Investment opportunities for NRIs
Some of the areas where investments are restricted for an NRI include agriculture, plantation and construction of farm houses. Process of remittances made easy
India is emerging as one of the most exciting markets in the world for foreign investments. India's dynamic and highly competitive private sector has been the backbone of its economic activity and offers considerable scope for foreign direct investment. Karishma Julka and Anju Thukral from Ernst & Young highlight the various Investment opportunities that are available to a Non Resident Indian (NRI) in India.
As per the Foreign Exchange Management Act, 1999 (FEMA), NRI means a person resident outside India who is an 'Indian citizen' or a 'Person of Indian Origin' (PIO). FEMA broadly covers all matters related to investment avenues for NRIs such as investment in immovable property, foreign exchange, bank deposits, government bonds, investment in shares, units, securities, and foreign direct investment in India.
While NRIs can invest in India as per the FEMA rules, the tax implications under the Income tax Act, 1961 (Act) for the income generated from investments in India; and regulations governed by the Reserve Bank of India (RBI) will have to be kept in mind.
Investment opportunities available to NRI's
Primarily, NRIs can make investments directly in areas covered under the automatic route (i.e. areas where no specific approval is required by RBI), either through direct remittance from abroad or through the authorized dealers (eg banks). For areas not covered under the automatic route, a specific approval from RBI or other specified authorities is required.
RBI regulations permit NRIs to open and maintain rupee accounts like the NRE a/c (Non - Resident (External) Rupee a/c), NRO a/c (Ordinary Non-Resident Rupee a/c), or FCNR a/c (Foreign currency (Non - Resident) Accounts) with any recognized authorized dealer in India.
The investment opportunities available to NRIs are endless. Some of them are mentioned below:
As per the Foreign Exchange Management Act, 1999 (FEMA), NRI means a person resident outside India who is an 'Indian citizen' or a 'Person of Indian Origin' (PIO). FEMA broadly covers all matters related to investment avenues for NRIs such as investment in immovable property, foreign exchange, bank deposits, government bonds, investment in shares, units, securities, and foreign direct investment in India.
While NRIs can invest in India as per the FEMA rules, the tax implications under the Income tax Act, 1961 (Act) for the income generated from investments in India; and regulations governed by the Reserve Bank of India (RBI) will have to be kept in mind.
Investment opportunities available to NRI's
Primarily, NRIs can make investments directly in areas covered under the automatic route (i.e. areas where no specific approval is required by RBI), either through direct remittance from abroad or through the authorized dealers (eg banks). For areas not covered under the automatic route, a specific approval from RBI or other specified authorities is required.
RBI regulations permit NRIs to open and maintain rupee accounts like the NRE a/c (Non - Resident (External) Rupee a/c), NRO a/c (Ordinary Non-Resident Rupee a/c), or FCNR a/c (Foreign currency (Non - Resident) Accounts) with any recognized authorized dealer in India.
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The investment opportunities available to NRIs are endless. Some of them are mentioned below:
��� Government securities or Units of UTI through authorised dealers. Units can also be directly purchased from UTI.
��� National Savings Certificates
��� Portfolio investments i.e. purchase of shares / debentures of Indian companies through stock exchanges in India. This facility is granted both on repatriation and non repatriation basis.
��� Investments in Mutual Funds
��� NRI's holding Indian passports and persons of Indian origin enjoy parity of status. Therefore they can invest or inherit immovable property subject to certain exceptions and prescribed conditions. Housing finance companies and banks have been permitted to offer home loans to NRI and they can repay home loans through inward remittance using normal banking channels or by debit to his NRE/FCNR(B)/NRO account or out of rental income derived from renting out such property.
There is no lock-in period with regard to immovable property that is inherited however, repatriation of funds from a residential property is restricted to a maximum of two properties only.
Some of the areas where investments are restricted for an NRI include agriculture, plantation and construction of farm houses.
NRIs are also allowed to transfer as gift any residential/commercial property in India to a person resident in India or to an NRI or PIO subject to certain exceptions, and the sale proceeds of the property received as gift will be credited only to an NRO account. There is no lock-in period for sale of residential/commercial property. NRIs can remit abroad an additional amount up to $1 million per year from the sale of immovable property in India, subject to certain conditions.
NRIs have the option to freely sell any shares, bonds and debentures acquired on non-repatriation or repatriation basis under both Direct Investment Scheme and Portfolio Investment Scheme. NRIs can also gift shares and securities to resident relatives; however, gifting to non-resident relatives (other than NRIs) would require RBI's permission. Sale/transfer of shares/securities to other NRIs does not require RBI's permission.
Once the area of investment has been decided, it may be prudent to know the taxability of income from such investments.
Taxability of income in India depends on the residential status of the NRI under the Indian Income tax Act. One of the key points to remember is that the residential status in this regard is determined as per the Income tax Act, which may be different from the residential status determination under FEMA.
In case of a Non Resident, only income received in India, or accrued in India, or income deemed to accrue or arise or receive in India, is subject to tax in India. It is also worthwhile to note that in order to promote investment in India by NRIs, Government of India has initiated various tax-friendly schemes like NRI Bonds, Millennium Deposits etc. where the interest income earned is tax exempt.
India has opened its doors and liberalized regulations relating to foreign exchange and remittance of funds from India. There are various opportunities beckoning NRI's however, every investment, no matter how lucrative, should be carefully analysed to ensure compliance with the Indian laws both from an exchange control and tax perspective.
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The authors are senior tax professionals with Ernst & Young India
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