For investors, India has always been a land of opportunities, and for NRIs, this connection goes beyond financial returns. It is about staying rooted with India, contributing to the growth of the country, and having wealth for the future. However, making investments as an NRI in India includes navigating certain regulations, challenges, tax implications, and opportunities.
To help out in this article, we have provided a relatable, updated perspective on the important things that NRIs should consider while investing in India. So, read on and gather all the information.
Key Takeaways
- Investing in India is not only about growing your wealth but also about staying connected with your Indian roots.
- While investing in India, with getting lots of opportunities, NRIs need to follow certain regulations and face several challenges.
- NRIs have a wide range of investment options, including mutual funds, real estate, property purchase, stocks, bonds, and more in India.
- For managing funds, based on their income source and financial goals, NRIs need to open an NRE or NRO account.
- Further, KYC and documentation are vital to stay compliant with FEMA guidelines and avoid unnecessary scrutiny.
Determine Your Correct NRI Residential Status
Under the Income Tax Act, 1961, an Indian resident's residential status is determined by their physical presence in the country during a financial year. Considering this, a resident Indian is stated as a non-resident Indian (NRI) for a financial year, if he/she does not meet any of the following fundamental conditions:
- In a financial year, they were in India for 182 or more days. OR
- They are in India for 60 days or more during a financial year. Additionally, they have also been in the country for 365 days or more in the last four years before that financial year.
If any individual fails to satisfy both of the conditions, for tax purposes in that specific year, they are considered an NRI.
Further, before looking for NRI investment options in India, it is vital to determine your residential status as per the Foreign Exchange Management Act (FEMA). According to FEMA, an NRI is an Indian citizen who lives outside India for business, job, or other purposes for more than 182 days in a financial year.
Understanding your residential status is vital because it states the tax rules and regulations governing your investments. Moving ahead, let's know about the next point to think of while investing in India.
Select the Right NRI Investment Options in India
Tailored to different financial goals and risk appetites, India offers several investment options to NRIs. Considering this, some of the popular NRI investment options in India include:
- Mutual Funds: Yes, mutual fund investments in India are available for NRIs.
- Permitted via NRE or NRO accounts
- Systematic Investment Plan (SIP) and a lump sum are both possible
- Among mutual funds, popular options are equity mutual funds, debt funds, and hybrid funds.
- Indian Stock Market via Portfolia Investment Scheme (PIS): Through PIS, NRIs can invest in Indian equities, IPOs, and ETFs. Also, now NRIs can invest in the stock market without a PIS account by using their NRO account on a non-repatriation basis.
- Needs: Demat + Trading Account + NRE or NRE Account.
- Investments can be made in listed ETFs and equities.
- No intraday trading allowed.
- National Pension Scheme (NPS): NRIs can open an NPS account, provided:
- Have a valid Indian passport.
- Know Your Customer (KYC) should be completed via an NRE/ NRO account.
- Real Estate: This is also one of the most favourite investment options among NRIs. Under this, capital gains and rental income are taxable in India. However, after paying your tax dues, you can repatriate your funds to your foreign bank account.
- You can purchase:
- Residential properties
- Commercial properties
- You are not permitted to buy:
- Agricultural land
- Plantation properties or farmhouses
- Fixed Deposits (FDs): For FDs, first, you need to have an NRE or NRO account.
- NRE FDs: Tax-free, fully repatriable
- NRO FDs: Taxable, limited repatriable
So, as per your financial goals, you can choose any of the above-mentioned NRI investment options in India. Moving further, let's know the bank accounts available for NRIs in India.
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Use the Correct Bank Accounts: NRE, NRO & FCNR
For investment purposes and managing finance in India, NRIs need to open specialized bank accounts that comply with FEMA rules and regulations. The bank account type determines the ease of managing funds in the country.
- Non-Resident External (NRE) Account
- Purpose: Manage foreign earnings in India.
- Key Benefit: Fully repatriate, and no interest tax is not imposed.
- Non-Resident Ordinary (NRO) Account
- Purpose: Manages Indian earned income, such as rent, dividends, and more.
- Key Limitation: Have limited repartition of funds, i.e., $1 million per financial year, and interest is taxable.
- Foreign Currency Non-Resident (FCNR) Account
- Purpose: Savings are held in foreign currency.
- Key Benefit: Protect against the risk of foreign exchange rates.
Further, based on your source of income, selecting the right NRI bank account ensures smooth transactions and compliance with Indian and foreign tax laws. Moving ahead, let's know the NRI taxation and TDS rules.
Understand NRI Taxation and TDS Rules
Taxation is something that one cannot avoid in the aspect of investing. Additionally, having information about it saves you from tax penalties. Further, here is a breakdown of taxes faced by NRIs:
- Tax on Income in India
- Income from sources such as dividends, rent, and interest earned in India is taxable.
