Dec 04, 2012, 03.13 PM | Source: Moneycontrol.com

What NRIs should keep in mind before investing in India

When the talk is of investing in India, first you need to determine your residential status. Do you qualify as an NRI – Non Resident Indian or are you still a Resident Indian?

By Lovaii Navlakhi, MD & Chief Financial Planner, International Money Matters

When the talk is of investing in India, first you need to determine your residential status. Do you qualify as an NRI Non Resident Indian or are you still a Resident Indian?

It is the Income Tax Act that needs to be referred to for this purpose. According to it, an individual is said to be resident in India, if he satisfies at least one of the following basic conditions

  • He is in India during the financial year for a period of 182 days or more
  • He is in India for a period of 60 days or more during the year and 365 days or more during 4 years immediately preceding the year in question
The second condition is not applicable to the following:

  • An Indian citizen who leaves India during the year for the purpose of taking employment outside India or an Indian citizen leaving India during the year as a member of the crew of an Indian ship.
  • An Indian citizen or a person of Indian origin who comes on visit to India during the year (a person is said to be of Indian origin if either he or any of his parents or any of his grandparents was born in undivided India).   
If he satisfies any of the above conditions a. and b., then there is further categorisation of his being an Indian resident into:

  • Resident and ordinarily resident
  • Resident but not ordinarily resident
Resident and ordinarily resident- ROR
If a resident further satisfies the following conditions, he will be a resident and ordinarily resident:

  1. He has been resident in India in at least 2 out of 10 years [according to basic condition noted above] immediately preceeding the relevant year.
  2. He has been in India for a period of 730 days or more during 7 years immediately preceeding the relevant year.
If he doesn’t satisfy one or both of these conditions he is treated as a Resident but Not Ordinarily Resident RBNOR.

If an individual doesn’t satisfy either of the conditionsa. or b. stated in the beginning, then he is a Non-Resident NR and since such an individual that we are talking of is Indian, he or she is a NRI Non Resident Indian.

The next thing you need to consider are the banking requirements. You need to understand that to invest in India you must have a NRO, NRE or a FCNR account with a bank here. The Non-Resident (External) Rupee Account (NRE Account) and Non-Resident Ordinary Account (NRO Account) are denominated in rupees and can be opened either as a savings account or a fixed deposit account. A NRO account allows you to make payments on dues in India and receive rental and other income from your property here, if you own any and it also allows credit of funds from your overseas account. However, funds in this account can be repatriated within a limit of USD 1 million in a year on paying the applicable charges to the banker; plus this limit includes any receipts arising out of sale of property and investments. If you intend to repatriate the income arising from such investments, you need to make that investment from a NRE account. Accrued interest income and balances held in NRE accounts are exempt from income-tax and wealth tax, respectively.The FCNR (foreign currency non-resident) account on the other hand is a foreign currency account and can be opened only as a term (fixed) deposit account.

Since the rupee was depreciating against the Dollar rapidly the last year, the Reserve Bank of India (RBI) in an effort to bring more dollars into the country deregulated the interest rates on NRO savings accounts and term deposits, and NRE term deposits in December 2011. Subsequently, the RBI also freed up interest rates on the FCNR accounts. So now these accounts are an attractive option for investment, where you simply leave your funds in these accounts.

Currently, the interest rates are depending on amount and term7% -9% on NRO and NRE Term Deposits  and on FCNR deposits, about 3%-4% on USD deposits, 3%-4.5% on Euro deposits and 4%-5% on GBP deposits.

However you need to consider the impact of tax:
Interest on the NRO account is taxable with tax deducted at source of 30%. If you live in a country that has a Double Taxation Avoidance Agreement (DTAA) with India, this TDS rate would be lower, but you would need to submit a tax residency certificate to the bank. The DTAA between India and the US lays down a TDS rate of 15% on interest from deposits in India. These deposits may also be taxed in the country of your residence. The US, for instance, taxes global income of its residents and citizens. However, if tax has been deducted at source in India, the investor will get a credit in the US for taxes paid in India.

Interest on the NRE account and FCNR account are tax free in India. But if you are a resident or citizen of the US, tax in levied on this income which will be a part of your global income.

If you are a resident of the Gulf countries, the NRE and FCNR option would be very lucrative for you. For residents of the US, the choice would depend on the tax slab applicable in the US.

So with this you are set to invest seriously in India.

READ MORE ON  NRE, NRI, Tax Act

ADS BY GOOGLE

Ask the Experts

Get your Personal Finance queries answered

  • Q

    Interest rates are going to go down. And all my fixed deposits will be maturing next year. I will have to renew my fixed deposits next year at lower rate of interest. What is the way out?

    A

    Interest rates keep fluctuating due to various micro- and macro- economic factors. There is never an ideal rate of interest. In a high inter...

  • Q

    If I put Rs 2 lakh in PPF, how much tax rebate I will get?

    A

    As per the existing guidelines and rules a person cannot deposit more than 1.5 lacs in one PPF account. However you can deposit money in the...

