If you are a non-resident Indian (NRI) and wish to invest in India while still taking home your gains, subject to certain requirements and applicable tax rules, here is how you should proceed.
Indian people who previously actively participated in Indian markets lose this possibility when they relocate offshore for work or other reasons. These Indian citizens are referred to as non-resident Indians (NRIs). They can, incidentally, invest in India as well, subject to certain criteria.
NRIs are technically either Indian nationals or persons of Indian origin (PIOs), and they do not meet the residence status criteria of the Income-tax Act of 1961.
According to BDO India, a British accounting, taxes, and business consultancy organization, an individual cannot operate a resident account to conduct transactions in India after obtaining NRI status.
As a result, the account must be renamed an NRE/NRO account. Furthermore, it is critical to keep ‘know your customer’ (KYC) requirements up to date for the use of the stock/mutual fund account for transactions.
Essentially, once you become an NRI, you cannot use your old accounts opened in India for any purpose, and if you are using that account to invest in mutual funds and stocks, you must either liquidate the account or update the KYC details.
What Are Your Investing Options in India After You?
- The portfolio investment scheme (PIS) of the Reserve Bank of India (RBI) allows NRIs to invest directly through a designated trading and depository account with a stock broker and a specified bank account called non-resident external (NRE) or non-resident ordinary (NRO) (PIS) Account.
- To open a PIS-enabled account, an NRI must have a PAN card, which can be either an NRE or an NRO account. NRE stands for non-resident external account, and its funds can be entirely repatriated outside of the country
- The funds accessible in an NRO account can be repatriated overseas subject to constraints. If an NRI holds an NRO savings bank account in India, the funds in the account can be used to make additional investments in Indian stock markets.
- NRIs can use the same NRE or NRO account to invest in initial public offers (IPOs). They can also invest in portfolio management service (PMS) schemes, with a minimum ticket size of Rs 50 lakh. Furthermore, PMS investments are made in the account holder’s name and stored in their own demat account.
- NRIs can also outsource their investment decisions to another person by signing and delivering a power of attorney letter to facilitate transactions in India.
- NRIs can invest in Indian mutual funds as well, but they must follow all legal criteria. There are some restrictions by certain asset management companies (AMCs) in regard to US and Canada-based NRIs.
- All relevant details, such as a passport, address proof, self-attested copy of a tax identification number (PAN), FATCA (A US Federal law compliance) declaration, and other required documents, will be requested when opening an NRI investment account.
- NRIs may also finish the in-person-verification (IPV) process by visiting the Indian Embassy in their place of residency.
- NRIs must have an NRE/NRO savings account and be KYC compliant before they can begin investing in mutual funds in India.
High Net-worth Alternative Investments
- An NRI can invest in stocks through managed accounts known as alternative investment funds (AIF). Another element to consider is one’s net worth. When it comes to investment, it varies from person to person.
- The minimum ticket size for category I angel funds is Rs 25 lakhs, whereas for other categories it is Rs 1 crore, and unlike PMS, AIF investments are made through a pool account. As a result, there is no need to open a separate depository account.
What You Should Know About NRI Investing
There are no restrictions on the amount of money that an NRI can put in mutual funds. However, there are maximum stock purchase and sectoral investment limits.
Remittance of Proceeds
NRIs can repatriate their profits from the sale of foreign investments, subject to the payment of applicable taxes and the fulfillment of specific conditions. It should also be noted that a CA Certificate (Form 15CB) is required for foreign remittances.
- An NRE account holds earnings generated outside of India, whereas an NRO account holds cash earned within India. NRE accounts are tax-exempt under the Income-tax Act of 1961, however NRO accounts are not.
- The same equity and debt taxation laws that apply to Indian citizens apply here as well; however, because an NRI is not a resident of India, a double taxation treaty agreement (DTAA) should be considered so that the NRI does not end up paying double taxes in two nations for the same benefit.
- If he/she wants to invest in Indian stock or debt securities, DTAA agrees to pay tax (through NRO account because NRE account proceeds are non-taxable).
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