Indian citizens who once actively invested in Indian markets lose this opportunity once they move abroad due to work or other commitments. These Indian citizens are called Non-Resident Indians (NRIs). Incidentally, they too can invest in India, subject to compliance with certain conditions.
Technically speaking, NRIs are either Citizens of India or Persons of Indian Origin (PIO), and they do not meet the residential status clauses under the Income Tax Act 1961.
Deepashree Shetty, Associate Partner, Tax and Regulatory Services, BDO India, the Indian subsidiary of UK accounting, tax and business advisory firm, BDO, says that an individual cannot use a resident account to transact in India after obtaining an NRI status.
âTherefore, the account should be renamed to an NRE/NRO account. Additionally, it is relevant to keep ‘know your customer’ (KYC) regulations up to date for using the stock/mutual fund account for trading,â adds Shetty.
Essentially, once you become an NRI, your old accounts opened in India cannot be used for any purpose, and if you are using that account to invest in mutual funds and stocks, you must either close the account or update KYC details. .
What are your investment options in India after becoming an NRI?
Pankaj Shrestha, Head of Investment Advisory Division, Prabhudas Lilladher, a Mumbai-based brokerage firm, says there are different ways for an NRI to invest in India.
Direct involvement: The Portfolio Investment Program (PIS) of the Reserve Bank of India (RBI) allows NRIs to invest directly through a designated trading and deposit account with a stockbroker and a designated bank account called a Non-Resident External (NRE) or Non-Resident Ordinary (NRO) (PIS) Account.
According to Tapati Ghose, Partner, Deloitte India, an NRI must hold a STOVE card to open a PIS compatible account, which can be an NRE or NRO account. NRE is a non-resident external account, and its funds can be entirely repatriated abroad.
âFunds available in an NRO account can be repatriated overseas subject to limits. If an NRI has an NRO savings bank account in India, the Indian funds can be used for making other investments in stock markets Indians,â Ghose added.
NRIs can also invest in initial public offerings (IPOs) using the same NRE or NRO account. They can also invest in portfolio management service (PMS) programs, but the minimum ticket size for the PMS is Rs 50 lakh. In addition, investments in PMS are made in the name of the account holder and are held in their own name. dismantle Account.
Prashant Joshi, Managing Director and Head of National Distribution, and Head of Consumer Banking Group, Development Bank of Singapore (DBS) India, says NRIs also have the option of delegating their investment decisions to another person by signing and giving their power of attorney letter to facilitate transactions in India.
“It’s ideal if clients have someone they can trust to protect and monitor their investments,” adds Joshi.
Mutual fund : NRIs can also invest in Indian mutual funds, but they will have to comply with all regulatory requirements. There are certain restrictions imposed by some Asset Management Companies (AMCs) with respect to NRIs based in the United States and Canada.
When opening an NRI investment account, all necessary details such as passport, proof of address, self-attested copy of tax identification number (PAN), FATCA declaration (compliance with federal law American) and other required documents, will be required.
To conduct the In Person Verification (IPV), NRIs can also go to the Indian Embassy in their country of residence and complete the process.
âTo start investing in mutual funds in India, NRIs must have an NRE/NRO savings account and be KYC compliant,â adds Joshi.
Alternative High Net Worth Investments: According to Shrestha, an NRI can invest in stocks through Alternative Investment Funds (AIF), which is a managed account.
However, for AIF investments, the minimum ticket size is Rs 1 crore, and unlike PMS, investments in AIF are made using a pool account. It is therefore not necessary to open a separate deposit account.
A few things to know about NRI investing
Investment limits: There is no limit on the maximum investment an NRI can make in mutual funds. But there is a limit to the maximum purchase of shares and sector investment limits.
Repatriation of products: According to Shetty, an NRI can repatriate its proceeds from the sale of offshore investments, subject to paying required taxes and meeting certain conditions.
âAdditionally, it should be noted that a CA certificate (Form 15CB) must be obtained for overseas remittances,â Shetty says.
Taxation: An NRE account stores funds earned outside India, and an NRO account stores funds earned in India. Under the Income Tax Act 1961, NRE accounts are tax exempt, while NRO accounts are not.
The same equity and debt taxation laws that apply to Indian residents apply here too, but as an NRI is not a resident of India, a Double Taxation Treaty Agreement (DTAA ) must also be considered so that the NRI does not end up paying double taxation in two countries for the same gain.
In short, an NRI must have a valid Indian PAN card, NRE or NRO bank account, comply with FATCA and fulfill their KYC obligations, visit the Indian Embassy for IPV verification, or perform automatic transactions in the investment account, or appoint someone signing the POA document, and check
DTAA undertakes to pay taxes (through the NRO account since proceeds from the NRE account are not taxable), if it wishes to invest in Indian stocks or debt securities.