1. Who is an NRI?
- A person who has been in India for 182 days or more during a financial year and 365 days or more during the preceding four financial years qualifies as a resident of India.
- NRIs can continue to enjoy non-resident status in India if their presence in the country is more than 60 days but less than 182 days in a financial year, even if their stay in India during the past four financial years is 365 days or more.
- A person, who has been deputed overseas for more than 6 months, also qualifies for non- resident status.
2. How to open an NRI account and start investments?
If you wish to invest in India, the first step is to open a savings bank account. There are three basic types of bank accounts for NRIs.
- Non-Resident External rupee (NRE) Account: An NRE account is used to remit overseas earnings to India and hold them in rupees, as also repatriate the proceeds of your investments back to your home country without any restrictions. An NRE account is completely tax-free and no tax is payable on the interest earned on the balance. But you cannot put income from rent, salary and dividends in the NRE account. For that you need a non-resident ordinary (NRO) account.
- Non-Resident Ordinary rupee (NRO) account: An NRO account is a non-repatriable rupee account. However, the interest earned on the NRO account is taxed at the marginal rate of 30% plus surcharge and cess. The balance in the account is also subject to wealth tax. The advantage is that NRO accounts can be jointly opened with a resident Indian.
- Foreign Currency Non-Resident (FCNR) account: An FCNR account is similar to the NRE account, except for the fact that the funds are held in a foreign currency, and not converted to rupees.
In order to open an account, you can either visit the nearest branch of the Indian bank in your home country, if any, or send the completed application form (you can get it online) along with the documents to any of the branches in India.
3. What are the investment avenues for NRIs?
- Direct Equity: NRI’s can invest their funds in equity markets. But, before investing in equity one should take into account the time horizon of investment, risk and return expected on the investment and the long term goals. There is no limit or cap for NRI’s investing in direct equity.
- Mutual Funds: A Mutual Fund would be a safer bet compared to direct equity for a foreign investor who has limited expertise. For an NRI, no specific approval for investing or redeeming from mutual fund is required. However, certain mutual funds may not accept deposits from NRIs based in the USA or Canada. If you are a USA / Canada NRI, it is especially important to first check the fund house rules before investing, so that money is not locked away for a few days before simply being returned to you rather than being invested.
- Real Estate: Real Estate in India is another favorite with NRIs. The clear benefit here is that while you are residing in a foreign country, the apartment / house can be given out on rent, thereby providing additional income. It is also a common myth that as an NRI it is not possible to get a home loan an NRI can certainly avail a home loan to purchase a property in India.
4. What are the KYC requirements for NRI investors?
- You can get the soft copy of Mutual Fund KYC form on websites of mutual funds, AMFI and Agencies where KYC is registered. Take a print out of that form, fill it up and submit it at Registration agencies, personally! If your in-person verification has already been done then you can send it by post or courier.
- Documents, you need to submit along with the application are your- recent photo, PAN card, passport as identity proof, permanent and overseas certified address proof. If you are from merchant Navy then you need to submit a mariner’s declaration or certified copy of Continuous Discharge Certificate too!
- You should submit the certified true copies of all the required documents.
- Attestation requirement: All the documents can be attested by officials of overseas branches of scheduled commercial bank registered in India, public notaries or Indian embassy/ consulate general of their respective country.
- I.P.V: i.e. in person verification, which is necessary for NRIs or PIO, can be completed by NISM or AMFI certified distributor (who fulfills the criteria of know your distributor) or scheduled commercial bank.
- If any of the documents (you are submitting) are in a language other than English then convert it to English before submission.
- If any NRI /PIO have appointed someone as his/her Power of Attorney for investment in India then both the parties should be KYC compliant in India.
- Other than all required documents PIO (person of Indian origin) should submit the attested true copy of the PIO card.
- Mutual Fund KYC compliance procedure is free as of now so you do not have to pay anything while submitting an application.
- And last but not the least, as soon as you get your KYC compliance, intimate it to the mutual fund houses with whom you are holding folios . So that they can update their records too!
5.Is it possible for an NRI to appoint a power of attorney (PoA) to keep track of investments and make additional purchases, switches or redemptions on behalf of him?
Mutual funds allow a power of attorney (PoA) holder to take these decisions on your behalf. All that the PoA holder needs to do is to submit the original PoA or an attested copy of it to the fund house. The PoA should have signatures of both the NRI and the PoA holder. The PoA holder’s signature will be verified for processing any transaction.
6. Can a resident Indian be a nominee in an NRI’s investments?
An NRI can make a resident Indian his/her nominee in the mutual fund scheme. An NRI can also be the nominee for investments made by a local resident. Fund houses also allow an NRI to have a joint holding with a resident Indian or another NRI in a scheme.
7. When are NRIs taxed on their income?
- An NRI’s income taxes in India will depend upon his residential status for the year.
- If your status is ‘resident’, your global income is taxable in India. If your status is ‘NRI’, your income which is earned or accrued in India is taxable in India.
- Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of asset situated in India, income from Fixed Deposits or interest on savings bank account are all examples of income earned or accrued in India.
- These incomes are taxable for an NRI. Income which is earned outside India is not taxable in India. Interest earned on a NRE account and FCNR account is tax free. Interest on NRO account is taxable for an NRI.
8. Are there any difference in tax treatments for NRI and a resident Indian?
- The basic tax rates for investments in MFs are the same, whether you are an NRI or an ordinary Indian citizen.
- Withdrawals after a year attract long-term capital gain tax; withdrawals in less than a year are subject to short-term capital gains tax.
- Long-term capital gains tax on equity funds is nil.
- Short-term capital gains tax on equity funds is 15.45% (15% base rate and 3% cess). Long-term capital gains tax on debt funds is 10.30% (10% base rate and 3% cess) without indexation benefits or 20.6% (20% base rate and 3% cess) with indexation benefits.
- Short-term capital gains tax is as per your tax bracket.
- On this count, there is a slight difference. NRI withdrawals are subject to tax deducted at source (TDS).
- If you withdraw from your MF within a year, you have to pay a TDS at the rate of 30% if it’s a debt fund or a gold fund and 15% for equity-oriented schemes.
- The TDS imposed is in line with the normal taxation rates applicable to MF investments. There is no TDS if you withdraw from equity funds after a year, but if you withdraw from equity funds within a year, you pay a TDS of 15%.
- If you withdraw from your debt funds after a year, a TDS of 20% (after indexation benefits) gets deducted; short-term withdrawals attract a TDS of 30%.
The idea behind TDS on MF withdrawals is that it could get difficult for the income-tax authorities to chase NRIs if they fail to file their tax returns. The logic is that NRIs live out of India, so if they evade tax, it’s difficult to catch hold of them for recovery of taxes.