In the past few years, many Non-Resident Indians (NRIs) have headed back to India as the emerging Indian economy has expanded opportunities to open new businesses, for research and development and even to find suitable skill-based employment. Most of the NRIs planning to return, mostly intend to return to the comfort of their homeland only in their golden years. Therefore NRI retirement planning has become a hot topic in recent years, as

For NRIs who intend to settle in India post-retirement, it does not just involve relocating from one country to another, but also needs adequate preparation in terms of understanding the cost of living in India, building a sufficient corpus to support retirement living and rejigging the savings plan to help in making the move. Before an NRI decides to settle down in India post-retirement, here are a few questions to consider.

When and where to retire in India?

The first and the most crucial step for an NRI to decide is, at what age to retire and return to India. The next crucial step in the NRI retirement planning process is to decide where in India do they want to spend the rest of their lives. The age of retirement and the estimated cost of living at the place of residence, heavily influence the value of retirement corpus needed.

If the returning NRIs prefer to settle down in cities like Mumbai, Delhi or Bangalore, the cost of living is comparatively higher than that in Tier-2 cities like Pune, Jaipur etc. Also, the time available from now till retirement age, is needed to put together a suitable asset allocation plan either in India or in the country of residence, to support retirement living.

Are there any financial goals beyond retirement?

Many people plan out the activities they want to take up post-retirement such as starting a new venture or traveling when they wish or even trying to satisfy their unfulfilled dreams. NRIs planning to spend their retired life in India must analyze if there are any financial goals, which occur beyond their retirement age and categorize into essential and optional. Expenses such as children’s education and marriage are essential components to bear in mind with regard to NRI financial planning and it is advisable to earmark the savings for these goals factoring the expenses as in the country of residence.

For personal goals after retirement, such as traveling plans, new business plans, etc., it is advisable for an NRI to discuss with a financial advisor on converting a part of the savings to Indian Rupees to invest in India or hold it as it is and move it to India in retirement. But the onus should be on building a retirement living corpus, separated from the goals during retirement phase. A  certified financial planner should be employed to advise on all aspects on NRI retirement planning, from currency exchange matters, to tax related issues, and to matters relating to estate planning for future generations. In addition, an investment adviser, regulated by SEBI, should be instructed to advise on NRI related investment options.

What would be the cost of living for NRIs retiring in India?

As remarked earlier, the cost of living varies highly from metro cities to Tier-2 cities to small towns in India. Before returning, NRIs must decide on the place they are settling down. Even though the inflation is on a higher side, the cost of living in India is lesser than that of the developed countries. Some of the utilities like electricity, water, fuel, etc., which are available at very cheap prices and are taken for granted abroad, are rather expensive in India compared to the prices abroad.

Unlike developed countries, there is no social security cover provided by the government for the residents of India. Also, quality health care in India comes at a premium price. To arrive at an appropriate estimate of the retirement corpus, the factors mentioned above should be considered along with the average inflation rate in India and the approximate returns generated on the assets.

Investment Options for NRIs retiring in India

When an NRI decides to move permanently to India on retirement, one of the foremost things to be considered is the transfer of assets. The returning NRI can choose to move and invest the assets to any country of own choice or can move it to India at frequent intervals to benefit from fluctuating currency rates. Before investing in any financial products in India or abroad, it is important to foreknow the value and duration of the income it would provide, the approximate rate of return over a long-term, and the taxability of such income in India. Some of the popular investment options for returning NRIs to be considered as part of the NRI retirement planning process are explained below:

1. Real Estate – This is a very popular choice for NRIs investing in India. An NRI can invest in real estate in India for long-term and also buy real estate for self-occupation. However, due diligence has to be done before finalizing any property for investment or for self-consumption. The income from these assets can be drawn as a rental income or by selling the property and investing the lump sum to draw a periodic income.

2. Equity – NRIs can invest in equity through Portfolio Investment Schemes (PIS). If they do not plan to return soon, equities are the best options to generate good returns over a long-term. It is advisable to utilize professional services for investing in equity like Portfolio Management Services (PMS) in which the investments are tailored according to the age, risk profile and personal needs of an NRI. Income from equities, for retirement, cannot be drawn periodically and the shares must be sold to generate income.

