Although income earned abroad is not taxable in India, NRIs need to pay tax in India on capital gains from shares, mutual funds, NRO deposits, property rentals, etc. But then arises the question if there are any investment alternatives that generate tax-free income? The good news is that there are a few options available for NRI tax-free investment in India. Scroll through the article to know in detail.
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NRI Tax Free Investment Options
Here are the five asset classes for NRI tax-free investment in India:
1. NRE Fixed Deposit (FD) Account
Non-Residential External (NRE) FD Account is a rupee-denominated fixed deposit account that can be opened and maintained by NRIs with earnings originating from the individual’s country of current residence.
- The NRE FD account is freely repatriable, including the principal and the interest amount. This means that you can freely move funds (both, principal and interest amount) from India whenever you want.
- The interest earned on the funds in your NRE FD account is tax-free in India.
- There is a provision for a joint NRE account if both the parties are NRIs.
- If an NRI links the NRE account with an investment & trading account, he/she can easily invest money in Indian investment instruments.
- You can also avail internet and mobile banking services that allow you to manage your money online.
- NRE FD accounts also offer attractive interest rates. The NRE FD rates range from 6% to 8%.
2. FCNR FD Account
One of the common FDs among NRIs is the FCNR (Foreign Currency Non-Resident Bank) account. FCNR is a fixed deposit account that provides NRIs an option to keep their money in one of the accepted foreign currencies in Indian Banks and earn better returns at the same time. There are multiple banks for FCNR deposits in India.
- FCNR accounts are mainly protected against the risks of forex rates i.e., the change in rupee value vis-à-vis the currency in which the account is denominated. This is because the money deposited will be placed in a foreign denomination.
- These deposit accounts are denominated in various major currencies like USD, GBP, AUD, EUR, CAD, JPY and more.
- Interest earned on FCNR account deposits in India is exempted from taxes.
- FCNR account also provides the option of Joint Account Ownership. This means that the accounts can have 2 or more NRIs joint account holders.
- Both interest and principal are repatriable on a free basis to the residential country of the depositor without restrictions.
- You can open an FCNR fixed deposit account for a period between 1 year and 5 years.
- FCNR account holders can avail rupee loans against funds held in the FCNR account. Foreign currency loans outside India are also permitted to the account holders.
3. ELSS Funds
ELSS (Equity Linked Savings Schemes) for NRIs is a type of Mutual Fund which allows you to claim for income tax deduction. You can save up to ₹1.5 lakhs a year in taxes by investing in ELSS according to the Section 80C of the Income Tax Act, 1961. However, if you choose to invest more than ₹ 1.5 lakhs, the excess will not qualify for tax benefits as per the provisions of Section 80C.
- An excellent tax-saving option which also offers high returns.
- Long term capital gains of up to Rs. 1 lakh a year from ELSS mutual funds are exempt from income tax and long-term capital gains above Rs. 1 lakh are taxed at 10%.
- One can also invest through SIP. The SIP facility allows NRIs to invest in small amounts and avail tax benefits along with an opportunity to create wealth.
- Shortest lock-in period in comparison with other tax-saving schemes under section 80C of the Income Tax Act.
4. Managed Farmlands
Agri projects have become popular as an alternative asset class in India in the last few years. The managed farm projects not only allow you to diversify your portfolio but also offer much higher returns than fixed deposits and several bonds. NRIs can invest in managed farmlands through Growpital. It is a tech-based online platform that provides attractive tax-free returns on investment to retail investors, ranging between 10-17%. Here are the top reasons why NRIs should consider Growpital for agri-investment folio.
- By investing in managed farmlands through Growpital, NRIs can earn 10-17% p.a tax-free fixed returns.
- Growpital has a team of agricultural professionals who consider multiple underlying factors like soil paper quality, availability of water, connectivity, etc. to finalize the land for production.
- NRIs can choose from a variety of farm projects under Growpital.
- With Growpital agri-investments, NRIs can add diversification to their portfolio to hedge against inflation and market volatility.
5. Life Insurance
NRI life insurance is a smart investment option. It is the best way to secure one’s and their family’s financial future. NRIs can purchase life insurance policies under the Foreign Exchange Management Act (FEMA). The premiums can be paid in foreign currency through an NRO/NRE/FCNR bank account, or another currency.
- Safeguard your capital reserves and lead a stress-free life through a term insurance plan.
- There are a plethora of insurance companies in India that provide customized plans to meet the diverse needs of NRIs.
- NRIs can build a diversified portfolio.
- In case of the buyer’s death or maturity of the policy, the income earned from life insurance is tax-free in India.
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