Here’s what you should do if you’re a non-resident Indian (NRI) who wants to invest in India and take your gains home provided that certain requirements are met and applicable tax rules are followed.
When Indian individuals migrate abroad for jobs or other obligations, they lose this ability to engage as actively as they once did in Indian markets. These people are referred to as non-resident Indians (NRIs). In addition, provided that certain requirements are met, they are also eligible to invest in India.
NRIs technically fall within the definition of persons of Indian origin (PIOs) or Indian nationals, and they do not meet the requirements for residence status under the Income-tax Act of 1961.
According to Deepashree Shetty, associate partner, tax and regulatory services at BDO India, the local arm of British accounting, taxation, and business consultancy firm BDO, once a person obtains NRI status, they are no longer able to use a resident account to carry out activities in India.
What Investment Possibilities Do You Have In India Once You Become an NRI?
There are several ways an NRI can invest in India, according to Pankaj Shrestha, head of the investment advising section of stock brokerage firm Prabhudas Lilladher in Mumbai.
Direct Equity: Through a designated trading and depository account with a stock broker and a designated bank account known as a non-resident external (NRE) or non-resident ordinary (NRO) (PIS) Account, NRIs may invest directly through the Portfolio Investment Scheme (PIS) of the Reserve Bank of India (RBI).
An NRI must possess a PAN card in order to open an NRE or NRO account that is PIS-enabled, according to Tapati Ghose, partner, Deloitte India. A non-resident external account, or NRE, allows for full foreign fund repatriation.
“Subject to restrictions, funds in an NRO account may be repatriated abroad. The Indian money can be utilized to make additional investments in Indian stock markets if an NRI has an NRO savings bank account in India, according to Ghose.
NRIs can use the same NRE or NRO account to invest in initial public offers (IPOs). They are also permitted to invest in portfolio management service (PMS) plans, although the required minimum investment is Rs. 50 lakh. Additionally, investments made in PMS are held in the accountholder’s own Demat account and are made in their name.
According to Prashant Joshi, managing director, head of national distribution, and head of the consumer banking group at the Development Bank of Singapore (DBS) India, NRIs also have the option to assign their power of attorney letter to another individual in order to facilitate transactions in India.
If clients have someone they can rely on to protect and keep an eye on their finances, Joshi says, “this is great.”
Mutual Funds: NRIs may invest in Indian mutual funds as well, but they must follow all applicable regulations. Some asset management organizations (AMCs) have restrictions on NRIs with addresses in the US and Canada.
All needed information, including a passport, address proof, a self-attested copy of the tax identification number (PAN), a FATCA (US Federal law compliance) statement, and other required documents, must be provided when opening an NRI investment account.
NRIs may also complete the in-person verification (IPV) process by going to the Indian Embassy in their home nation.
Joshi continues, “NRIs need to have an NRE/NRO savings account and be KYC compliant to start investing in mutual funds in India.
High Net-Worth Alternative Investments: An NRI can invest in stocks through alternative investment funds (AIF), which is a managed account, according to Summer Verma, MD, Merisi’s Advisors, a boutique investment banking firm with offices in Mumbai. “Net worth is another element that needs to be taken into account. It differs from person to person.
Some Important Information Regarding NRI Investing Investment Limits:
The maximum investment in mutual funds that an NRI may make is unrestricted. The maximum stock purchase amount and sectoral investment limitations, however, are also limited.
Repatriation of Money: According to Shetty, an NRI may bring home the proceeds from the sale of an investment made abroad as long as the necessary taxes are paid and a few other requirements are met.
It should be noted that a CA Certificate (Form 15CB) is required for international transfers, adds Shetty.
Taxation: A NRO account is used to hold income earned within India; an NRE account is used to hold income earned outside of India. NRE accounts are tax-exempt but NRO accounts are not, as per the Income-tax Act of 1961.
The same equity and debt taxation laws that apply to Indian residents also apply here, but since an NRI is not an Indian resident, a double taxation treaty agreement (DTAA) should also be considered in order to prevent the NRI from having to pay taxes twice for the same gain in two different countries.
A valid Indian PAN card, an NRE or NRO bank account, compliance with FATCA requirements, IPV verification at the Indian Embassy, self-transactions in the investment account, or appointing someone by signing a POA agreement, and checking for tax evasion are the essential requirements for an NRI.
If a person wants to invest in Indian securities, they must agree to pay tax (via an NRO account because NRE account proceeds are not taxable).
FAQ
To invest in the stock market, you must create an NRE (Non-Resident External) account with a bank that is registered with the RBI. One PIS account may be used for stock market investments.
Yes, non-resident Indian investors can use an NRI trading account to buy or sell shares and convertible debentures of an Indian company on stock markets. NRIs cannot, however, participate in short selling, BTST trading, or intraday trading.