Things an NRI should consider while investing in India
If you are a non resident Indian (NRI) and you are looking to invest in Indian market, then there are a handful of things that you need to know before investing. Considering the downward journey of most of the developed economies in the past few years and the fact that Indian economy is en route to stability despite being marred by high inflation and interest rates, India emerges as an investment destination. India has managed to remain stable compared to other emerging economies and it is advisable that you can opt to invest more in your home country than the country where you work or staying at present.
Types of accounts
Before making any investments, you need to know the type of accounts you would be investing from. Being an NRI, ask yourself few questions before deciding upon the type of accounts – Does the fund in the account comprise of your salary? In which currency do you want to hold your account?
There are two types of NRI accounts:
(1) NRE account: In NRE account, your funds in foreign currency are converted into Indian rupees, at the rate prevailing at the time of transferring the funds from your account. The funds in NRE account are freely repatriated.
(2) NRO account: If you want to transfer Indian earnings through an account, then NRO account is suitable for you. You can deposit foreign currency in the account, too. The interest earned is subject to tax deduction at source at the rate of 30%. You cannot, however, repatriate funds in NRO account to abroad.
Assess each NRI investment avenue
First, you need to make up your mind as to where to make the investment. Investment decisions are not something which you impulsively take. Weigh each and every investment options before making the investment.
You can make direct investment into equities. Before investing into equities consider time horizon of investment and expected return as compared to risks being taken. Before investing in mutual funds, be sure to know all the fund house rules. Real estate can be a good choice for your investment as high price appreciation on properties in major cities is an undoubted possibility.
Taxation
Regarding taxation, you need to know all the different rules pertaining to different sources of income. For any income that is received in or arises or accrues in India is taxable for an NRI. However, any income that is received in or arises or accrues outside India is not taxable.
In case of dividends declared by equity oriented funds, i.e. of the mutual funds you are investing, more than 65% of assets are invested in equities, then being an NRI investor, your income is not taxed. Similarly, dividends declared by debt-ridden mutual funds (where less than 65% assets are invested in equities) are also tax-free.
Any mutual funds unit, if held for less than a year, is called a short term capital asset. When you sell units in equity oriented mutual fund are sold (redeemed) within one year of being held, then you incur either short term gains or loss. The short term gains are taxed at 15% on gain. However, when you sell off debt ridden mutual fund within a year, then tax is levied under slab rules for individuals.
When units in equity oriented mutual fund are sold off after a duration of more than a year, then gain on such units redemption is tax free. In case you sell off debt ridden mutual funds after being held for more than a year, gains are taxable as long term capital gains.
