With everything going around in the world considering COVID-19 and related factors, NRIs are in a fix right now considering investment in India. Some are looking for repatriation programs like the Vande Bharat Mission to come back to India while others are trying to manage their jobs and lifestyles both abroad and in India. In all of this, one thing is running constantly which is the doubt revolving around NRI investment in India and the search for the best investment options in India for an NRI is trending currently. In this article, we will explore the 5 best investment options for NRIs in India in present times.
NRI Investment in India: 5 Best Investment Options for NRIs
The government of India is making it easier for NRIs day by day with promoting effortless investment in India by adding multiple opportunities. In the wake of such times, let us explore the 5 best investment options for NRIs in India.
1. NRI Investment in India: NRI Fixed Deposits
NRI Fixed Deposits are the most sought after medium for NRI Investment in India. Recently, NRI Deposits in Kerala touched 2 trillion mark and these are just investments in India made by the NRIs, not the remittances sent to friends and family making NRI Fixed Deposits a very lucrative mode of NRI investment in India. The NRI Fixed Deposits can be opted with the following 3 types of NRI Accounts:
- Non-Resident External (NRE) Account
- Non-Resident Ordinary (NRO) Account
- Foreign Currency Non-Resident (Bank) [FCNR(B)] Account
Let’s understand these accounts in brief:
- Non Resident External (NRE) Fixed Deposit: The NRE Fixed Deposit is used for NRI investment in India by parking the funds that you earn outside India. You can earn an interest up to 7.81% which is tax-free in India and both the principal amount as well as the interest can be repatriated completely. Let’s explore the top Indian banks and see who are providing the highest Fixed Deposit Rates in India for NRI on NRE FDs:
Fixed Deposit Rates in India for NRI: NRE FD
|Banks||NRE FD Interest Rates (Tax-Free)|
|Federal||Up to 5.85%*|
|SBI||Up to 5.40%*|
|Citibank||Up to 4.23%*|
|Bank of Baroda||Up to 5.40%*|
|Canara Bank||Up to 5.50%*|
|Indian Bank||Up to 5.40%*|
|ICICI||Up to 5.50%*|
|HDFC||Up to 6.25%*|
|Indian Overseas Bank||Up to 5.75%*|
|Punjab National Bank||Up to 5.50%*|
|IDBI Bank||Up to 5.80%*|
|Kotak||Up to 5.40%*|
|DCB||Up to 7.35%*|
|Axis Bank||Up to 5.80%*|
|DBS Bank||Up to 5.25%*|
|Union Bank of India||Up to 5.80%*|
|United Bank of India||Up to 6.50%*|
|YES Bank||Up to 7.25%*|
|SBM||Up to 7.50%*|
|IndusInd||Up to 7.81%*|
|RBL||Up to 7.50%*|
|IDFC||Up to 6.90%*|
|Central Bank of India||Up to 5.35%*|
|Deutsche Bank||Up to 7%*|
- Non Resident Ordinary (NRO) Fixed Deposit: The NRO Fixed Deposit is used to maintain the income for an NRI that is generated in India. It can come from any NRI Investment in India such as any property that you have in India that generates income in the form of rent or maybe your pension etc. You can earn upto a 7.30%* interest rate on these accounts. Although, the interest that you earn on the funds is taxable in India at 30% along with surcharge and cess. You can later opt for a Tax Refund while filing your taxes as per your tax slab. Glance through the below mentioned table to check which Income Tax Slab you fall in.
|Income Tax Slab||Tax Rate|
|Up to 2.5 Lakhs||Nil|
|2.5 Lakhs to 5 Lakhs||5%|
|5 Lakhs to 7.5 Lakhs||10%|
|7.5 Lakhs to 10 Lakhs||15%|
|10 Lakhs to 12.5 Lakhs||20%|
|12.5 Lakhs to 15 Lakhs||25%|
|15 Lakhs and above||30%|
- Foreign Currency Non-Resident (Bank) [FCNR(B)] Fixed Deposit: The FCNR (B) Fixed Deposit is a term deposit account in USD, GBP, EUR, JPY, AUD, CAD, SGD, HKD, and others for foreign currency NRI investment in India. The ‘term’ in a term deposit account is a fixed tenure of up to 12 months, 24 months, 36 months, 48 months or 60 months that can be chosen by the NRIs at the time of account opening. You can earn up to 3%* interest on deposits. The interest income is not taxable in India and both the principal amount as well as the interest are completely repatriable.