- Under the Double Taxation Avoidance Agreement (DTAA) between India and other countries, NRIs can claim tax benefits.
- Capital Gains Tax
- Equity Investments: Short-term held for less than 12 months, taxed at 15%, long-term gain taxed at 10%.
- Debt Investments: Short-term taxed according to your income slab rate; long-term capital gains are taxed at 20% after indexation.
- Tax Deducted at Source (TDS)
- NRI investments often attract higher rates of TDS, which can be claimed as a refund during tax returns.
- This was all about the taxation rules that NRIs need to consider while investing in India. Moving further, let's know about the regulatory compliance and documentation.
Regulatory Compliance and Documentation
While investing in India, NRIs need to follow specific legal and procedural requirements. These are as follows:
- PAN Card
- A Permanent Account Number (PAN) is a vital document mandatory for financial transactions in India. In case you do not have it, then first apply for the card.
- Power of Attorney (PoA)
- If you are not able to manage your investments in India, appoint a trusted POA who can represent you and simplify matters for you.
- FEMA Compliance
- Following the FEMA guidelines certifies that your Indian investments and transactions are lawful.
- Know Your Customer (KYC)
- KYC helps in verifying the identity of the NRIs, preventing fraud, assessing potential risks, and legal and regulatory requirements. So, you need to comply with KYC regulations while investing in India.
These were the regulatory compliance and documentation that NRIs need to consider while making investments in India. Moving ahead, now let's know the repartition rules for different investments.
Know Repartition Rules for Different Investments
For transferring money from India to overseas and vice versa, FEMA defines clear limitations. These are as follows:
Outward Remittances from India
If you send money from your NRE or FCNR account, there is no repatriation limit. If you can remit any amount. However, if you transfer money from your NRO account, there is a repatriation limit of $1 million per financial year. This limit applies to all investments such as rental income, property sale proceeds, dividends, and other India-based income.
Further, you also need to submit the following documents:
- Form 15CA
- Form 15CB certified by a chartered accountant
- Proof of paid taxes
- For asset-based remittances, the sales deed or supporting papers
Inward Remittances to India
For most purposes, there is no upper limit for transferring money to India. However, for record keeping a bank generally needs a purpose code. Further, after returning to India, once your NRI status changes to residential status, you fall under the Liberalised Remittance Scheme of the RBI.
Tax Collected at Sources (TCS) on Remittances
TCS applies only to Indian residents on making outward remittances of more than INR 7,00,000. Further, till you remain an NRI, TCS does not apply to you. However, once your NRI status changes to residential status, based on the remittance purposes, TCS applies to you as well.
This was all about the repatriation rules that NRIs should keep in mind while investing in India. Moving further, let's know about the track market trend.
Track Market Trends
It is well-known to everyone that the financial market of India is dynamic. Considering this, staying informed about the market trends, economic changes, and fund performance is vital for successful investing. So, it is advisable for NRIs to check their investment and market conditions regularly. It also helps make the right decision about when to purchase, hold, or sell Indian investments.
When investing in India, NRIs should make informed decisions by regularly checking market trends. Now, moving ahead, let's know about the next point that you should consider while investing in India.
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Take Professional Advicenri tax
With a wide range of options and regulations, investing in India can be overwhelming for NRIs. In this, taking professional help from a financial planner or wealth advisor assists in choosing the right investment option as per your financial goals. Additionally, also helps you stay compliant with Indian tax laws, RBI guidelines, and FEMA regulations.
So, this is why NRIs should also consider taking professional guidance while investing in India. It further helps in opting for the right investment as per your financial goals. Now, let's know the common mistakes that NRIs should avoid during their investments in India.
Avoid Common NRI Investment Mistakes
Here are some common mistakes that NRIs should avoid while investing in India:
- Do not ignore the tax implications when estimating returns.
- Instead of chasing high returns, focus on risk management and diversification.
- While investing in India, make sure you have your PAN, NRI accounts, and KYC requirements by your side.
These were some of the common mistakes that NRIs should avoid doing it while investing in India.
Final Thoughts
Lastly, making investments in India offers NRIs a chance to take part in the growing economy of the country. Additionally, it also helps in staying connected with the Indian roots. However, while investing in India, NRIs should consider some important things. It includes knowing their residential status, following the RBI and FEMA guidelines, staying compliant with Indian tax laws, opening the correct NRI bank account, and more. To provide you with an idea of it, the above blog was all about it.
Further, if you are still confused and looking for professional help, contact Savetaxs. We have a team of experts who can assist you in making the right investment decisions and fulfilling your tax obligations.
Note: This guide is for information 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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