  • Q

    I want to buy online term life insuance plan. Which is the best one? Should I go for single premium or regular premium policy?

    A

    Single premium term insurance policies don?t make much sense. Why pay such a large amount at one go when you have the option of paying in sm...

  • Q

    I want to invest some money with at least ten years view. I dont want share market risk. Can I invest in NSC? Is there any other investment option?

    A

    NSC or National Savings Certificate is a safe investment scheme offered by the Central Government. It is an ideal option for investors with ...

  • Q

    Is it a good idea to invest in asset allocation funds? if yes, please suggest some good fund to invest money. I am 35 years old and can invest Rs 10000 per month.

    A

    Asset Allocation Funds are for those investors who want to take an exposure into different asset classes but do not wish to create their own...

  • Q

    My CA says that I have to pay tax on interest accrued on my FD of Rs 20 lakh. I have submitted form 15H in all banks. Is it necessary to pay tax in this case?

    A

    In case of interest on fixed deposits which is taxable under the head ?Income from other Sources? a taxpayer has two choices. Either you can...

  • Q

    Please suggest a good investment option of land in South India. I want to buy a land parcel of around 2 acres.

    A

    If you take a look at the South Indian real estate market, Bangalore has emerged as a clear winner. Due to the strong presence of IT/ITeS an...

  • Q

    I want to invest Rs 20000 per month. I have identified Reliance Small Cap Fund and DSPBR Micro cap fund for investment. I can hold to investments for two years. Is it a good idea to invest in these schemes? How much returns I will be getting?

    A

    If you are an aggressive investor, you can consider investing in either of the 2 funds.DSPBR Micro Cap My suggestion is that if you are inve...

  • Q

    I want to save my money for retirment Please suggest a good insurance policy

    A

    For retirement it is advisable to use multiple investment instruments and not just life insurance policies. If you have 15 years or so for r...

  • Q

    IS IT a Good time to invest in GOLD ?

    A

    Currently the outlook for gold is bearish/negative. However if you are planning for a long-term investment in gold it is ideal to invest the...

  • Q

    I have retired from my job in November. I have got Rs 48 lakh from my employers, by way of epf, gratuity and other benefits. Should i invest in senior citizen scheme of LIC? How about pension plans from LIC?

    A

    1. You can invest Post office Senior Citizen Scheme. 2. You also should invest lumpsome in MIP in post office and get monthly interest. 3. K...

  • Q

    I want to save Rs 1 crore for my retirement when i turn 60. Now I am 42 years old and have fixed deposits worth Rs 18 lakh.What should I do to reach Rs 1 cr mark?

    A

    start investing a minimum 5000 per month in mutual fund and increase 10% to 20% every year....

  • Q

    I want to save on my utility bills and fuel expenses.Please suggest a good credit card for me.

    A

    Yes, you will be able to save on Utility bills and fuel expenses through the cash back schemes offered by some of the credit card companies....

  • Q

    Suggest couple of equity mutual funds for me. I am keen to invest Rs 25000 per month for next couple of years. I can remain invested for at least five years?

    A

    Asset Allocation Funds are for those investors who want to take an exposure into different asset classes but do not wish to create their own...

  • Q

    I am a senior citizen.I received interest of Rs .1,70,000/- on FD.I have duly filled 15G form.I have NO other source of income.Have I to pay Income tax on this interest or can it be excempted?

    A

    Sir, please note if you are less than 80 years but more than 60 years of age, your total income upto Rs 3,00,000 is exempt from tax, you are...

  • Q

    Please suggest a good money back policy for me. I am 27 years old and want to accumulate Rs 10lakh over 10 years.

    A

    If you are a fan of traditional money back policies, go in for the LIC New Money Back Policy of 20 or 25 years. I would suggest you go in fo...

  • Q

    I want to buy a life insurance for my brother Please suggest a good policy. He is 19 years old. he should get Rs 5 lakh when he turns 25 years.

    A

    Best to go in for a ULIP in case he is looking to grow the money also. Go in for a ULIP like HDFC Click 2 Invest which is very low on charge...

  • Q

    In 2013, I bought an Endowment policy from LIC. Premium for that is around 35K per year. Now i understand, this was a big mistake and i want to go for a term insurance policy. I have already paid two premiums in 2013 and 2014 and I want to make this policy paid-up. Can i pay one more premium this year and make that endowment policy paid-up ? Or is there any better alternative ? Please suggest.

    A

    Yes, you can convert to a paid-up policy after 3 years premiums have been paid. I would recommend that you surrender the plan and take back ...

  • Q

    Is zero depreciation cover a good option under auto insurance? I have plans to buy honda city in January

    A

    Zero depreciation is a good option to along with the standard car insurance plan. By paying a slightly increased premium you can ensure that...

  • Q

    I am 20 years old,I am getting 17+ % or returns from share in my portfolio consistently for the last 6 months.should i think about a career in stockbroking?

    A

    Its nice to note that your portfolio has been gaining such high returns, however it might be too early to take a call and make stockbroking ...

Explore Moneycontrol

Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.