After opening the NRI Bank Accounts, you can directly opt for a Fixed Deposit online using your mobile phones under the type of account chosen. It’s an easy and convenient method to invest in India. Still confused which FD to opt for? Let’s us stroll through a comparative analysis of these NRI FDs here:
|Factors to consider||Non Resident External (NRE) FD||Non Resident Ordinary (NRO) FD||Foreign Currency Non Resident (FCNR) Deposit|
|Purpose||For income earned outside India||For income earned from India (pension, rent etc.)||Foreign Currency Investment in India|
|Currency||INR||INR||USD, GBP, EUR, JPY, CAD, AUD, SGD, HKD and CHF|
|Tenure of Deposits||1 year to 10 years||7 days to 10 years||1 year to 5 years|
|Interest||Up to 7.81%*||Up to 7.30%*||Up to 3%*|
|Repatriation(transfer of money from Indian bank account to foreign bank account)||Both Principal (money invested initially) and Interest completely repatriable||Up to a maximum of 1 million USD per financial year||Both Principal and Interest completely repatriable|
|Tax Deductions||No tax||Tax on Interest earned (not on principal amount): 30% tax + surcharge + education cess will be deducted at the source of interest earned in India||No tax|
2. NRI Investment in India: NPS (National Pension Scheme)
Minimum-Maximum Age: 18-60 years
Tax Benefits: Up to Rs 1.5 lakh under Sec 80C and Rs 50,000 under Sec 80CCD(1B)
There are no lower or upper limits to the number of contributions per year. The Subscriber is free to manage the frequency and amounts of contributions. There are two types of Accounts under NPS:
- Tier 1: Money in this account is locked until retirement. If you retire before the age of 60 you may take 20% of the investment as cash (tax-free). The remaining 80% is invested into an annuity (an investment that pays you a fixed yearly amount). If retiring after 60, then a minimum of 40% must be annuitized and the balance can be withdrawn lump sum (tax-free).
- Tier 2: Only tier 1 account holders are allowed to open tier 2 accounts. Tier 2 accounts allow you to deposit and withdraw money as you wish. There are many types of investments that you can choose from (Equities, Corporate Bonds, Government Bonds etc.) also referred as (E, C & G) to help you to create an effective investment strategy.
Note: You can withdraw the corpus amount if it is lesser than INR 2 lakhs.
3. NRI Investment in India: Equity
NRIs can invest in Indian equities by investing their money into stocks listed on the National Stock Exchange of India Ltd. (NSE). To be eligible to invest into stocks, NRIs need to be a part of the Portfolio Investment Scheme* (PIS) that will allow them to trade stocks.
*(Portfolio Investment Scheme (PIS): Through this scheme of the Reserve Bank of India, NRIs can invest in Indian Equities and purchase and sell shares and debentures of Indian companies on a recognized stock exchange)
The PIS Accounts can be opened at designated branches of all the major banks in India and through third party providers such as Zerodha to ease out your investments in shares. You either need to visit the designated bank branch in India or send the required documents to that branch in India or the third party providers via courier in order to open the PIS Account.
