The Complete Guide to NRI Investment in India

An NRI is an Indian citizen or a person of Indian origin who resides outside India per the FEMA (Foreign Exchange Management Act) regulations. Indian citizens who moved offshore for work or other commitments can still invest in India. Non-resident Indian (NRI) investments are subject to the fulfilment of certain conditions and laws.


Basic Savings Account for NRI Investments


One of the basic requirements is a savings bank account in India. Two types of NRI savings accounts are as follows and should be opened depending on an NRI’s income:


– Non-Resident External (NRE) Account: NRIs who earn outside of India need an NRE Savings account to invest in the country. An NRE account balance is fully repatriable.


– Non-Resident Ordinary (NRO) Account: NRIs earning in India need an NRO Savings Account. Funds parked in an NRO account are partially repatriable.


Safe Investment Avenue for NRIs


NRI Fixed Deposits


Fixed deposits (FDs) are one of the easiest and simplest investment instruments in the financial world that entice most individuals. Since FD returns are free from market fluctuations, they are considered stable investments. NRIs can also take advantage of FDs. Four types of NRI FD accounts in India with renowned banks are:


  1. NRE Fixed Deposits: NRIs can earn tax-free interest on NRE FDs. There are repatriation (principal + interest) benefits also. Interest in these FDs is tax-free in India. You can invest in this tax free fixed deposit in any convertible currency. Banks allow NRIs to hold this FD jointly with other non-residents. Banks allow NRIs to withdraw FDs partially, subject to penalty. NRE FD interest rates are subject to change every month.


  1. NRO Fixed Deposits: NRO deposits allow NRIs to earn higher interest rates as offered to Indian residents. They can invest their earnings in India in an NRO deposit. The interest earned on NRO FD is subject to TDS in India. It can be a joint account with another NRI, and NRO depositors can repatriate up to USD 1 million.

Also, it allows depositors to enjoy higher post-tax yields with the DTAA (Double Taxation Avoidance Agreement) facility.


  1. FCNR Deposits: Foreign Currency Non-Residents (FCNR) are the FDs booked in foreign currencies. It protects depositors from exchange rate risks. It is a foreign currency-denominated deposit available in limited currencies, depending on the bank. FCNR FD can be a joint account with non-residents using foreign income.


  1. NRO Tax Saver Fixed Deposits: A tax-savour NRI FD comes with dual tax exemption benefits under section 80C. The only FD tenure is 5 years without premature withdrawal. TDS applies to the interest amount earned on these tax free fixed deposits. You can invest income earned in India. Repatriation of the account balance up to USD 1 million is allowed.


Higher NRE FD interest rates make FDs more attractive, which can go as high as 7.55% in the prevailing market scenario, depending on your preference for deposit tenure, type and amount.


Investment in the Stock Market


  • Mutual Funds

Mutual funds are riskier than NRI FDs. Many asset management companies (AMCs) allow NRIs to invest in mutual funds in India, provided they meet all the regulatory requirements. They need to submit copies of their tax identification number (PAN), passport, address proof, FATCA declaration and their necessary documents. An NRI requires an NRE/NRO bank savings account to invest in mutual funds.


  • Direct Equity

NRIs can invest in equities under the portfolio investment scheme (PIS) of the RBI (Reserve Bank of India). NRIs need to create a demat and trading account with a designated stockbroker. The PIS-enabled account can be an NRE or NRO account. Initial public offerings (IPOs) are also open for NRIs.


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Important Things To Know About Stock Investing


– Power of Attorney: NRIs can delegate their investment decisions to an individual using a power of attorney. It is an ideal facility for NRIs who have a trustworthy person to transact and monitor their investments in India.


– Investment Limits: NRIs can invest in mutual funds without a maximum limit on the investment amount.


– Taxation: If NRIs invest in equity funds, they will need to pay a 15% tax on sale proceeds within the first year. If it is held for more than one year, it is a tax-free investment. If it’s a debt fund, NRIs need to pay a 30% tax if the holding period is less than three years; otherwise, the tax will be 20%.


Thus, on a positive note, NRIs who want to invest in India can look at various investment options and can take home the profits earned.