Best Investment Options NRI – Recently, a friend of mine, got settled in Canada and he was searching for an opportunity to invest money in India. He contacted me and asked me about NRI Investment options in India.
Similar to my friend there are many NRIs, who are always looking for good investment options in India. They are deeply interested in making an investment in India. The government has also simplified several rules to attract NRI for investment. Favorable economic conditions and deprecating rupee cost are added advantage for NRI. However, due to the absence of proper advice and guidance, they avoid making an investment in India.
In order to help them, here are Top 5 Best Investment options for NRI in India.
But, before taking look at available investment option, first, let’s take a look at what is exact meaning of NRI and what it takes to qualify as Non-Resident Indian (NRI) as per Indian laws.
Also Read – Health Insurance Plans for NRI in India
Who is Non-Resident Indian? NRI – Meaning
NRI is legally defined under Foreign Exchange Management Act, 1999 (FEMA) and Income Tax Act, 1961.
NRI as per FEMA –
A Non-Resident Indian (NRI) as per Foreign Exchange Management Act 1999 (FEMA), is an Indian citizen or Foreign National of Indian Origin resident outside India for purposes of employment, carrying on business or vocation in circumstances as would indicate an intention to stay outside India for an indefinite period. An individual will also be considered NRI if his stay in India is less than 182 days during the preceding financial year.
NRI as per Income Tax –
Income tax act provides conditions for a resident in India. If you don’t satisfy the condition for a resident in India, you will be identified as NRI.
- If you are in India for a period of 182 days or more during the previous year; or
- If you are in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year.
If above conditions are not satisfied you will be considered as NRI. Condition No 2 does not apply where an individual being citizen of India or a person of Indian origin, who being outside India, comes on a visit to India during the previous year.
Once you are clear with the definition of NRI let’s take a look at prerequisite for making an investment in India as NRI.
Also Read – RNOR Status NRI can save Tax up to 3 Years
Prerequisite for making Investment in India as NRI
The primary requirement to start investing in India is to get a PAN number. If you are already holding a PAN card, you can use the same. If you don’t have PAN card, you can apply for a new PAN card using form 49AA.
The second requirement for making an investment for NRI is to undergo one-time KYC process. You need to declare your residency detail as a part of KYC.
Additionally, you will need to have NRI Bank account. This bank account will be used for doing investment transaction. Any bank dealing in foreign exchange can open a bank account for you. NRI has three options for NRI Bank accounts – NRO, NRE, and FCNR.
NRO Account stands for a Non-Resident Ordinary account. It is rupee based account. This account is mainly used for managing Indian income. It could be rent, dividend or interest income. You can deposit both rupee and foreign currency in NRO account. Foreign currency deposited into the NRO account is converted into Indian Rupees. The interest income on this account is taxable. An existing saving bank account can also be converted into NRO account.
NRE Account stands for Non-Resident External Account. It is also rupee based account. The money from this account is freely repairable. This account is mainly for the income earned outside India. One cannot deposit Indian currency in this account. Only foreign currency can be deposited in this account. Income tax is not applicable to this account.
FCNR account stands for Foreign Currency Non-Resident Account. FCNR account is like term deposit with fixed maturity period. If you want to avoid and the fluctuations in the exchange rate this account is useful. Interest earned is tax-free and fully repairable.
Once you are done with prerequisites PAN card, KYC and bank account you are good to go for investment. But, before making an investment you should carry out proper financial planning. You can also take help from experts for doing financial planning. Once you are done with identifying risk appetite, financial goal and investment horizon you can start evaluating various investment options available in the market.
Here are Top 5 Best Investment Options for NRI in India.
Top 5 Best Investment Options for NRI in India
One of the Best Investment Options for NRI is Equity. NRI can invest in direct equity under the portfolio investment scheme (PIS) of RBI. Under this scheme, NRI is permitted to open single PIS account. Any transaction done via this account is reported to RBI.
In addition to PIS account following things are required to start dealing in equity.
- NRE/NRO account with a bank authorized by RBI
- Demat Account to keep share in the dematerialized format
- Trading account with SEBI authorized broker.
