Everything You Need to Know about NRI Investments in India

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Key Takeaways: Moving away from your home country does not mean you cannot invest there anymore. Read on to expand your knowledge about options, steps and documents required to make NRI investments in India.

Investing in India is a great way to diversify your investments, earn compelling returns and participate in your home country’s economy. If you are looking to start investing in India, this guide will tell you all you need to know about how NRIs can invest in India.

What is an NRI investment?

As an NRI investing in India, your investments need to comply with regulations prescribed by the Foreign Exchange Management Act (FEMA). Your residential status as per FEMA will determine whether you can make your investments as a Resident or NRI.

You will be considered an NRI or a Non-Resident Indian if you are an Indian citizen who has resided in India for less than 182 days ^[1] during the preceding financial year or if you have gone or stayed out of India for employment, for carrying out a business or vocation. You are also considered to be an NRI if you have gone or remained outside India for any other purpose for an unspecified amount of time. Investments made by such an individual are considered to be NRI investments.

Investment options for NRIs

When it comes to investing in India, NRIs have several lucrative options. Fixed deposits, stocks and bonds, mutual funds and real estate are all excellent investment opportunities for NRIs. Fixed deposits and bonds are relatively less risky, while mutual funds and stocks tend to carry higher risk. If you are looking to buy a home in India, real estate is a great investment option as well. You will need to know the tax benefits of each investment option before you consider it. Moreover, you will need an NRE or NRO account to begin investing in India.

Steps for NRI investments

Each investment option has its procedures and requirements. However, you need to open an NRE (Non-Resident External) or NRO (Non-Resident Ordinary) savings bank account for any investment. An NRE account can be used for parking foreign earnings in India. NRE accounts are exempt from tax, and the principal amount and the interest earned on it, are freely repatriable.

An NRO account is used to park income earned in India through rent, pension, etc. Interest earned on this account is taxable and there is a cap on the principal amount that can be repatriated.

Through these accounts, you can start FDs or buy, sell or manage your real estate investments. However, if you want to invest in mutual funds or the stock market, you need to follow additional steps.

To invest in mutual funds, once your NRE/NRO account is functional, you will have to:

• Submit KYC papers and a copy of your PAN card. In the KYC form, you must mention whether this investment is on a repatriable or non-repatriable basis.
• An NRI can invest in mutual funds through another person by giving that person Power of Attorney (POA). In this case, KYC documents must contain the signature of both the NRI investor and the POA.

To invest in the stock market, NRIs will have to perform a few more steps after opening an NRE/NRO account, which are:

• Open a Portfolio Investment Scheme (PIS) bank account for buying and selling stocks. Transactions made through this account are reported to the RBI.
• Open a Demat and trading account with a SEBI-registered brokerage firm as all transactions can only be done through an Indian stockbroker.

Documents required for NRI investments

This section tells you all about the important NRI investment documents. The KYC form needs to be accompanied by documents like a recent photograph, attested copies of PAN card, passport, overseas residence proof and bank statements. Public notaries can do attestation of documents, a court magistrate or judge as well as authorised officials of overseas branches of commercial banks registered in India. It can also be done by the Indian embassy/consulate general in the country of residence.

Documents needed to open PIS/Demat/trading account include all of the above plus a copy of your Visa and PIS permission letter.

Taxes on NRI investments in India

If your country of residence has signed the Double Taxation Avoidance Treaty (DTAA) with India, you will have to pay tax in only one country. NRO FDs attract taxes in India. Interest earned is charged at a Tax Deducted at Source (TDS) rate of around 30% as per the Income Tax Act 1961. Similarly, rent earned from a real estate property too is taxable. When it comes to equity mutual funds, short-term capital gains are taxed at 15% and per the finance bill of 2018, long-term capital gains exceeding Rs. 1 lakh per annum are taxed at 10%. ^[2]

Concerning debt funds, short-term capital gains (STCG) is taxable at the rate of 30% for a period, not more than 36 months. If you hold the fund for more than 36 months, you will have to pay 20% tax on the long-term capital gains with indexation benefit. LTCG on non-listed funds will be taxed at the rate of 10% without indexation. ^[1]

Final Note: When it comes to NRI investments in India, there are several options for you to choose. Investing in India is easy, safe and promises good returns.

If you are looking to invest in fixed deposits or mutual funds in India, you will need NRI accounts. With DBS Treasures, you can open NRE or NRO accounts from anywhere. Apply Now !

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Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners. The purpose of the Live eNRIched blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.