Procedure for NRI to invest in India
A Non-resident Indian (NRI) is an Indian citizen who has spent less than 183 days (about 6 months) of the fiscal year in India. The Financial year starts from April 1st to March 31st in the succeeding year. This means you had to be outside India between April 1st a year until March 31st of next year for more than 182 days (about 6 months). NRI`s are still citizens of India, but they do not pay taxes in India.
Indians living outside India in large numbers like in the Middle East nations, the United States, the United Kingdom, Canada, Australia, etc. NRIs have a vast wealth reserve which contributes considerably to investment in India. Indians migrate to other countries for better job opportunities or more considerable money. Most of these NRIs even eventually harbor a dream of returning to their home someday. NRIs have dependents in India and want to support them. Investment in Mutual funds is a critical way to create wealth in India efficiently and systematically.
Non-residence, Indians, have various special privileges to invest in India. NRIs have been given special rights by providing them with special NRI bank accounts like NRE accounts, NRO accounts, and FCNR accounts. In the past few years, NRIs have invested in multiple asset classes like mutual funds, real estate, equity market, etc. Currently, NRIs are not allowed to invest in sovereign gold bonds, but mutual funds will enable them to invest in many asset options like equity funds, liquid funds, gold ETFs, Debt ETFs, etc.
Procedure to invest in India
Financial management companies in India are not allowed to accept investments in foreign currencies. The first step in investing in Indian mutual funds is to open a Non-resident ordinary account, a Non-resident external account, or a Foreign Currency Non-Resident (FCNR) Account with an Indian bank.
NRIs can invest by any of the methods below
Self/Direct investment
Non-residence, Indian mutual fund application with the KYC details should show that the investment is non-repatriable or repatriable. KYC documents include:
- The latest passport-size photograph.
- Self-attested copies of PAN card.
- Passport.
- Residence proof (outside India).
- Bank statements
The bank requires an in-person verification, which an NRI must do by visiting the Indian Embassy in your resident country.
Power of Attorney
Power of Attorney is also a popular method of investment. In which someone else invests on your behalf. Financial Management Companies allow the power of attorney (POA) holders to invest on your behalf and make investment decisions. However, the signatures of both the NRI investor and the Power of Attorney holder must be present on the KYC documents if an NRI wants to invest in mutual funds in India.
Online brokerage
Most brokers offer the facility to NRIs to trade from their resident country after completion of the KYC procedure and the required compliances are fulfilled.
Mutual fund regulations for NRIs
“KYC for Non-resident Indians”
To complete the KYC process, NRI must give a copy of their passport – relevant pages with their name, date of birth, photos, and address. Submitting the current residential proof is necessary, whether the address is permanent or temporary. Some fund Institutes may insist on in-person verification.
“Foreign Inward Remittance Certificate”
If NRIs have made the payment via a cheque or a demand draft, they must attach a foreign inward remittance certificate (FIRC). If that is not possible, then a letter from the bank would also be accepted to confirm the source of funds.
“Redemption”
The Financial management companies will credit the (investment + gains) when NRIs redeem their mutual fund units to their bank account after deducting applicable taxes if any.
Some banks are allowed to credit the redemption amount directly to the NRE/NRO account. If NRIs have opted for a non-repatriable investment, they can only credit the proceeds to an NRO account.
“How are NRI mutual fund investments tax”?
NRI investors worry that they must pay double tax if they invest in India. It could be possible, but not it`s certainly not the case if India has signed the Double Taxation Avoidance Agreement (DTAA) with the country of your residence.
The income from equity mutual funds is taxable based on their holding period. Short-term capital gains on equity-oriented funds are taxed at the rate of 15% and Long-Term Capital Gains of more than Rs 1 lakh a year are taxable at the rate of 10% without the indexation benefit.
If NRI invests in debt-oriented funds, short-term capital gains are taxable per their income tax bracket. Holding the fund for more than 3 years will result in a 20% tax on the long-term capital gains with indexation benefit. IF NRI has a long-term capital gain on un-listed mutual funds taxed 10% without the indexation benefit.
“Points to remember when investing in India”
- A non-resident Indian`s investment carries the right of repatriation of the amount invested and earned only until you are still an NRI.
- The compliance requirements in the United States of America and Canada are more stringent than in other nations. According to Foreign Account Tax Compliance Act guidelines, All Finance management institutions must share the details of financial transactions involving a Foreigner with the International Government
- Non-resident Indians living in any of the countries that have signed the Common Reporting Standard. CRS is a global reporting system to combat tax evasion
- NRIs can choose to invest in their home country. The process may have some first hassles. However, overall, the return on investment would be worth it.
- NRIs living in the US and Canada. currently have only eight fund houses that accept mutual fund investments from NRIs. So, there is certainly no reason for you to be left out of investing in one of the fastest-growing economies.
