Investment options for NRI in India

Hello readers! I hope you are doing well. We at RemitAnalyst decided to develop a blog series to educate our readers about investment options for an NRI in India. This blog is part of the series. We briefly discuss all options for an NRI to invest money in India. This is an introductory blog; we will dive deep into each of the investment tolls in our upcoming blogs one by one.

First, 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, 32 million NRIs and PIOs reside outside India.

Source:http://mea.gov.in/

Now that we know who qualifies as NRI, let's understand how NRIs and their investments are critical to our country. The money sent home by NRI forms a financial inflow to the government regarding the capital inflow of currencies, becoming a very important factor in the country's GDP, helping it thrive economically.

Investment and taxation go hand in hand for most of us, but for NRI, the general rule is that NRI is not taxed on income In India, which they earn in the county they reside in. This is because Govt do not need to spend any expenses on the Non-residents, and in addition, they bring in cash savings to Home County, which boosts GDP. In a 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. Some tax-exempt provisions exist if they invest this earned income again back in some other asset class. One should refer to Income tax department guidelines to understand these basics of NRI Income taxation.

Now that we have our base clear for our blog topic, let's understand and know more about Investment options that an NRI can consider to park his hard-earned money in India. I have listed the opportunities for all types of capital requirements below. Some require huge capital to invest in, though most are within reach of every NRI with minimum capital investing.

Land/Farm

"Buy land; they're not making it anymore." - Mark Twain.

When we decide to invest money, buying land/farms in India is the best option for an individual with enough capital. These investments generate wealth over a long period; for an NRI, owning a piece of land in our home country or hometown is a sensible option.

Property- House, Flat, Commercial Shop

“The wise young man or wage earner of today invests his money in real estate." - Andrew Carnegie.

To create long-term wealth, one should always consider creating a real estate asset like House, Flat, or commercial shop with savings earned abroad. These assets can further generate your rental 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

"Commodities such as gold and silver have a world market that transcends national borders, politics, religions, and race."– Robert Kiyosaki, American Author.

Everyone's favorite metal is Gold. We Indians adore it, and that's why we love to hold it like a privileged asset for ages. Gold is one such asset that never depreciates with time. NRI investors should consider buying Gold in digital formats via the 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

Invest for the long-term

For NRI investors in equity markets, the Reserve Bank of India (RBI) has introduced a Portfolio Investment Scheme (PIS) scheme to facilitate stock trading on recognized stock exchanges in India. An NRI must 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 massive folio of products to invest in markets, like Direct shares, Mutual Funds, Index funds, ETFs, etc. The equity asset class is a wealth-generating asset class with a 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 build wealth via equity holding by holding them long-term.

Debt Instruments

NRIs are not allowed to invest in National Saving Certificates (NSC), Senior Citizens Savings Scheme, Post Office Time Deposits, or open or extend new PPF accounts.

Investors looking for less risk and guaranteed returns should consider Debt instruments as options. NRI investors can buy Debt mutual funds, corporate Bonds, and Government Bonds via savings earned abroad. These include:

• Bonds
• Commercial Papers
• Debentures
• G - Secs (Government Securities)

Bank deposits/Fixed Deposits

NRIs do not have to pay tax on interest from bank accounts.

NRIs have bank accounts in India – non-resident external or foreign currency non-resident accounts. At the same time, 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 from the bank account balance.

One can consider this interest as tax-exempt passive income; in recent times, interest rates have been hitting new lows. I personally will not recommend it to avoid the depreciation of your earned money.

Term-Health Insurance-Individual-Family

Health insurance policies or health check-ups paid for parents or dependents in India are Tax Exempt from income earned in India.

Insurance is the need of the hour, and this lesson is hard learned by many of us in COVID-19 times. Having sufficient health and life coverage is a must. NRI will have insurance coverage in the country they reside. Still, it's always wise to have a life cover plan in India for the benefit of straightforward claims in case family dependents need to stay 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 reading this. Feedback is always welcomed.