In order to buy shares, an NRI requires the following things:
1. A PIS Bank Account for that can be opened by applying online at the top banks or at third party providers.
2. Dematerialized Account that holds shares in an electronic form that requires certain documents, which are:
- Proof of Identity (POI) (Eg.: Driving license)
- Proof of Address (POA) (Eg.: Passport)
- Proof of Income (For trading in derivatives) (Eg.: Copy of ITR Acknowledgement)
- Proof of Bank Account (Eg.: Cancelled cheque)
- PAN Card
- 1 to 3 passport size photographs
3. A Trading Account with a registered broker that requires certain documents (for both NRE/NRO accounts), which are:
- Indian address proof (not required in case of NRE)
- Foreign address proof (Mandatory in both cases)
- PIS Letter (issued by RBI)
- PAN card
- Bank Account Statement/ Passbook (Bank proof should indicate NRE/NRO saving a/c bank details)
- If NRE or NRO is not mentioned (pre-printed) on cheque, then a bank verification letter is required
- All the photocopies of the KYC documents should be attested by any of these entities: Notary Public, any Court, magistrate, judge, Local banker, Indian embassy, Consulate General of the country where NRI is residing.
4. NRI Investment in India: Mutual Funds
Mutual Funds investments for NRI is a very sought after tool in India. Mostly, NRIs aren’t aware that they can invest in Indian Mutual Funds and that too without any hassle. NRI Mutual Fund can be one of the best vehicles for investment in India given its flexibility.
What are Mutual Funds?
Suppose there are four friends who want to buy a 12 piece box of chocolate priced at Rs.100/- but all of them have Rs.25/- only. They decide to pool their money and buy the box and then distribute 3 chocolates each based on their contribution. This is a very basic model on which Mutual Funds operate. The box of chocolate here is the fund and chocolates are units. You buy certain units of the fund which has a Net-Asset Value (NAV). The value of this NAV changes with time based on the fund’s growth resulting in your gains.
How can NRI invest in Mutual Funds in India?
There are certain requirements based on the guidelines of FEMA for being an NRI for doing the same which are:
- An NRE/NRO Bank Account: For an NRI, their funds can only be managed through the NRE or NRO Bank Accounts in India. Therefore, it is mandatory for an NRI to carry out investments in Mutual Fund using either of these accounts
- Documentation: There is a set of documents that you must produce in order to invest in mutual funds in India. The following documents are needed for Know your Customer (KYC) of Mutual Funds for NRIs:
- Completely filled and signed KYC Form
- Identity Proof: Passport and PAN Card (Self-Attested)
- Address Proof: Mandatory for NRIs. (Includes both correspondence and overseas address)
- Cancelled Cheque of NRE/NRO Account
Now, NRIs can either invest in mutual funds online through direct transactions from their NRE/NRO Accounts or they can get a Power of Attorney (PoA) to invest money on their behalf. A thing to note here is that in case of a PoA, the signatures of both the NRI Investor and the PoA is required to be present on the KYC Documents
- KYC/Attestation (In-Person Verification): The verification is done for NRIs by a certified entity for the acknowledgement of the fact that the investor has in his/her possession, all the original documents that he/she has mentioned in the KYC Form. It can be done by the following process:
- The IPV can be done seamlessly on a video call (Skype, Appear.in etc.). Earlier, NRIs were required to visit the offices or someone visited the investor to verify the papers at their home or workplace
- You can set a time for the video call with the agencies and carry on with the IPV. Only the following entities have the authorization to carry out IPV:
- KYC registration agency (KRA)
- The AMC (Asset Management Companies in India) Mutual fund agent
- Mutual fund distributor or advisor
- MF’s registrar transfer agent like CAMS or Karvy
- Major agencies have their mobile apps now for instant authentication through biometrics or OTP
- The video call might include questions about the details you have filled in the form and the application can be cancelled if any contradictions occur
NRI Mutual Fund investments are specific, every agency doesn’t allow investments from NRIs. Let’s explore the Mutual Fund Houses accepting payments from NRIs:
Which Indian Fund Houses Accept NRI Investments
Here is a list of Mutual Fund Houses that accept investments from NRIs:
- DHFL Pramerica Mutual Fund
- Birla Sun Life Mutual Fund
- ICICI Prudential Mutual Fund
- HDFC Mutual Fund
- SBI Mutual Fund
- UTI Mutual Fund
- L&T Mutual Fund
- PPFAS Mutual Fund (Parag Parikh Financial Advisory Services)
- Sundaram Mutual Fund
Taxation Rules for NRI Mutual Fund Investments
Taxation is a very crucial aspect in any asset class. The taxation on Mutual Funds is almost the same for NRIs and Residents.
