Investment options for NRI in India

Updated on: 2020-10-21 - 4 mins read

Investment options for NRI in India

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.

Source: http://mea.gov.in/images/attach/NRIs-and-PIOs_1.pdf

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

Buy land, they are not making it anymore. - Mark Twain

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

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

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

“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 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 of a 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 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 very big folio of products to invest in markets. Like Direct shares, Mutual Funds , Index funds , ETF and many more. Equity asset class is wealth generating asset class with long term horizon. India is best emerging market to invest for. Short term investing comes with risk due volatility of markets as scenario changes every day. NRI investors should try to build a wealth via equity holding by holding them for 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 new PPF accounts or extend them.

    Investors looking for less risk and guarantied returns should consider Debt instruments as 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 do not have to pay tax on the interest arising out of bank accounts.

    NRIs have bank accounts in India – either non-resident external accounts or foreign currency non-resident account. While Indian residents have to pay tax on their savings bank account interest above Rs. 10,000. NRI are not required to pay tax on the interest arising out of 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 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 for income earned in India

    Insurance are need of hour and this lesson is hard learned by many of us in COVID19 times. Having a sufficient health and life cover is must . NRI will have insurance cover in the country they reside but its 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 reading this. Feedback is always welcomed.

    Regards

    Anup Lamb