Hello readers! I hope you are doing well. We at RemitAnalyst decided to come up with a blog series to educate our readers about investment options available for a NRI in India. This blog is part of the series.
We talk about what all options are there for a NRI to invest money in India in brief. This is introductory blog; we will dive into each of investment tolls in deep in our upcoming blogs one by one.
To start with let’s understand who qualifies as NRI as per government norms.
NRI
- Overseas Indians, officially known as Non-Resident Indians (NRI/NRIs) or Persons of Indian Origin (PIO/PIOs), are people of Indian birth, descent, or origin who live outside the Republic of India.
Key facts: According to a Ministry of External Affairs report there are 32 million NRIs and PIOs residing outside India.
Now that we know who qualifies as NRI , lets understand how NRI and their investments are important to our country . The money sent home by NRI forms a financial inflow to the country in terms of capital inflow of currencies becoming very important factor in country’s GDP helping it thrive economically.
Investment and taxation go hand in hand for most of us but
for NRI general rule is NRI are not taxed on income In India which they earn in
the county they reside in. This is because Govt does not need to spend any
expenses on the Non-residents and in additional to this they bring in cash
savings to Home County which act as boost to GDP . In nutshell , NRI will only be
taxed on the income they earn in India on the various assets they have in India
for a particular financial year. There are some tax-exempt provisions if they
invest this earned income again back in some other asset class. One should
refer Income tax department guidelines to understand these basics about NRI
Income taxation.
Now that we have our base clear for out topic of the blog lets understand and know more about Investment options that a NRI can consider to park his hard earned money in India. I have listed the options for all types of capital requirements below. Some require very huge capital to invest in though most of them are within reach of every NRI with minimum capital investing.
Land/Farm
When we decide to invest money buying a land/farm in India is best option for an individual with enough capital. These investments generate wealth over a long period of time. For an NRI its sensible option to own a piece of land in our home country or hometown.
Property- House, Flat, Commercial Shop
One should always consider option to create a real estate asset like House, Flat or a commercial shop with savings earned abroad to create a long-term wealth. These assets further can generate you rent income in India passively.
Also note that rental income is taxed in India for NRI owning the property, with a standard deduction of 30% of the rent, after subtracting municipal taxes is allowed in India.
Gold
Everyone’s favorite metal is Gold. We Indians just adore it
and that’s why we love to hold it like a privileged asset since ages. Gold is
one such asset which never depreciates with time. NRI investors should consider
buying Gold in digital formats via below means.
Gold ETF
Gold funds
These are similar to buying equity mutual funds.
Note that - a non-resident or ordinarily non-resident of
India cannot buy a sovereign gold bond.
Equity
For NRI investors in equity markets, the Reserve Bank of
India (RBI) has introduced a scheme called Portfolio Investment Scheme (PIS) to
facilitate stock trading on recognized stock exchanges in India. It is
mandatory for an NRI to open a PIS account with RBI before buying any direct
stocks or convertible debentures, as it complies with the Foreign Exchange
Management Act (FEMA) rules.
Equity investments have a very big folio of products to invest
in markets. Like Direct shares, Mutual Funds, Index funds, ETF, and many more. The equity asset class is a wealth-generating asset class with long-term horizon.
India is the best-emerging market to invest in. Short-term investing comes with
risk due volatility of markets as the scenario changes every day. NRI investors
should try to build wealth via equity holding by holding them for the long term.
Debt Instruments
Investors looking for less risk and guaranteed returns
should consider Debt instruments as an option. NRI investors can buy Debt mutual
fund, corporate Bonds and Government Bonds via savings earned abroad. These
include
*Bonds
*Commercial Papers
*Debentures
*G - Secs (Government Securities)
*Bank deposits/Fixed Deposits
NRIs have bank accounts in India – either non-resident
external accounts or foreign currency non-resident accounts. While Indian
residents have to pay tax on their savings bank account interest above Rs.
10,000. NRI is not required to pay tax on the interest arising out of the bank
account balance.
One can consider this interest as tax-exempt passive income, in recent times interest rates are hitting new lows. I personally will not recommend it to avoid the depreciation of your earned money.
Term-Health Insurance-Individual-Family
Insurance is needed for an hour and this lesson is hard learned by many of us in COVID19 times. Having sufficient health and life cover is a must. NRI will have insurance cover in the country they reside but it's always wise to have a life cover plan in India for the benefits of easy claims in case of needs for family dependents staying in India.
Also, you can buy Insurance for your parents and dependents in India from abroad. Health insurance policies or health check-ups paid for parents or dependents in India too are allowed for deduction under section 80D.
Conclusion:
As discussed at the start of the blog, NRI will only be
taxed on the income they earn in India on the various assets they have in India
for a particular financial year. Hence NRI should always consider creating a
wealth portfolio with the help of different assets available following Govt
norms. Thanks for your time and for reading this. Feedback is always welcomed.
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