Top 5 Problems NRI Face While Investing In India

Capital appreciation, high rental yield, a close connection to the homeland, and so on. All this makes investing in India an attractive option for NRIs.

Non-resident Indians do contribute a good share to the growth of the Indian economy by making right and profitable investments, but this is not the case for all. Many NRIs who don't understand the Indian government's investment regulations end up losing everything.

In this guide, we will discuss 10 problems NRIs face when investing in India and the solutions to those problems.

Problem 1: The Regulatory Complexity

The NRIs must comply with an array of regulations specific to their investment type and chosen NRI status. This means that, under Reserve Bank of India (RBI) regulations, once an Indian resident attains NRI status, they cannot operate their old resident bank accounts for any transactions. 

They are required to open designated NRI bank accounts, such as NRE accounts and NRO accounts. Moreover, as an NRI, you must obtain a PIS account for investment-related to the stock market, and to adhere to real estate ownership limitations. 

Additionally, they are required to update their Know Your Customer (KYC) details.

In a nutshell, some key regulations are complex for NRIs, such as using NRIs' specific bank accounts, cross-border taxation and Double Taxation (DTAA), KYC updates, and so on. 

How to stay compliant 

• Right Bank and Broker: To stay in compliance and manage complexities like a breeze, first choose the right bank and broker. A right bank for your NRI accounts, an authorized or SEBI-registered broker for your demat accounts, and an investment advisor for making investments. 
• Inform Bank and Mutual Fund Houses: Secondly, inform the beneficiaries of your bank and mutual fund houses of the change in your residential status. This way, you won't be surrounded by last-minute hurdles. 
• Expert Guidance: Please also seek professional advice from a financial advisor with expertise in NRI taxation and investment for both in India and abroad. This might sound like an "on this is just a worthless expense" right now, but even the best investors and traders advise having an expert financial advisor by your side to build a strong investment portfolio as an NRI and to manage cross-border taxation efficiently. 

Problem 2: Taxation Complexities

NRIs are considered susceptible to double taxation on income earned in India. However, India has signed a double taxation avoidance agreement (DTAA) with more than 100 countries to mitigate this. 

But yes, understanding the specific tax treaty with the NRI's residence country and then claiming its benefits by filing the appropriate forms is crucial. 

Apart from DTAA, working with the high tax deducted at source (TDS) rates and ensuring compliance with them is also essential.

Additionally, NRIs, especially those classified as this Resident or RNOR (which usually end if the stay in India exceeds the set number of days), must meet specific requirements to report all foreign earnings and assets while filing ITR in India using Schedule FA. 

If not, penalties are imposed. 

The complexities of taxation also determine when capital gains for NRIs are taxed in India. This means capital gains taxation for NRIs also involves complex rules for each holding period, including short-term and long-term capital gains, deductions, reinvestment tax exemptions, and more. 

How To Stay Compliant

• Track Your Days: To remain complete as an NRI, track the number of days spent in India in each fiscal year to determine your accurate residential status. 
• Get A TRC: Secondly, to claim the benefits of a DTAA tax treaty, please get a Tax Residency Certificate (TRC) as an NRI. 
• Documentation: As an NRI juggling between the taxation of two countries, it is essential to keep all your documents, forms, and certificates in order.
• Expert Advice: This is a non-negotiable for NRIs. Please take expert guidance from NRI tax experts to make sure you are filing correctly and that your tax liabilities are optimized.

Problem 3: Digital Asset Investment

There is a trend of not investing in non-fungible tokens (NFTs) and cryptocurrencies without understanding their legitimate use cases. Non-resident Indians should invest in such digital assest which the Indian Law does not approve. 

Young NRIs or those unfamiliar with Indian tax laws or Indian laws in general tend to invest in these digital assets with the expectation of high returns. 

However, NRIs must be aware of the legal consequences and tax implications of such financial assets in India to avoid last-minute hassles. Additionally, please invest or allocate your funds to financial assets that are legally recognised in India. 

How to Stay Compliant

• Crypto expert: Please consult a cryptocurrency tax expert in Indian to understand how tax obligations and tax planning on digital assets are imposed. 
• Familiarize: It is advisable to become familiar with Indian laws before investing, as this will give you a clear understanding of where your money is best invested. 
• Take Precautions: When dealing with crypto, please note that the market is highly volatile and is not regulated by any Indian regulatory body.

Problem 4: Delay In Process

Non-resident Indians (NRIs) often complain about the investment process, as it is quite delayed. Many background checks are required, which delays every investment process. 

How to stay compliant

To avoid being stuck in the long-delayed process, NRIs are advised to use the investment services of credible banks.

Problem 5: Not settling debts and managing investments before obtaining NRI status. 

Before attaining the NRI status, an individual must settle their debts and investment plans. This is because NRIs cannot avail themselves of the benefits or advantages they received in India. 

Let us say, for example, investments made in a National Savings Certificate (NSC). The interest earned on this investment is not subject to taxation under Section 80 of the IT Act. And a resident who has attained the NRI status cannot continue with this particular investment plan. 

The same applies to the Public Provident Fund (PPF).

How to Stay Compliant

In a nutshell, it is wise to repay all such loans and settle the investments before leaving the country to avoid penalties or notices.

The Bottom Line

An NRI investor must abide by the above-discussed hitches to have a profitable investment portfolio. In case of any doubts, you can consult an expert NRI taxation consultant so that you ensure a portfolio is diversified and profitable. 

There is no doubt that NRI taxation in India is quite a complicated aspect, but with expert guidance, you can get it done like a breeze. Savetaxs is one such NRI taxation expert that has been serving NRIs with the best taxation consultancy services in India. Our expert brings more than 30 years of combined experience, making them a trusted partner for individuals seeking NRI taxation in India. By now, we have a service serving thousands of clients across the USA, UAE, UK, Australia, and more. 

Savetaxs is a taxation strategist who specializes in helping you stay compliant with Indian tax laws, all while maximizing your assets and minimizing your tax liability.