Different types of Mutual Funds are taxed differently for NRIs:
*(Equity Funds: An equity fund is a mutual fund that invests principally in stocks)
*(Debt Funds: A debt fund is a mutual fund that invests in fixed-interest generating securities such as corporate bonds, government securities etc.)
*(Minimum Holding Period: It is a stipulated period defined to differentiate the gains as long term and short term. Assets held for less than minimum holding period will be taxed on short term and assets held for more than the minimum holding period will be taxed on a long term basis)
|Nature of Profits / Income||Equity Funds*||Debt Funds*|
|Minimum Holding period* for Long term capital gains||1 year||3 years|
|Short term capital gains taxation||15% + 4% cess* = 15.60%||As per the tax rate of the investor (30% + 4% cess = 31.20% for investors in the highest tax slab)|
|Long term capital gains taxation||10% + 4% cess = 10.40% (if the long term gain exceeds Rs 1 Lakh)(long term gains up to Rs 1 Lakh is tax-free)||20% with indexation*|
5. NRI Investment in India: Real Estate
Real Estate is one of the top tools for investment in India by NRIs, especially in the present times. It can be a form of retirement abode or an asset to bind the funds in. With the historical trend of immense growth and expansion, Real Estate has carved a separate niche considering NRI investment in India.
What properties can NRIs buy in India?
NRIs can buy both residential and commercial properties in India. However, they can not buy any Agricultural Land, Farm House or Plantation property. They can only be inherited or received as gifts.
How can NRIs invest in Real Estate in India?
NRIs can invest in the real estate properties allowed to them through the following mediums:
1. Self-Transactions using:
- Funds in their NRE/NRO/FCNR (B) accounts in India
- Funds remitted to India from overseas (in own account; can’t pay to the seller directly)
2. Loan Facility (in INR) in India for NRIs; up to 80% of the property value based on individual eligibility of the NRI than can be repaid through:
- Inward Remittance (money transferred into your own account from abroad)
- Funds in their NRE/NRO/FCNR (Bank) accounts in India
- Rent from the purchased property
- Close Relatives crediting the borrower’s loan account (under section 6 of the Companies Act, 1956)
Note: No payments can be made by traveller’s cheque (pre-paid, pre-printed fixed amount cheques for payments across countries) or in foreign currency notes. All payments must be made in India only.
Why invest in Real Estate in India?
NRIs prefer to invest in Real Estate in India because of the following reasons:
- Rental income: A real estate property in India can fetch a very handsome rental income if the property is set in a well established neighborhood. An important point to note here though is that the rent is liable for TDS (Tax Deducted at Source) and the tenant will deduct 31.2% of the rent as tax before sending it to you. In Spite of that, it’s a fair deal and rental income can bring in sizable profits
- Price benefits and Long term Returns: The Real Estate industry in India appreciates at a rate of 19.5% per year (CAGR 2017-18; Source: IBEF). So, the investment value will multiply exponentially with time and it can be easily labelled as a very fruitful investment. Also, The Real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 (Source: IBEF). The investment that you put in today will bring in multifold profits in the longer run
- Retirement Plan: Reverse Mortgage (A type of loan where people over 62 years of age with considerable home equity can borrow money against the value of their home as a lump sum, fixed monthly payment or line of credit.) is gearing up in India. So, NRIs can invest in property and use it as a source of income post their retirement
- Tax Exemption: NRIs, if you buy property on loan in India, you can claim an exemption on the interest you pay for your home loan (section 24). Under section 80C, you can claim an exemption on the repayment of the principal amount. Also, there are ways to save taxes on Capital Gains from selling out the property in India and much more. (For Tax Advisory: write to us at [email protected])
Taxation on Real Estate for NRI
Taxation on Real Estate is a bit complex. It can be further subdivided into rent and capital gains. Along with that, TDS on buying a property is also a very essential instrument that must be deducted and paid to the government authorities.
