Expat NRIs planning to return & Retire in India

Due to the ongoing health crisis, the expat hiring has been pushed on the back burner at least temporarily. This is a common thing happening around the world and not just in any particular country. And even the existing expats at many levels are facing tough times due to various geo-politically influenced decisions being taken in many countries. So when things are changing rapidly below the feet, the expat population is facing turbulent times in the last few months. But the general consensus is that once things are under control, then expat population world over will see better days.

Talking of expats, let me remind what exactly does it mean?

An Expat is an individual who has opted to work in a country other than his or her country of citizenship, often temporarily and for work reasons. Many expats end up relinquishing the citizenship of their home country to become a citizen of another country.

So why would someone leave their own country to work elsewhere? It’s simple. Most people do it to seek more lucrative employment in a different country. And of course, the non-financial aspects are also there. For those who love to gain varied living experiences in life, being an expat provides big opportunities for global exposure.

Many Indians choose to move abroad during the initial years of their careers in search of better prospects and of course, higher income. As result, they first become NRIs. And then many decide to remain there for the rest of their lives and obtain citizenship of those countries. On the other hand, there are many who don’t take that route. These NRIs work outside India for several years and then plan to return back to India eventually. Once back, they may decide to continue working or if they have already accumulated enough assets, they made decide to call it a day via early retirement.

Further reading – Details of Indian expat population outside India (link).

That said, there is no doubt that the quality of life in general outside India (at least in nations where most Indians decide to settle) is better. For obvious reasons which I am sure most of you would know and agree upon. But for many, it’s not just about the quality of life and comforts. It’s about coming back to where one belongs to.

So for those who are planning to come back to India for good, it’s important that they plan their retirement in India properly. And this is why Retirement Planning for NRIs is very crucial. And this is not just about NRIs but about the whole expat community in general too world over.

Sidenote – I strongly suggest you read why retirement planning is a tough nut to crack and is rightly called the nastiest problem in finance. You will understand why you need to be careful with it and start saving as early as possible.

One crucial factor is the city of residence where the NRI plans to return and settle down in. If one wants to reside in metros like Mumbai, New Delhi, Bengaluru, etc., then obviously the cost of living will be high. On the other hand if one plans to settle down in Tier-2 or -3 towns, then the cost of living will be lower. For example – A monthly budget of Rs 75,000 per month in Metro cities will give you a similar living style which is available for Rs 40-50,000 in non-metros. Of course, this is just a hypothetical example but this is how it is in reality as well.

So if the cost of living is lower, then obviously the required retirement corpus would be lower. Do read this article on how to accelerate retirement savings – which also talks about how lower expenses can help you achieve early retirement (or financial freedom) with a small corpus.

By the way, many NRIs continue to push retirement saving in the background as they keep saving for children’s future and their love for real estate. But with retirement savings, the earlier one starts, the better it is. Here is a simple example (link) that proves this stance.

So what should you do exactly?

  • Assuming you are planning to come back to India eventually, first you need to have a fair idea of what your retirement in India will look like. In terms of the cost. For example, you can say that once I am back in India, then in today’s value, a monthly income of Rs 75,000 per month would provide me with the lifestyle that I want. If you are unsure of Indian expenses (and this is true for many Indian expats or NRIs as they are not directly aware of costs of Indian lifestyle costs), then you discuss with your close family members or friends who are living a similar lifestyle that you wish to replicate once you are back here. You can figure out what would be the monthly expenses and other non-periodic or annual expenses. This small exercise will help you estimate the cost of living for a chosen lifestyle in India.
  • Once the above is done, you need to estimate a tentative retirement age for yourself. It can be 60 or if you are planning for early retirement, then it can be even lower. For many NRIs planning to come back to India, it can coincide with the age at which they actually come back here.
  • Now comes the critical part. You need to estimate proper inflation and expected returns from your portfolio for a chosen life expectancy. Once that is done, typical retirement corpus calculations can be done to arrive at a target number for you. That is, target retirement corpus that you need to have at the time of return to India.
  • Then you do the calculations to figure out how much you need to invest (every month or year) to achieve your targeted corpus.
  • It’s then for you figure out which are the investment products that you want to invest in. More importantly, which of these are available for expat NRIs as not all investment options are open for non-resident Indians. But in any case, the investment portfolio can be a blend of equity, debt, real estate, etc.
  • A capable investment advisor can help you with all this.

