Indian citizens who once actively invested in Indian markets lose this opportunity once they go offshore due to work or other commitments. These Indian citizens are known as Non-Resident Indians (NRIs). Incidentally, they too can invest in India subject to fulfillment of certain conditions.
Technically speaking, NRIs are Indian citizens or Persons of Indian Origin (PIOs), and they do not fulfill the conditions of residential status as per the Income Tax Act, 1961.
Deepashree Shetty, associate partner, tax and regulatory services, BDO India, the Indian subsidiary of British accounting, tax and business advisory firm BDO, says that once a person acquires NRI status, he cannot maintain a resident account to conduct transactions in India.
“Therefore, the account needs to be redesigned as NRE/NRO account. Additionally, it is appropriate to update ‘Know Your Customer’ (KYC) norms for use of stock/mutual fund account for transactions,” adds Shetty.
Basically, once you are an NRI, your old accounts opened in India cannot be used for any purpose and if you are using that account to invest in mutual funds and stocks, you need to close the account or update the KYC details.
What are your investment options in India after you become an NRI?
Pankaj Shrestha, head-investment advisory at Prabhudas Lilladhar, a Mumbai-based stockbroking company, says there are different ways. NRI Can invest in India.
Direct Equity: The Reserve Bank of India (RBI) Portfolio Investment Scheme (PIS) allows NRIs to invest directly through a designated trading and deposit account with a stockbroker and a bank account known as Non-Resident External (NRE) or Non-Resident Ordinary (NRO) (PIS) account.
According to Tapati Ghose, partner, Deloitte India, an NRI must have a PAN card to open a PIS-enabled account, be it an NRE or NRO account. NRE is a non-resident external account and its funds can be fully repatriated abroad.
“Funds available in the NRO account can be repatriated subject to limits. “If an NRI has an NRO savings bank account in India, he can use the Indian money to invest more in the Indian stock markets,” said Ghose.
NRIs can invest in Initial Public Offerings (IPOs) using the same NRE or NRO account. They can invest in Portfolio Management Service (PMS) schemes, but the minimum ticket size for PMS is Rs 50 lakh. Also, investments in PMS are made in the account holder’s name and kept in their own demat account.
Prashant Joshi, managing director and managing director and head, consumer banking group, Development Bank of Singapore (DBS), India’s development bank, says that NRIs have the option of delegating their investment decisions to another person by signing them. Letter to facilitate transactions in India.
“It’s ideal if customers have someone they can trust to protect and monitor their investments,” adds Joshi.
Mutual Funds: NRIs can invest in Indian mutual funds, but they have to follow all the regulatory requirements. There are certain restrictions from certain Asset Management Companies (AMCs) regarding US and Canadian based NRIs.
While opening an NRI investment account, all necessary details like passport, address proof, tax identification number (PAN), self-attested copy of FATCA (A US federal law compliance) declaration and other necessary documents are required.
To complete in-person verification (IPV), NRIs can visit the Indian embassy at their place of residence and complete the process.
“To start investing in mutual funds in India, NRIs must have an NRE/NRO savings account and be KYC compliant,” says Joshi.
High Net Worth Alternative Investments: According to Sumir Verma, MD, Meresis Advisors, a Mumbai-based boutique investment banking company, NRIs can invest in stocks through Alternative Investment Funds (AIFs), which are managed accounts. “Net worth is another factor to consider. It varies from individuals to entities while investing,” Verma further added.
For AIF investments, the minimum ticket size for Category I angel funds is Rs 25 lakh while for other categories it is Rs. So there is no need to open a separate deposit account.
Few things to know about NRI investment
Investment Limits: There is no limit to the maximum investment an NRI can make in mutual funds. But there is a cap on maximum stock purchase and sector investment limits.
Return of Income: According to Shetty, an NRI can repatriate the proceeds of selling his/her investment abroad subject to payment of requisite taxes and fulfillment of certain conditions.
“Also, it should be noted that a CA certificate (Form 15CB) needs to be obtained for overseas shipments,” says Shetty.
Tax: An NRE account stores money earned outside India and an NRO account stores money earned in India. As per the Income Tax Act, 1961, NRE accounts are tax exempt, but NRO accounts are not.
The same equity and debt tax laws that apply to Indian residents also apply here, but since the NRI is not a resident of India, the Double Taxation Treaty Agreement (DTAA) should also be looked into so that the NRI does not end up paying. Two taxes in two countries for the same profit.
In short, an NRI must have a valid Indian PAN card, NRE or NRO bank account, comply with FATCA and fulfill his/her KYC obligations, visit the Indian Embassy for IPV verification or self-transact in an investment account. , or appoint and verify someone by signing a POA document
DTAA agreements to pay tax (income of NRE account is not taxable through NRO account), if he/she wants to invest in Indian equity or debt instruments.