India is fast emerging investment destination for NRIs. Indian economy is shining like anything. Every now and then we hear in news FII (foreign Institutional investor organizations which pool large sums of money and invest those sums) invested so much amount in Indian stock market. Similarly to FII so many NRI individual might be looking for good Investment options in India.
Let’s take a look at how Non-Resident Indians (NRIs) can make investments in India.
NRI can invest without limit in following investment avenues:-
- Mutual Funds.
- Bonds issued by a public sector undertaking (PSU) in India.
- Equity Markets – Shares and convertible debentures of Indian companies.
- Exchange traded derivative contracts approved by the SEBI
- Bank Fixed Deposits.
- Company Fixed Deposits.
- Non-Convertible Debentures of Companies.
- Real Estate. (Not in Agriculture Land)
- Government Securities/ Treasury bills.
- National Savings Certificates.
- Deposits in Indian Bank Accounts.
Note: – NRIs are not permitted to invest in small savings or Public Provident Fund (PPF).
NRI requires one of the following accounts in order to make these Investments:-
- NRE Account (Non-Resident External Rupee Account)
A Non-Resident External (NRE) account is a bank account that’s opened by depositing foreign currency at the time of opening a bank account. A NRE (Non-resident External Accounts) account is a Rupee denominated account. Funds in NRE account is maintained in Indian rupees only. Source of funds into NRE accounts must be from your earnings abroad or from another NRE. Interest earn on this account is not taxable.
- NRO Account (Non-Resident Ordinary Rupee Account)
A Non-Resident Ordinary (NRO) account is the normal bank account opened by an Indian going abroad with the intention of becoming an NRI. This account is also Rupee denominated account. Current income earned in India, such as rent, dividend, pension or interest can be deposited in NRO account. Interest earn on NRO account is taxable.
- FCNR Account (Foreign Currency Non Resident Account)
The account can be opened with funds remitted from abroad, or transferred from an existing NRE/FCNR account. FCNR accounts can be opened with designated currencies, which are: GBP, USD, Deutsche Mark, Japanese Yen and the Euro. Only term deposits can be maintained in FCNR accounts, in a time range of 6 months to 5 years.
Tax Impact:-
- All income earned by NRIs in India is taxable and returns are to be filed every year.
- Long term and short term capital gain liability is same on sale of shares, redemption of mutual funds or in real estate.
- Bank deposits investment in shares, units of mutual funds, etc. are exempt from wealth tax in India.
- Interest earned on NRE and FCNR accounts is completely tax-free.
A non-resident Indian making any investment in India would have to quote his PAN for every transaction and to file returns on his Indian income.