An NRI or a Non-Resident Indian is a person who has resided outside India for at least 183 days for employment or business or any other vocation. Thus, being an NRI, it becomes essential to manage your cash flows adequately considering that you have to operate in two different countries- India and the country of your residence. Another vital aspect to consider is various tax liabilities and two separate currencies you are dealing with.
Four primary reasons have been broadly identified as to why an NRI should invest in India. These are:
Preparing for retirement
Getting returns on investments
Sending money to the immediate family
Building financial assets.
Financial institutions in India provide various financial services like deposit accounts, tax benefits, government securities, and many others to make it simpler for the NRIs to know, understand and invest in India.
Banks have appointed special divsions to help NRIs make thoughtful decisions in this direction. As an NRI it can be confusing to understand the right investment as you need to get a holistic picture of taxation and returns.
Investing in Fixed Deposits is one of the safest options available to both the Resident Indians and the NRIs. For NRIs to invest in FDs, they must have one of the following accounts:
Non-Resident External Account (NRE)
Non-Resident Ordinary Account (NRO)
Foreign Currency Non-Resident (FCNR)
The rate of interest depends on the bank, the amount and the tenure of the deposit. FDs with a higher amount and a longer tenure earn a higher rate of interest.
NRIs can also invest in mutual funds through their NRE or NRO accounts wherein the investment is made in Indian currency, and the returns depend upon the type of mutual funds- debt, equity, and hybrid. These offer much higher returns than bank FDs.
Investing in real estate gives an excellent opportunity to earn rental income and can serve as an excellent long term investment. Analyze the risk and your requirements before investing. Certain rules are in place regarding the type of land and real estate you buy. Refer to us for details.
NRIs can invest by parking money in the Indian stock market as it has much higher returns than fixed income instruments. People who are ready to take some risk can invest under the Portfolio Investment Scheme (PINS) of RBI.
Another safe investment instrument for the NRIs is the NPS. Since the Government backs this, the accumulated amount at the time of maturity is exempted from any tax.
NPS offers an excellent annual interest rate of 12% to 14%.
NRIs can also invest in PPF account as a safe investment. The maximum annual limit to invest in this account is INR 1.5 lakhs with a lock-in period of 15 years. The current annual rate of interest is 8%. However, the interest earned is taxable.
Any NRI is eligible to opt for term insurance or a life insurance cover with Indian Insurance companies. The same can be done by purchasing the policy on a visit to India or even at the country of residence via Mail Order Business. The payment of premium can be made through remittance in foreign currency, or through NRE, NRO or FCNR accounts.
NRIs can also invest by purchasing a Health insurance policy for self, spouses and dependent children. This policy would typically cover the hospitalization expenses incurred in India.
NRIs can claim deduction on premium paid under section 80D of the Indian Income Tax Act and save taxes from being paid in India.
As mentioned above, NRIs have various investment options available in India. Most of the investments need to be done through NRE, NRO and FCNR accounts.
Firstly, an individual needs to meet the NRI criteria mentioned above to be categorized as one for the financial year. Income, thus, earned or accrued in India is taxable in India, if your status is ‘NRI.’
Mentioned below is a list of taxable income for the NRIs:
Income from salary received in India or income from salary received for your services rendered in India.
Rental Income from house property owned in India. NRIs are entitled to take tax benefits on home loans, etc. for such a property. Stamp duty and registration charges paid on the purchase of a property can also be claimed under Section 80c.
Income from capital gains arising from the transfer of assets in India.
Income from other sources such as fixed deposits and savings accounts held in Indian banks.
Note: Interest earned on NRE and FCNR accounts is tax-free. Interest earned on NRO account is taxable.