- TDS while buying property: Deduct TDS as per the table below while buying property in India keeping in mind the associated conditions.
|Property Bought From||Condition||Tax deducted at source|
|Resident||50 Lakhs or above||1% TDS of Purchase Value|
|NRI||No Condition||20% plus surcharge and cess for long term gains and 30% plus surcharge and cess for short-term gains|
- Income from Rent: Rent from property owned by an NRI is subject to a TDS of 30% to be deducted by the tenant. The rent received after the deduction of TDS is added to the total income of the NRI and is applicable for tax according to the Tax Slab of the NRI. NRIs can also choose to pay taxes themselves and file the returns. However, there are certain deductions that must be considered: Municipal Taxes paid, standard deduction of 30% on taxable value, deduction for interest on any loan taken for the property, repayment of principal amount of home loan up to Rs.1,50,000/-.
- Capital Gains Tax for NRI on sale of Property: The minimum holding period for long term capital gains for real estate is 2 years.
|Nature of gains||Tax Liable||Tax Deducted at Source (TDS)|
|Short Term Capital Gains||As per tax slab||30%|
|Long Term Capital Gains||20%||20% (plus surcharge and cess) with indexation|
- Taxation on Multiple Properties: If NRI owns more than one residential property which are self-occupied, then only one of the houses will be treated as self-occupied and all others will be treated as deemed to be let out. In such cases, a notional rent is computed and offered to tax as if the property was rented out
NRI Investment in India: FAQs
A- Yes. NRIs can invest in Indian Stock Market by buying stocks listed on the National Stock Exchange of India Ltd. (NSE). To be eligible to invest into stocks, NRIs need to have a PIS Account under the Portfolio Investment Scheme* (PIS) that will allow them to trade stocks. *(Portfolio Investment Scheme (PIS): Through this scheme of the Reserve Bank of India, NRIs can purchase and sell shares and debentures of Indian companies on a recognized stock exchange)
A- Yes. An NRI can have multiple demat accounts. The usage of these multiple demat accounts can be understood under the concepts of:
1. Repatriation: NRIs must have separate demat accounts for repatriable (NRE) and non-repatriable (NRO) shares which means if you invest through your NRE account, the money you receive after selling the shares/stocks is completely and freely repatriable whereas investments through NRO accounts will have to be initially settled by paying applicable taxes and then they can be repatriated. NRE accounts are used to buy shares (equity) on a repatriable basis and NRO accounts are used to invest in shares (equity and derivatives) on a non-repatriable basis. The NRE/NRO Accounts can be used to invest in the primary market without PIS (Portfolio Investment Scheme) (eg: IPOs, Mutual Funds)
2. Market Variation: In order to invest in the secondary market you need a separate bank account to hold your investment funds that will be linked to the Portfolio Investment Scheme (PIS). This account can not be your regular NRE/NRO account and this account will be linked to a demat account to hold your shares as directed by RBI.
A- No, PIS permission is not required for an NRO (Non-Resident Ordinary) account. Previously, the NRI had to open NRE and NRO accounts under PIS regulated by RBI.
A- Yes. An NRI can invest in property in India but there are exceptions. Though RBI has given general permission to the NRIs to purchase immovable properties in India, the permission does not grant power to acquire any and every property in India. The NRIs are allowed to purchase only residential or commercial property. So NRIs cannot purchase any agricultural land or plantation property.