And assuming one is planning to start now, what are the options available for investments and retirement planning for NRIs in India?

Here is a list of the few major ones:

  • Fixed deposits – These are similar to regular fixed deposit in banks in India. The only difference is that these NRE NRO Deposits provide tax-free interest for NRIs, whereas interest on FD is taxed for resident Indians. But as this is a debt component, it delivers returns that are similar to the debt interest rate prevalent at the time of investment. It may not necessarily beat the inflation in India.
  • Equity Mutual Funds – If you wish to beat inflation in the long run, then you need to invest in equities. It’s a no brainer actually. Here is a simple example (link). Potentially high returns are available for prudent investors in Indian equity markets. And yes, even expat NRIs can invest in mutual funds in India. Both on repatriable and non-repatriable basis for the expat community. And for NRI investors who have big amounts to invest, I suggest understanding the difference between Direct Vs Regular plans of mutual funds to see how much extra money they can make by picking direct plans of mutual funds.
  • Real Estate – Yes. How can we not discuss real estate when we talk about NRIs. Isn’t it? It is an all-time favorite for NRIs. I am not an expert in real estate but if invested wisely, it can work wonders no doubt. Many NRIs buy properties in India to generate rental income as a source of income during retirement years. So real estate can be a solid part of NRI’s post-retirement portfolio. That is assuming one is willing to put up with the hassles of managing tenants, property maintenances, etc. But in general, I would say that being over-invested in real estate may not necessarily work out for everyone as real estate experiences differ from city to city and from person to person. So be careful when investing in real estate as an investment and not for personal usage.

Many Indian expats also contribute regularly to some retirement plans in the country of their current employment. It’s absolutely necessary to understand how such products work as and when you decide to leave the country and come back to India.

That said, taxation also is a major angle to the discussions about NRIs and their investments.

Certain tax breaks that are available to NRIs aren’t available to resident Indians. The NRIs who return to India are classified as follows – ROR (Resident and Ordinarily Resident) and RNOR (Resident but Not Ordinarily Resident).

Here is the link to a useful article in this regard. It states that an individual qualifying as ROR is taxable on his worldwide income in India and is required to report all foreign assets in the India income-tax return (ITR). After a person becomes resident Indian, any income earned from foreign assets in the relevant FY needs to be reported in the ITR under the relevant head of income. As for the RNOR, he/she is not liable to tax in India on his foreign income unless received in India. So to say it simply, if you are planning to return to Indian in near future, it makes sense to plan your return so that you can enjoy the tax-efficient NRI status for the maximum possible period. So in that sense, coming back post-October in a year is beneficial as that way they will be staying for less than 182 days in India in that FY and will qualify as NRIs for that year.

And since we are discussing about Indians working abroad, it makes sense to briefly comment on what happens to expats, i.e. citizens of other countries who live and work outside their home country.

As mentioned earlier, these expats are individuals who work in countries other than their country of citizenship, often temporarily and for work reasons.

Like, let’s say US citizens who are working in US embassies in the middle-east GCC nations. Or maybe a UK citizen working in a UK-based MNC’s office in India, etc.

Such cosmopolitan citizens also need to plan their investments and at times go for tax preparation services which help them manage their cross-border tax filings easily. For US citizens, there is a concept of government-handled IRS Streamlined Offshore Filing Procedure. These are basically streamlined amnesty programs that US citizens and green card holders to manage their tax returns in a smooth manner year on year.

That said, many NRIs would have already decided to settle abroad. They may have their own reasons for that. But for those expats who are planning to come back permanently and retire in India, it’s very important to begin planning their finances accordingly. And it’s best to begin planning this as early as possible. For most NRIs, having a gradual planned transition at the time of return will beneficial.

So have a concrete plan in place. Figure out all your financial goals (use this free goal planning excel sheet) and retirement-related assumptions (as discussed earlier) and have it built you’re your plan. Remember not to ignore retirement in the discussion of saving for Children’s future vs Retirement. You will be in big trouble.

And once the plan is prepared, please do not delay implementing it! Also, once the plan is implemented and you are investing regularly, you need to keep monitoring your investment and change as per the changing factors like time horizon, change in tax laws, etc.

Financial planning for expats and NRIs or Retirement planning for NRIs is a bit different than those of resident Indians. It’s a multi-dimensional exercise that needs to be carefully handled.

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