The government of India is constantly working on bringing foreign investment to India. And the best source for this is investment by the NRIs. Investment by NRIs is both beneficial for the Indian economy as well as for the NRIs themselves. NRIs get a dual advantage by investing in India-Indian rupee is weaker as compared to the currency of NRI’s residing nation which helps in encouraging investment by them and NRIs have an emotional gratification for their nation as they want their nation to develop. So if you are an NRI and planning to invest in India and unaware of the investment options available then you must read the following investment alternatives available for you.
NRIs can park their surplus in NRE/NRO FDs or in an FCNR account. NRIs can earn up to 8.5 percent return on an NRE fixed deposit, ever since the RBI linked the same with LIBOR. Also, the interest on NRE fixed deposits and FCNR accounts is tax-free in India. The rate of return on FCNR accounts differs according to the currency you deposit. The interest earned in NRO FD cannot be repatriated and taxable at source. The interest rate for an FCNR account depends on the currency. Interest earned on an NRO fixed deposit account ranges from 4% to 7.75%, depending upon the maturity period of the deposit.
NRIs can invest in mutual funds in India but before investing in them they must update your KYC with the NRI status. A Mutual Fund is an investment option that allows investors access to a well-diversified–portfolio of equities, bonds and other securities. Through Mutual Funds, one can indirectly participate in the stock market. Units of mutual funds can be purchased by NRI’s directly from the issuer. The can also use other methods of buying mutual fund units like online purchases.
As an NRI, one can invest in mutual funds on non-repatriable basis or on repatriable basis. If it is a non-repatriable basis, NRI can invest from NRO account. Otherwise, he/she has to use NRE account.
The tax liabilities for NRIs are the same as that of a Resident, the only difference being that in case of NRIs, tax is deducted at source (TDS).
|Equity Mutual funds||Debt funds|
|Short Term Capital Gain (STCG)||Taxable @ 15%||Taxable as per Income tax slab rate|
|Long Term Capital Gain (LTCG)||Tax free||Taxable @ 10% without indexation or 20% with indexation|
Dividends from MFs are tax free in the hands of the investor (depending on latest Finance Act). But in the case of debt funds, the fund house deducts dividend distribution tax before releasing dividends.
NRIs can invest in Indian shares through Portfolio Investment Scheme (PIS) of the Reserve Bank of India (RBI). Each transaction through the PIS account is reported to the RBI. PIS—a scheme of Reserve Bank of India—enables NRIs to purchase and sell shares and convertible debentures of Indian companies on a recognized stock exchange by routing such purchase/sale transactions through their NRI’s NRE/NRO Account with a designated bank branch. The maximum NRI Investment cannot go beyond 10% of paid up capital of the Indian company. NRIs need to open a Demat account and brokerage account with SEBI registered brokerage firm. An NRI can transact through a stock broker only.
Long term capital gains made on the sale of shares after 1 year from the date of purchase are tax-free. Short term capital gains, profits on sale within one year of date of purchase, are subject to a TDS of 15%.
Real estate investment has always been the favorite of NRIs. NRIs prefer to keep a home or property in India as they have an emotional attachment with their nation and it helps them in giving them a sense of security so that even if they want to come back to India, they can easily do so. Real estate also gives good long term return which is also a reason why NRIs get attracted to real estate.
An NRI or a Person of Indian Origin (PIO) can invest in both residential and commercial properties in India. But they are not allowed to invest in agricultural land, plantation property and farm house, but they can own such properties only if it is gifted to them or inherited. The payment for acquiring property should come only from NRO/NRE/FCNR account. Payment cannot be made in foreign currency. It can be made in INR only.
The profit earned on real estate cannot be transferred to their residing country. If payment for property is made using FCNR account, then money equal to paid amount from FCNR can be repatriated. If payment is made through NRE account then case is different. Suppose an NRI had $60,000 in NRE account. The NRI paid $50,000 (in equivalent Indian Rupee) to buy a real estate property. After that he maintained $10,000 in NRE account till sale of property. He sold property after 3 years for $80,000. After the sale, NRI can repatriate only $10,000 (balance) + $50,000 (paid earlier). Balance money should stay in NRE account. The transaction from NRO account is different. NRI can repatriate full amount subjected to limit of $1 million.
Public Provident Fund (PPF)
PPF is a 15 year scheme of the government with an option to extend it after 15 years in blocks of 5 years. It allows tax benefits under Section 80C and the maturity amount is also tax free. This is a good option for debt investing and can be used as a retirement tool to ensure tax free withdrawal.
NRIs can’t open a PPF account. But those who opened a PPF account before they actually got NRI status can continue the account until it matures. But they cannot extend it after 15 years. On maturity, either, they can close the account or can keep it there and enjoy tax free interest till they close the account.
It is recommended that you open a PPF account before becoming an NRI.
The NRIs can easily buy dated government securities with fixed or floating interest rate. They are just required to transfer the funds to their Indian Authorized Dealer Bank account, and the bank on their behalf can purchase/sell the securities as per their advice. The bank will credit the interest earned on the investment in the account.
Some of the dated government securities are as follows:
- National Savings Certificates (NSC)
- Capital Index Bonds
- Floating rate government bonds
- Fixed rate government bonds
- Zero Coupon Bonds
Perpetual bond is a bond with no maturity date. Therefore, it may be treated as equity, not as debt. Issuers pay coupons (interest) on perpetual bonds forever, and they do not have to redeem the principal. NRIs can invest in these bonds also.
Certificate of deposit
This is a non-negotiable money market instrument issued in demat form or as promissory notes. It has a maturity of not less than 7 days and not more than 1 year. CDs are much like time deposits, except they tend to be more liquid. NRIs can also subscribe to CDs but only on a repatriable basis. The rate on return is generally higher than for bank fixed deposits.
Bonds issued by PSUs.
NRIs can also invest in bonds issued by Public Sector Undertakings. Bonds are a secured invested options which has a capability of generating decent returns.
National Pension Scheme
An NRI in the age group of 18-60 years, and complying with the KYC norms, can open an NPS account. Contributions made by NRI are subject to regulatory requirements as prescribed by RBI and FEMA from time to time. If the subscriber’s citizenship status changes, his/ her NPS account would be closed.
NPS is cost-effective, government-backed retirement savings plan which comes under the EET (Exempt-Exempt-Tax) tax structure. It implies that all contributions and accrued capital gains are exempt from tax, but the withdrawal is subject to tax. NRI can contribute to NPS from both NRE and NRO accounts, but the pension has to be received in India only and cannot be repatriated.