An NRI can make repatriable and non-repatriable investments in India. NRI investors can invest in India on a repatriation basis, meaning they can transfer the proceeds from investments or sales to their country of residence. On the contrary, in the case of non-repatriable investments, the proceeds of the investment or sale cannot be transferred outside India.
Repatriable and non-repatriable are terms that state how and if you can transfer the returns from your investment back to your home country. In this blog, we will learn more about the difference between repatriable and non-repatriable investments for NRIs.
Key Takeaways
- An investment made on a repatriation basis permits NRIs to transfer the proceeds to their residence country using an NRE account.
- Non-Repatriable investments restrict the transfer of funds outside the country of investment, meaning the funds must be held within the country where they were earned.
- Earnings from non-repatriable investments are subject to local taxes, and international fund transfers can be challenging.
- Repatriable investment offers high liquidity and flexibility, and often enjoys favourable tax treaties between nations.
- Non-repatriable investments offer lower liquidity and might be subject to local taxation.
What are Repatriable Investments for NRIs?
Repatriable investments allow investors to transfer their capital and earnings back to their home country. An NRI can invest in various asset classes in India on a repatriation basis through the funds in their NRE (Non-Resident External) account. NRIs can transfer both the principal amount and the returns earned to their country of residence from these investments, and an NRE account is used for this purpose.
Additionally, NRIs can trade in a recognized Indian stock exchange through PIS on a repatriation basis. PIS (Portfolio Investment Scheme) is an RBI scheme that allows NRIs to invest in the shares of Indian companies by purchasing and selling them using their NRI savings accounts.
Key Features
Here are some key features of repatriable investment for NRIs:
- Easy Fund Transfer: An NRI investor can transfer both the principal amount and the returns acquired from these investments to their residence country.
- NRE Account: You need to use an NRE (Non-Resident External) account to fund these investments.
- Regulated by Government: The government usually regulates NRI repatriable investments to manage and keep track of foreign exchange outflows.
What are Some Common Repatriable Investment Options for NRIs?
Investment made using the funds in an NRE account qualifies as a repatriable investment. However, NRIs must use their PIS to invest in Indian equity on a repatriation basis, which requires linking their demat and trading accounts to a PIS-enabled NRE bank account. Such transactions are reported to the RBI. The following are some financial instruments in which an NRI can invest on a repatriation basis:
- Treasury Bills
- Domestic Mutual Funds
- Government Dated Securities
- Initial Public Offerings (IPOs)
- National Pension System (NPS)
- Bonds issued by PSUs in India
- Listed non-convertible debentures
- Bonds issued by infrastructure debt funds
- Perpetual debt instruments and debt capital instruments issued by banks in India.
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What are Non-Repatriable Investments for NRIs?
NRI Non-repatriable investments don't allow the transfer of funds outside the country of investment. Funds from these investments must be held within the country where they were earned. Investments made by an NRI in India are treated as domestic investments equivalent to those made by an Indian resident. NRIs can invest in different asset classes in India using their NRO (Non-Resident Ordinary) account. They can use the income earned in India for non-repatriable investments, such as rent, dividends, pension, etc.
Key Features
Here are some key features of non-repatriable investments in India for NRIs:
- Restriction on Fund Transfer: Funds from these investments cannot be repatriated and must be held within the country where they were earned.
- NRO Account: These investments typically require an NRO account (Non-Resident Ordinary).
- Tax Implications:Earnings acquired from NRI non-repatriation investments are subject to local taxes. Transferring funds internationally can be challenging.
What are Some Common Non-Repatriable Investment Options for NRIs?
Under non-repatriable investments, an NRI faces several restrictions on the transfer of proceeds acquired from the sale or investment. You are not required to seek separate permission from the RBI to trade/invest in Indian equity on a non-repatriable basis until you link your demat and trading account to an NRO account. An NRI can invest in the following financial instruments on a non-repatriation basis:
- Chit funds
- Equity stocks
- Treasury bills
- Futures and Options
- Government-dated securities
- Initial Public Offerings (IPOs)
- National Pension System (NPS)
- Bonds issued by PSUs in India
- Listed non-convertible debentures
- Domestic and money market mutual funds
- Bonds issued by infrastructure debt funds
- Perpetual debt instruments and debt capital instruments issued by banks in India.
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What is the Difference Between Repatriable Vs. Non-Repatriable Investments for NRIs?
The key difference between repatriable and non-repatriable investments for NRIs is that repatriable investments allow the investors to transfer both the principal amount and returns to their home country, while NRI non-repatriable investments restrict this transfer. The table below shows the main differences between repatriable and non-repatriable investments in India for NRIs:
| Aspect |
Repatriable Investments |
Non-Repatriable Investments |
| Liquidity and Flexibility |
High liquidity and flexibility because you can transfer funds internationally without facing any significant barriers. |
Lower liquidity, as funds are held within the local economy. |
| Taxation |
Enjoys favourable tax treaties between nations, helping to reduce the tax burden on earnings. |
Subject to local taxation, which can be higher and more complex. |
| Account Linked |
Linked to an NRE account, which is denominated in foreign currency. |
Linked to an NRO account, which is denominated in local currency. |
| Risk Management |
Has reduced risk because of currency protection and the benefit of transferring funds in response to economic changes. |
Higher risk if the local economy faces instability because you cannot convert them back into your home currency and transfer them out of the host country. |
How to Choose the Right Investment Type?
While repatriable investment offers flexibility and tax benefits, non-repatriable investment offers a financial instrument to manage Indian-sourced income and acquire attractive returns. Consider the following factors when deciding between repatriable and non-repatriable investments for NRIs:
- Tax Considerations: Clearly understand the tax implications of the investment type in both your home country and the country where you invested.
- Investment Goals: Clarify whether you need the flexibility to transfer your earnings internationally or if you are seeking long-term growth within a specific country.
- Economic Stability: Check the economic conditions of the host country. Repatriable investments offer a safeguard against certain economic downturns.
- Regulatory Environment: Make yourself familiar with the legal rules for both investment types because this can impact your returns and investment strategy significantly.
The Bottom Line
Both repatriable and non-repatriable investments offer various benefits and challenges. Repatriable investments provide the benefit of currency protection and transferring funds internationally. While non-repatriable investments are less flexible but they can be beneficial for those who seek to invest long-term investments within a specific country.
Lastly, before making any decision, it is advised to consult with an expert at Savetaxs to ensure that you make a well-informed choice that aligns with your unique financial situation. We have a team of experts who can offer personalized guidance in navigating everything about repatriable and non-repatriable investments so that you stay compliant. Connect with us right away, as we are working 24*7 across all time zones.
**Note: This guide is for informational purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA, or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.
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