Investment options for NRIs
According to a Ministry of External Affairs report, there are 3.2 Crore NRIs and OCIs residing outside India and overseas Indians comprise the world’s largest overseas diaspora, residing in almost all the countries possible and come from varied backgrounds from doing simple jobs; or being working professionals to heading large corporates. Let us discuss today what are some simple options for NRIs willing to invest in India.
To begin with all NRIs can invest by having NRO & NRE a/c with banks present in India. NRO a/c is meant for investors/savers who have the accumulated wealth before they became NRIs and the same is taxable as per resident Indian.
i) The investments made in an FD for NRIs is safe as they can invest in FDs offered by nationalized banks too
ii) 2 types of FDs for NRIs are exempted from tax as mentioned in the table below. Tax Deduction at source is applicable for deposits thru NRO and RFC deposits.
iii) Overdraft and loan facilities can be taken on the FD.
iv) Nomination facility is available
v) RFC (Resident Foreign Currency) accounts are especially useful for NRIs who return to India and would like to bring back foreign currency from their overseas bank accounts.
| Type/criteria | NRO FD | FCNR | NRO Tax Saver | NRE FD | RFC |
| Currency | Indian rupee | USD, GBP, JPY, Euro, CAD, SGP, AUD | Indian rupee | Indian rupee | USD, JPY, Euro, GBP |
| Repatriability | Not fully repatriable | Fully repatriable (Interest and principal) | Not fully repatriable | Not fully repatriable | Repatriable on bonafide reasons |
| Eligibility | PIO/NRI | PIO/NRI | PIO/NRI | PIO/NRI | PIO/NRI |
| Tax | Interest might be subjected to tax | No tax | Interest might be subjected to tax | No tax | Exempted tax can be claimed |
| Tenure | 1 year to 10 years | 1 year to 5 years | Minimum of 5 years | 1 year to 10 years | year to 10 |
Equity, Mutual Fund, PMS & AIF:
An NRI can invest in Indian stocks through a Portfolio Investment Scheme (PIS) account. A PIS account is required specially when there are foreign funds being used for investment on a repatriable basis. Alternately, NRIs can also use their Indian funds from a NRO account to invest in Indian stocks.
NRIs can invest in Indian mutual funds & PMS, too, but they will have to comply with all regulatory requirements. There are some restrictions by certain asset management companies (AMCs) in regard to US and Canada-based NRIs. Some PMS houses accept US & Canada based NRI’s investments.
While opening an NRI investment account, all necessary details, such as passport, address proof, self-attested copy of tax identification number (PAN), FATCA (A US Federal law compliance) declaration, and other required documents, will be required.
For completing the in-person-verification (IPV), NRIs may also visit the Indian Embassy in their country of residence and complete the process.
High Net-worth Alternative Investments: an NRI can invest in stocks through alternative investment funds (AIF), which is a managed account. Net worth is another factor that has to be considered.
For AIF investments, the minimum ticket size for category I angel funds is Rs 25 lakhs while for other categories it is Rs 1 crore, and unlike PMS, investments in AIF are done using a pool account.
Taxation: An NRE account stores funds earned outside India, and a NRO account stores funds earned in India.According to the Income-tax Act, 1961, NRE accounts are tax-exempt, while NRO accounts are not.
The same equity and debt taxation laws which are applicable to Indian residents apply here too, but since an NRI is not a resident of India, double taxation treaty agreement (DTAA) should also be looked at so that the NRI gets credit for the taxes paid in India.
An NRI between the age of 18 years to 60 years can open an NPS account with a POP (Point of Presence) in India. You may also open an eNPS account if you have a PAN card or an Aadhaar Card. You may consider using your NRO or NRE bank account to invest in the National Pension System. The pension from the National Pension System will be paid in Indian Rupees.
Public Provident Fund – PPF:
You can continue with your PPF account which you opened when you were a resident Indian. However, you cannot extend the PPF account after the maturity period of 15 years. An NRI cannot open a PPF account in India.
Real Estate:
NRIs can buy or own an immovable property in India in compliance with the FEMA (Foreign Exchange Management Act) regulations. NRIs and OCIs (Overseas Citizens of India) are treated similarly when it comes to investment in real estate in India. The RBI allows NRIs to buy any commercial or residential properties in India.
However, NRIs can’t buy agricultural land or plantation property in India, who are interested in buying need to seek certain permission from the RBI. The RBI grants permission on a case-by-case basis.
NRIs are eligible to get an indexation benefit for their properties situated in India. For example, an immovable property held in India for more than 24 months is classified as a long-term capital gain asset and obtains an indexation benefit with simplified taxation at 20%. Certain tax deductions are allowed under Sections 80C and 80TTA of the Income Tax Act of India.
Mutual Fund Distributor
Rajendra Bhatiarb@aarthashastra.com