NRI Services

Investment Avenues for Non-Resident Indians (NRIs)

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Non-Resident Indians can invest in following instruments in India:

1. Equities: NRIs can invest in directly in Indian equities through Portfolio Investment Scheme (PIS) route provided by Reserve Bank of India.  It is covered in detail later.

2. Mutual Funds: Investment is allowed in all categories of Mutual Funds for NRIs like Equity, Balanced, Bond, Liquid Fund, etc. Unlike direct equities, investment in Mutual Funds does not require PIS permission from RBI. Lately, there have been some limitations for US and Canada based NRIs to invest in MFs as US government has mandated detailed reporting of transactions by Fund Houses under FATCA / CRS rules. Only few fund houses are accepting investments from US and Canada based investors.

3. Government Securities: NRIs are allowed to invest in government securities on NRE or NRO basis. Interest on NRE investments is tax exempt while interest on NRO investments is taxable.

4. Fixed Deposits: NRIs can invest in fixed deposit of Banks or Non-Banking Financial Companies (NBFCs) in case terms of the issue so provide. Investment can be done on NRE or NRO basis. Interest on NRO deposits is taxable and will be subject to withholding tax (TDS) while interest on NRE deposits is tax exempt.

5. Real Estate: NRIs can buy residential and commercial properties in India. However, agricultural land, farm land or plantations are not allowed to be purchased – they can accept it in inheritance or gift.

6. National Pension Scheme: NPS is government-backed retirement savings plan which comes under EET tax structure (Exempt-Exempt-Tax). It implies that all contributions and accrued capital gains are tax exempt, while withdrawal is subject to tax. This scheme is very cost effective. You can subscribe to this scheme if you have retained your Indian citizenship and plan to spend retired life in India. Contribution to NPS can be from NRE or NRO account, however the pension has to be received in India and cannot be repatriated.

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Investment decision by an NRI is critical as the income will be taxed in multiple countries based on his/her tax residency. Here, we have enumerated tax treatment as per Indian laws. However, you will also have to consider the tax impact on this income in your home country of residence + Double Tax Avoidance Agreement (DTAA) between both these countries.

Also, if your taxable income in India exceeds the basic exemption limit, then you will have to file tax returns in India and pay balance taxes / claim refund as the case may be. We have covered taxation in detail little later.