Mrs. Laxmi Keerthi, newly married and settled in Chicago, want to invest her savings and money she received as gift for her wedding in some or the other form in India. As an NRI, she is looking to explore some good investment options.
Mr. Deva Bhatt, after working in the USA from 2002 until 2019 have savings in a USA money market fund of $7500. He plans to redeem and close the US fund. Now, he is looking for an investment of that amount without indexation in India.
In both the cases, Financial Planning of Non-Resident Indians is the primary goal. In this article, we shall discuss the profitable investment ways in India for Non-Resident Indians. In this article, let us know:
• Who is an NRI?
• What are the KYCs required to invest?
• Why should an NRI invest?
• How to invest?
• How to redeem the investments?
• What are the Tax liabilities?
Who Is An NRI?
According to Foreign Exchange Management Act, any individual who stays for less than 183 days in India during the preceding financial year that is from 01 st of April till 31 st of March is considered as a Non-Resident of India. But, if the individual stays for 183 days or more is considered as a Resident of India.
As per Income Tax Act, 1961, a person is resident of India if,
• He has stayed 182 days or more in India in the current financial year or
• He stayed in India for 60 days or more in the previous financial year and 365 days or more in the preceding 4 years (The 4 years shall be counted from the year before the financial year which is into consideration).
If he fails to satisfy the any one of the mentioned conditions, he shall be considered as a Non-Resident of India.
What Are The KYCs Required To Invest?
For any banking or investment transaction, KYC is mandatory across the globe. Similarly, Indian financial institutions require the KYC of the customer for their business investment. Hence, investor must provide a copy of the passport with relevant pages of Name, Photo, Date of Birth and address. Overseas address proof is mandatory. It might be either permanent or correspondence.
Why Should An NRI Invest?
Every individual must have some financial planning, whether resident or Non-Resident. But, for an NRI, following are some of the reasons to invest:
• Build a corpus fund for retirement and have financial security.
• Get the best possible returns.
• Flow the money back to parents, friends and relatives in one’s own country.
• Build financial assets in home country.
There are a many opportunities available for NRIs to put their hard earned money into Indian assets and Investments. But, the investment options depend on the size of the investment and the purpose of the investment, apart from making the wealth grow.
How To Invest?
The rules and regulations for investments for NRIs are almost similar to that of Resident Indians with some key points in mind. Most profitable investment ways are mutual funds, fixed deposits and direct equities.
1. Mutual Funds
For any NRI with minimal investment knowledge, it is a better idea to invest in mutual funds which is safer when compared to direct equities. As far as Mutual funds is considered, no specific approvals are required for foreign investors to invest or redeem. But, it is advised to check with the house as some mutual funds may not accept the deposits from NRIs based out of Canada or the USA.
For Short Term Capital Gains, equity mutual funds are taxable at 15% per annum and Debt funds are taxable as per income tax slab rate. Whereas for Long Term Capital Gains for more than INR 1,00,000.00 equity mutual funds are taxable at 10% without any indexation and debt funds are taxable at 10% without indexation and 20% with indexation.
It is always advised to allow a Power of Attorney (PoA) or a joint holding with a resident Indian so as to take decisions as per the market movements.
2. Fixed Deposits In Bank
Most commonly used way of investment for NRIs in India is fixed deposits. Usually, nationalized or private banks provide attractive interest rates for their customers depositing. For investing in deposits, NRI can open three accounts viz Non-Resident External Accounts (NRE), Non-Resident Ordinary Accounts (NRO)and Foreign Currency Non Resident accounts (FCNR).
NRE accounts are must for having an NRI account. To maintain the savings, current, recurring or fixed deposits in Indian Rupees, NRE account is useful. NRE deposits is non-taxable in India. And, it earns interest ranging from 7-9% per annum. With the NRE accounts, principle and interest can be repatriated easily.
NRO account handles the income of NRIs in any form like rents, dividends or pensions. For NRO accounts, unlike NRE accounts, repatriation of principle is capped with a limitation per year.
Moreover, deposits in NRO accounts are taxable at around 30%. For NRO fixed deposits, only interest can be repatriated.
FCNR helps the foreign investors to avoid the fluctuations in the exchange rate as the investment is in foreign currency. Interest earned for the investment is tax free and completely repatriable.
3. Direct Equity
As per the Portfolio Investment Scheme of RBI (PINS), NRIs are eligible to invest in equities. With the permission of PINS, any NRI can purchase and sell the shares in India upto a maximum of 10% of the paid up capital of the Indian company. NRI must open a demat account and a brokerage account with SEBI registered brokerage firm as transactions are permitted through a stock broker only. However, NRIs are not permitted to do Intraday trading or Short selling in India. For Direct Equity investment, investor must have an NRE/NRO account, a trading and a demat account.
How To Redeem The Investments?
The process of Redemption is either paid through cheques or directly credited to the investor's bank account through NEFT/RTGS. All the gains are payable only in rupees. The investments made through inward remittances or from NRE/FCNR accounts are completely repatriable.
What Are The Tax liabilities?
For any Non-Resident investor, any Indian sourced income in the form of interest on deposits, rental income on property in India, profit from trading in the stock market, etc. Are taxable in India (as per domestic tax laws). The income during the tax year comprises only of investment income or income by way of long-term capital gains or both, and, does not necessarily need to file an income tax return in India. Also, a return is not required if the necessary tax has already been deducted at source from such income. For all the Tax obligation formalities on any financial transactions in India a Chartered Accountant is needed. However, NRIs might subject to double taxation-once in India and again in the country of their residence which depends on the country of residence. If the Indian government has a avoidance of double taxation treaty (ADTT) with that country, the NRI will be spared from paying tax twice.
I hope you enjoyed this article about how Non-Resident Indians can invest their money in India for strong return on investment.
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