With India being one of the most promising emerging markets, non-resident Indians (NRIs) have a keen interest in being part of the Indian growth story.
Here are five questions that NRIs tend to grapple with.
Can NRIs invest in mutual funds?
Yes. NRIs can invest in mutual funds in India. But they must do so in Indian currency. The money should be channelised from an account specially designed for NRIs. But all investors, including NRIs, need to have a permanent account number (PAN).
How must one invest so that the money can be taken out of the country?
Payments can be made by inward remittance through funds held in the Non-Resident (External) Rupee Account (NRE) and the Foreign Currency Non-Resident Account (FCNR). Indian rupee drafts can also be purchased from these two accounts and submitted with an account debit certificate from the bank.
NRE accounts must be maintained in Indian rupees but must be opened with funds remitted from abroad. The account can be in the form of a savings or current account or a recurring or fixed deposit. Money can be transferred out of India and interest on income is free of income tax. FCNR accounts are opened and maintained in specified foreign currency: Dollars (US, Canadian, Australian), Sterling Pound, Japanese Yen and Euro. This account can only be held in the form of a term deposit. Just like the NRE account, interest on income is tax free.
How does on invest on a non-repatriable basis?
NRIs wanting to invest on a non-repatriable basis can do so through a Non-Resident Ordinary Rupee Account (NRO). This is a rupee-denominated account and can be in the form of a savings or current account or a recurring or fixed deposit. This account can be held jointly with an Indian resident. What's interesting about this account is that the interest earned on it is repatriable, net of taxes.
What is the tax impact?
The tax treatment for NRIs is somewhat similar to that for resident Indian citizens. Tax is payable when the units of a fund are sold (capital gain) or dividends earned. In the case of equity funds (those with an equity exposure exceeding 65 per cent), short-term capital gain is taxed at 10 per cent. This is for units sold within a year of being bought. There is no tax on long-term capital gain. For non-equity funds, the long-term capital gain is 10 per cent with indexation and 20 per cent without. The short-term capital gain is added to income and taxed at the relevant income tax slab. Dividends are tax-free in the hands of the investor. But a dividend distribution tax (DDT) is directly levied on a debt fund. The latter will make this payment out of the amount that is set aside for dividends. So in effect, the investor proportionately receives lesser dividend, but tax free. Equity schemes are exempted from DDT.
Can investments be done online?
Brokers like ICICI Direct, India Infoline and Share Khan allow you to buy stocks and mutual funds online. The flexibility of having an online account is the convenient monitoring of the portfolio and the ease of transaction. You need not fill a form or issue a cheque every time an investment has to be made. One just needs to place an order online and the amount gets debited from the linked account. The account opening and annual charges are not very high but are at a premium when compared to the rates offered for domestic investors.
Here are five questions that NRIs tend to grapple with.
Can NRIs invest in mutual funds?
Yes. NRIs can invest in mutual funds in India. But they must do so in Indian currency. The money should be channelised from an account specially designed for NRIs. But all investors, including NRIs, need to have a permanent account number (PAN).
How must one invest so that the money can be taken out of the country?
Payments can be made by inward remittance through funds held in the Non-Resident (External) Rupee Account (NRE) and the Foreign Currency Non-Resident Account (FCNR). Indian rupee drafts can also be purchased from these two accounts and submitted with an account debit certificate from the bank.
NRE accounts must be maintained in Indian rupees but must be opened with funds remitted from abroad. The account can be in the form of a savings or current account or a recurring or fixed deposit. Money can be transferred out of India and interest on income is free of income tax. FCNR accounts are opened and maintained in specified foreign currency: Dollars (US, Canadian, Australian), Sterling Pound, Japanese Yen and Euro. This account can only be held in the form of a term deposit. Just like the NRE account, interest on income is tax free.
How does on invest on a non-repatriable basis?
NRIs wanting to invest on a non-repatriable basis can do so through a Non-Resident Ordinary Rupee Account (NRO). This is a rupee-denominated account and can be in the form of a savings or current account or a recurring or fixed deposit. This account can be held jointly with an Indian resident. What's interesting about this account is that the interest earned on it is repatriable, net of taxes.
What is the tax impact?
The tax treatment for NRIs is somewhat similar to that for resident Indian citizens. Tax is payable when the units of a fund are sold (capital gain) or dividends earned. In the case of equity funds (those with an equity exposure exceeding 65 per cent), short-term capital gain is taxed at 10 per cent. This is for units sold within a year of being bought. There is no tax on long-term capital gain. For non-equity funds, the long-term capital gain is 10 per cent with indexation and 20 per cent without. The short-term capital gain is added to income and taxed at the relevant income tax slab. Dividends are tax-free in the hands of the investor. But a dividend distribution tax (DDT) is directly levied on a debt fund. The latter will make this payment out of the amount that is set aside for dividends. So in effect, the investor proportionately receives lesser dividend, but tax free. Equity schemes are exempted from DDT.
Can investments be done online?
Brokers like ICICI Direct, India Infoline and Share Khan allow you to buy stocks and mutual funds online. The flexibility of having an online account is the convenient monitoring of the portfolio and the ease of transaction. You need not fill a form or issue a cheque every time an investment has to be made. One just needs to place an order online and the amount gets debited from the linked account. The account opening and annual charges are not very high but are at a premium when compared to the rates offered for domestic investors.
