mutual funds NRI Investing

5 questions to ask by an NRI investing in India

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Investing in India is one common theme that all NRIs want to figure out.

How should they go about investing in India, specially given their Non Resident Indian (NRI) status? Now, you don’t want to end up making mistakes or get on the wrong side of the law with your money.

So, to make the process easier I have compiled here a set of questions that an NRI should ask before starting to invest in India. These will provide helpful insights in making the right investment decisions.

The Questions

Question 1: What are the various investment options I have?

This is probably the first and the most obvious question on your mind. As an NRI, you can invest in pretty much everything (but not all) in India. Here is quick look through:

Equity: You can invest in stocks of companies directly through portfolio investment schemes or through equity mutual funds. However, certain mutual funds have investment restrictions for NRIs from US and Canada.

Read more: Which mutual funds an NRI can invest in?

Debt: Except for Public Provident Fund and National Savings Certificates, you can invest any amount in company debentures, fixed deposits and debt mutual funds.

Real Estate: You can invest in any number of residential and commercial properties. However, you cannot own / invest in land, farm houses or plantations (except if it has been gifted to you).

Question 2: Can I take repatriate or take my money back from India?

As an NRI investing in India, you can repatriate your money, subject to certain rules and restrictions. Here are some of them:

  • You can repatriate all your money that you invested from your overseas account, that is, a Non Resident Rupee (NRE) or Foreign Currency Non Resident (FCNR) account.
  • Money in the NRO account can be repatriated only upto the limit of $1 million in any one financial year.
  • In case of real estate, you can repatriate the amount of money invested in the property. This is further subject to the limit of 2 properties.

Here is a useful FAQ link from Reserve Bank of India’s website. Click here.

Question 3: How am I going to be taxed and where?

Put simply, any income that is earned in India is subject to tax in India. A lot of tax benefits and deductions available to resident Indians are also available to NRIs. However, an NRI will have to file a tax return in India to avail these benefits. Some points of note are:

  • If you earn interest in your fixed deposits on NRE or FCNR accounts, it is tax free.
  • Long term capital gains (if sold after 1 year of purchase) for stocks and mutual funds are tax free.
  • Short term capital gains (if sold in less than 1 year of purchase) arising from stocks or mutual funds are taxed at 15%.
  • Short term capital gains in real estate (if sold in less than 3 years of purchase) will be taxed at your income tax rate.
  • Long term capital gains in real estate will be taxed at 10% (20% if indexation used).
  • When you earn an interest on a Fixed Deposit or make a sale of an investment, there is Tax Deducted at Source (TDS) at the highest rates on investments made by NRIs. However, when you file a Tax Return and if your actual tax is less than the TDS then you can claim a refund too.

Question 4: What is the purpose of my investment?

This is the most important question that an NRI should be asking. What is the purpose of my investment in India? Is it only to earn better, higher returns? Or seek international diversification? Or I plan to relocate back to India at some point and hence I want to plan for that by making investments in India itself?

The answer to those questions will come in a financial plan. The process of financial planning will enable you to think through your goals and priorities them. You will also be able to seek clarity on how much of your savings are actually available for investing in the resident country and for India.

You will be able to figure out the financial requirements for the education of your children, if they were to do it in India. You can also estimate the future cost of your retirement living. And finally, how should you be funding each one of them and through which investment options?

Here is a link to my post that can help you understand the importance of financial planning.

Question 5: What should I invest in and how much?

A very tough question. For some reason, real estate continues to be a favourite investment vehicle for NRI investors in India. Even the builders plan their projects for NRI investors since they know the quantum of money available and the fascination for property that we have in India.

I know a huge society called Seawoods NRI in Navi Mumbai that was developed exclusively to attract NRI investments. I have heard stories of mansions in Kerala being built with NRI money. And there are many more such projects around the country.

But that’s not the way it should be. Random, ad hoc investments come back to haunt you later. Emotions can blind you to put your money into useless investments or get you over exposed to one type of investment. Either is bad for your money. I am sure you have connected with other NRI friends who have stories to share of their misdeeds.

The answer again lies in financial planning. Once you have figured out your goals and requirements, accordingly, the investment options can be picked as also how much should you invest in them. You should take a balanced approach and spread your money across investments in real estate, equity, debt and gold.

 

So, these are the 5 questions that you should be asking and thinking about before your make your investments as an NRI. It would go a long way in ensuring that you have a portfolio that works for you with minimum hassles and costs.

Caution: Don’t just rely on hearsay or because a good friend and your parents are asking you to do something. It would be better to go through an advisor to decide what would work best for you.

Between you and me: Was this helpful? Do you have more questions? Send them to me through the comments or just hit a reply to this email.

27 thoughts on “5 questions to ask by an NRI investing in India”

  1. Hi Vipin,

    please can you help to understand why is TDS not deducted automatically for NRE FD as against it been cut in normal Resident Indian FD’s ?

    What will be a good way to save tax on interest of NRE FD

  2. Hi Vipin, i have a NRI account and currently i am in India. I have good amount of FD’s in NRE account, are indian bank systems (application) designed to not deduct TDS automatically for NRE account ? it does very well to deduct TDS for resident account then why dont they do same for NRE a/c ?

    Is there any way to save tax on interest earned on NRE FD’s ? considering person is a resident indian now.