NRI cannot deal in all Indian stocks. RBI publishes a list of stocks that are eligible for NRI investment. You can find this list on RBI website.
NRI cannot do intraday trading in share market. They are not permitted to do the short selling. They have to compulsory deal in delivery basis.
Tax liability for equity is exactly same as residents. NRI need to pay short-term capital gain tax and long-term capital gain tax. The tax amount is directly deducted by a broker. If your tax liability is less you can file ITR and claim a refund.
- Mutual Funds
Mutual Fund is most popular investment option in India. Resident and NRI both prefer mutual fund for short term, medium term, and long-term investment. If you are NRI and planning to make an investment in mutual funds you need NRE/NRO and demat account. KYC is mandatory for making an investment in mutual funds. You need to issue payment from NRE/NRO account for purchasing mutual funds.
There are certain restrictions imposed on USA and Canada based NRI. They are allowed to invest in mutual funds schemes of specific fund house only. This limitation is due to strict FATCA compliance rules. The fund house that allows investment from USA and Canada based NRI is given below.
- Birla Sun Life Mutual Fund
- SBI Mutual Fund
- UTI Mutual Fund
- ICICI Prudential Mutual Fund
- DHFL Pramerica Mutual Fund
- L&T Mutual Fund
- PPFAS Mutual Fund
- Sundaram Mutual Fund
NRI are allowed to invest in all types of mutual funds scheme including equity, debt, balance.
Tax liability on mutual funds is same as that of a resident. Both long term and short term capital gain tax are applicable to mutual fund.
- Real Estate
Real estate is one of the most promising investment options for NRI. Most of the NRI love to invest in real estate. This may be due to emotional attachment to country or due to advance retirement planning.
NRI is allowed to purchase both residential and commercial property in India. NRI is not allowed to purchase agriculture land in India. NRI can inherit agriculture land or accept it as a gift.
The payment for buying property should come from NRE, NRO or FCNR account. The payment currency for the transaction would be rupee. You need a valid passport, PIO card, address proof, PAN number and photograph for buying property. You can also take home loan buying home in India. For more information, you can visit – NRI guide for buying property in India.
The flexibility offered for repatriation of money depends upon which account you have used for buying property. If you have used NRO account for making a payment you will have complete flexibility.
- Fixed Deposit
Fixed deposit is one of the best investment options for NRI. There are three types of FD for NRI. NRE FD, NRO FD, and FCNR FD.
NRE FD is maintained in Indian rupee. No tax is applicable on NRE FD. The principal and interest earned are fully repatriable. The interest rate applicable to these type of FD variable and depends on the bank.
NRO FD is similar to FD taken by Indian resident. Tax is applicable on NRO FD. In case of NRO FD, only interest amount can be repatriated. NRO FD can be opened for 7 days to 10 years.
FCNR FD is foreign currency FD. This type of FD can be opened by depositing income earned overseas. Taxe is not applicable on such FD. The principal and interest amount are fully repatriable. The interest rate of this type of FD is generally in the range of 2-3%.
- Bond or Government Securities
The government needs money from time to time for doing various projects. The government issues bonds and securities to source the money. NRI can invest in such bonds or government securities. These type of bonds or government securities offers fixed returns. In most of the cases, a bond is for the fixed duration with applicable lock-in. You can use NRO and NRE account for making an investment in bonds.
Points to Remember when investing in India
- Before making an investment in India one should understand tax liability of NRI. NRIs are liable to pay income tax on income earned in India.
- NRIs are not allowed to make an investment in certain schemes such as post office schemes, PPF, NSC etc.
- Certain mutual funds do not accept investment from NRI. You should check with fund house before making an investment.
- TDS is applicable on interest income earned on NRO account.
As an NRI, you have many high return investment options in India. Go ahead and evaluate best investment option as per your requirement. Make sure to understand tax compulsion and repatriation restriction before investing.
I hope your queries related to NRI investment options are addressed. If you have any further questions/advise/objection, please do not hesitate to write me here. I would love to learn more about this with you.