3. Mutual Funds (MFs) – Since Mutual Funds offer a wide category of investments ranging from equity, debt, balanced, money market, etc., they are widely popular for investing the retirement corpus, and a key element of NRI retirement planning. An NRI investing in a Mutual Fund portfolio has multiple options for periodic withdrawal such as Systematic Withdrawal Plan (SWP), Dividend Option etc.

4. Debt – There are many debt investments in India for returning NRIs such as Fixed Deposit (FD), Tax-free Bonds, Non-Convertible Debentures (NCD), Corporate Bonds, etc. which can be utilized by NRIs for retirement income. A periodic payout can be received by investing in the debt instruments at a fixed rate for a particular period of time. However, the returns on these are very low.

5. Annuity Plans – These plans can be purchased by paying a lump sum. The purchase price depends on the amount of annuity payment and the frequency that an NRI requires. Annuity plans, though yielding low returns, offer an NRI, security against outliving one’s retirement corpus. Depending on the option chosen at the time of purchase, payments are given at agreed intervals until the end of life of the annuitant or until the end of life of the partner or the purchase price is returned on the death of the annuitant. Despite the low yields, annuity plans should still be considered a part (even if it is a small part) of the NRI retirement planning process.

6. National Pension Scheme (NPS) – This is a scheme by the government of India, which allows NRIs to invest in the National Pension Scheme (NPS) in a periodic manner till retirement. At retirement, 60% of the corpus can be withdrawn and the rest has to be mandatorily used to buy an annuity. An NRI can draw monthly income, either from the annuity alone or by investing the lump sum corpus and buying an annuity.

7. Pension Plans/Unit-linked Insurance Plans (ULIPs) – NRIs can start to invest in these pension plans much before their return. These plans provide various investment options to choose according to the NRI investor’s risk profile. Though the returns may be higher than regular debt instruments, the management costs per annum are very high. Also, only 60% of the corpus accumulated at retirement can be withdrawn without tax and the rest has to be compulsorily utilized to buy an annuity. The income from these plans can be derived either from annuity alone or by investing the lump sum corpus and buying an annuity.

Taxability of NRI Income in India

The lure of returning to the motherland, should not make an NRI take hasty decisions while investing for retirement. Though the investment options are plenty in India for the growth of the accumulated assets and for withdrawal of income, the taxability angle of every investment should be considered carefully beforehand. An NRI becomes a Resident for tax purposes upon completion of 182 days of stay in India and certain tax exemptions given for NRIs, may no longer be applicable.

The tax rules for the aforesaid investment options are below:

1. Real Estate – Rental income received from properties are taxed according to the slab rate the NRI falls into. Any gains made from the sale of properties are subject to Capital Gains Tax, with the rate depending on the holding period of the asset.
2. Equity – Income in the form of a dividend or bonus shares are tax-free for equities. However, the gains made from the sale are taxable, with the rate depending on the holding tenure.
3. Debt – Income from any debt instrument is taxable at the slab rate an NRI’s income falls into. Also, any income drawn from NRE deposits after becoming a resident for tax purpose, is also taxable.
4. Annuity Plans – The annuity payments are taxed according to the slab rate to which the NRI’s income falls into. However, if an NRI has opted for return of purchase price on the death of the annuitant, the amount paid back to the survivor is tax-free.
5. National Pension Scheme (NPS) – In this scheme, 60% of the accumulated corpus can be withdrawn without tax. The remaining corpus has to be utilized to buy an annuity, the payment of which is taxable at the slab rate.
6. Pension Plans/ULIPs – The tax treatment of these plans are same as that of NPS.
7. Mutual Funds – Equity mutual funds are taxable in the same manner as direct equities. Taxability of Debt Mutual Funds is at the slab rate, if the holding period is less than three years and at 20%, if more than three years. Balanced Funds, with more than 50% exposure to equity face similar tax treatment as equities.

NRI Retirement Planning: Conclusions

It can be seen from the above overview that there are a multitude of things to consider during the NRI retirement planning process.

Planning ahead is key – as highlighted above, the ‘when’ and ‘where’ are the first questions which must be answered, followed by financial considerations. As always, we would recommend a returning NRI to seek expert help in all matters  – from a financial planner to help make a structured and viable financial plan, to an accountant to advise all the taxation aspects, to a registered investment adviser in matter relating to the investments in India that the NRI wishes to undertake.