  3. Hi Vipin, i have a NRI account and currently i am in India. i understand banks do not ask for a PAN card while opening a NRI account. they may be asking now a days.

    Now after 5 years of account bank has asked me and other account holders their PAN card details just as part of their regular audit.

    I think this may have repercussions in terms of income tax going down the line, currently NRI accounts in the Indian bank’s systems / applications have no implementation of TDS for the interest earned on FD’s or normal savings a/c interest.

    Is there a way for me do to avoid giving PAN card details ? i dont think form 60 will be advisable.

      • Thank you Vipin for your reply.

        what about tax implication post furnishing the PAN card details, shall i be going forward and deposit tax on my own even though banks not have any implementation of TDS for NRI a/c?

  4. Hi Vipin,

    I am an NRI. I have considerable amount on investment in equity market as long term investment. I dont want to do debt investments as they are taxable. Nor am i interested in real estate as you pointed out. Can you tell me if NRIs can purchase govt issued gold bonds. ?
    What other investments can i make to beat inflation.

    Thanks,

      • Hi Sir
        I have happened to read your article and got a lot of information regarding the the investment in india.
        I am a permanent resident in canada and an Indian citizen. I have transferred about 60 lacks rupees to my nri account with the purpose of buying a small commercial building in India. since I don’t have enough money I plan to wait for a few more months.
        1. can I put this money 60 lakhs in service co operative bank as I get better intetest and withdraw this money to buy the building later.
        2. if I sell the building after 3 few years I purchased can I bring the money Back to Canada. what is the tax applications in both countries. what tax claims that I can make. can I tax claims the flight tickets
        3.is it better to buy the property in my name or joined with my wife for better tax savings purpose
        4. can I tax claim all the expense that happened when I sell the property including flight tickets to come and visit the property.
        3. mean while if I want to bring some money to Canada from India borrowed from my friends or from a bank , should I have to pay tax in any of the both countries
        could you please provide your valuable suggestions
        Thank you Subeesh

  6. I am a NRI and buy one flat in Gujarat. I paid money through nri account (cheque) to builder. After three year builder not able to give possession so I cancel my deal. Builder now giving my main amount with interest, he is deducting TDS on interest. Can I move my all money which I given from my NRI account with interest to my NRI account. what process I have to do for that, if my money that time in NRI account interest earn from that amount is tax free. so can I take all amount with interest in NRI account.

  7. Hi vipin,

    since for one year we are in one of the gulf county.. now we are planning for investment can you suggest us a good one. Actually we want to buy land, but we don’t have bulk amount. Plz give me some suggestions.

    • Dear Anupama, as you would have noticed in the articles, the reason to invest has to be given more thought than the investment itself. Land is a natural attraction but would that serve the purpose that you have for the money. I would recommend that you go for professional advice on your finances and investments. Send me an email at vipin@vipinkhandelwal.com. thanks.

    • Hi Vipin,
      i am an NRI working in Gulf for past 20 years. I have invested in few properties (land)over the year. Also i have sold 1 property after almost 10 years of purchase. But, till date i have not opened any income tax file. wants to know if it is required??
      secondly, i am taking a personal loan here which will be approx 28 lacs IRS, which i need to invest or put in FD. Please advice where i should invest as FD rates are going down everytime.
      Rgds,
      Kistu siqueira

      • Hi Kistu

        Thanks for the comment and questions.
        When you sold your property, you were liable to pay long term capital gains tax at the rate of 10% (without indexation benefit) and 20% (if you do cost indexation).

        In my view, it would be ideal to file your tax returns.
        Not sure if you have any other income in India such as rental from property or interest from Bank FDs. You can file returns and also take several other benefits as pointed out in the post.
        When you sold your property, was TDS deducted? If the TDS was in excess of actual tax payable, you could have claimed a refund after filing a return.

        Now, coming to the Personal Loan – I am wondering why would you take a loan and then invest in an FD in India. Unless, you are getting it a 0% interest or something.

        The question of should you put in an FD or some other investment can only be determined based on what is your expectation from the money.
        To me it looks like there is a lot of random investment activity and not a thought through execution based on a proper plan.

        Should you need help, do let me know.

        Regards

        • Hi Vipin,

          well thanks so much for your advice. Well i wanted to open a tax retern file after selling my plot but a friend of my whos is also an NRI who have sold/purchased properties advice me that NRI do not need.

          The money after selling the property i put in FD in one of the nationalized bank and the guy also filled a form regd TDS and provided my pan card copy aswel. please need more advice on this.

          I am taking loan here in Gulf cos i am getting loan on very less interest rate. The amount i can do FD in India at a rate of
          7-8% rate for NRI. Which i thought very profitable for me or even buy a property which will give me good return in 4-5 yrs.

          Please advice.

          • You may not need to file a tax return but it is desirable that you keep tax accounts in order. You never know when you might need them to help you. Filing of tax is so very easy now a days with the online facility.

            On the FD, are you saying there is absolutely no tax deducted? And if there is tax deducted, why can’t you claim a refund?

            I am not a real estate advisor. So that is beyond my scope. However, as a financial advisor, I would suggest that you look at your overall allocation of your investments in various assets. It seems that you are very high on real estate. Though I am not certain about it.

            Are you planning to return to India? If yes, than that could be a goal that you should align your India investments towards.

            Thanks

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