Customs have rules for shipments and TR status lets you ship your household articles duty free.
I'm not sure if immigration will do it at port of entry. Good Q, let me ask a few of my friends. I'll get back to you on this.

Even before my shipment got here though, I gave a written statement to the bank stating that I have transfered residence to India and they didn't ask me for any paperwork. They just processed my Regular a/c and closed all NRI accounts. As proof of residence, I had to provide my Apt papers and Electricity Bill. Later on, I provided them with DL and PAN card. They also got copies of my passport and OCI.


L

 

Pavarun - I just googled this and found a few links - MT: Transfer of Residence Rules - R2IClubForums.
oneindia answers - Transfer of Residence.

Anyone entering the country with an intention of living in India (with a PIO/OCI) can claim TR. TR should be declared with the customs(who will then let you carry household items etc duty free). Customs also stamped our passports when our shipment passed through.

HTH.

Ammu - As your friend researches, it would be useful if she adds what she finds to this thread. That will benefit others thinking of moving.

Thanks,
L

 

Continuation!

Ctd, from the first post.

Will
Ladies, please make a will before leaving the US. It is important esp if you have kids. Even otherwise it is a good idea. Do get it done without fail. I'm still figuring out how to do it here. I wish I had know to get it done while I was there.

PPF in India
Once you are a resident, you can open a PPF account and save Rs70K annually in it. This is good for tax savings in India.

Owning Agricultural Land In India
As a non Indian citizen, you cannot purchase agricultural land in India. Even with OCI status, you cannot do so. The only way you can own agricultural property in India is if you inherit it. You might hear of smarties trying to bend the law by buying agricultural land in a parent's name and then getting the parent to gift it to them. Don't even go there! It is fairly easy for the RBI to track the funds back to you. Bottom line, it is the law, don't break it and get into trouble. If you are dealing with real estate agents, they may unknowingly get you to buy something like this. Make sure you get the documents checked for type of property before buying. The agent may not even be aware of this law.

Owning other property in India
Anything other than agricultural land can be purchased by anyone of Indian Origin. Indian Origin per RBI - Reserve Bank of India

If I remember any more points, I'll add to this.

 

SV - Glad to help. I'll keep adding to this as and when I remember stuff.

Shipping stuff: If you are transferring residence and intend to ship your stuff to India, please talk to packers/shippers well in advance and get quotes from them. Don't believe shippers who give you an estimate without actually visiting your place and creating an itemized list of stuff. Even if you provide them with a comprehensive list, shippers charge by weight and volume and it will be difficult to gauge it yourself. It is better to get quotes from 3 or 4 shippers and also talk to their referrals in India. If you intend to pack yourself, plan the better part of a month for this task. If shipping furniture, leave the packing to the shippers. They are best at it. With TR you could ship used household items and one computer duty free. If you have furniture that looks new, it is best to save receipts. You may be asked for it by customs. Carry all your important paperwork and anything that you may need as soon as you get to India yourself and don't put it in your shipment. The shipment will take anywhere between 6-8 weeks to get to its destination. Prepare to get here and wait for the shipment to come in. Make sure you have a copy of your shipment's itemized inventory with you. Make sure you track your shipment's progress periodically by emailing your representative. Get in touch with the shipper's Indian counter part ahead of time and get their contacts/reps etc. Give them your contact phone #s and alternate #s. Once your shipment gets in, if you don't go clear customs right away, they charge you for storage, so plan to be in town when it gets in.

That's all I can think of at the moment, will add to this thread as and when I remember. Do post Q's/clarifications if any so I can refresh my memory and jot those down.