NRI Investment Options:-
Direct Equity
Foreign Institutional Investors (FIIs), Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) are allowed to invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS). Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through the stock exchanges in India.
The ceiling for overall investment for FIIs is 24% of the paid up capital of the Indian company and 10% for NRIs/PIOs. The limit is 20% of the paid up capital in the case of public sector banks, including the State Bank of India.
The ceiling of 24% for FII investment can be raised up to sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect. And the ceiling of 10% for NRIs/PIOs can be raised to 24% subject to the approval of the general body of the company passing a resolution to that effect. The ceiling for FIIs is independent of the ceiling of 10/24 per cent for NRIs/PIOs.
The investment made on repatriation basis by any single NRI/PIO in the equity shares and convertible debentures not exceeding five per cent of the paid up equity capital of the company or five per cent of the total paid up value of each series of convertible debentures issued by the company.
The Reserve Bank of India monitors the ceilings on FII/NRI/PIO investments in Indian companies on a daily basis. For effective monitoring of foreign investment ceiling limits, the Reserve Bank has fixed cut-off points that are two percentage points lower than the actual ceilings. Whenever any of the above categories reaches 2% lower than actual ceiling, RBI cautions all designated bank branches so as not to purchase any more equity shares of the respective company on behalf of FIIs/NRIs/PIOs without prior approval of the Reserve Bank and once it comes to the overall ceiling it will come under the ban list so none of the designated bank branches can purchase on behalf of FIIs/NRIs/PIOs.
Long term capital gain out of investment in direct equity is tax free in India provided STT is paid and it is executed at one of Stock Exchanges in India. Short term capital gain out of investment in direct equity is chargeable to tax at the rate of 15%.
Mutual Funds
No special approval is required to invest in Mutual Funds. NRIs/FIIs have been granted a general permission by RBI [Schedule 5 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000] for investing in/redeeming units of the schemes subject to conditions set out in the aforesaid regulations.
To invest on a repatriable basis, NRI investor must have an NRE or FCNR Bank Account in India. The Reserve Bank of India (RBI) has granted a general permission to Mutual Funds to offer mutual fund schemes on repatriation basis, subject to the following conditions :
The amount representing investment should be received by inward remittance through normal banking channels, or by debit to an NRE / FCNR account of the non-resident investor.
The net amount representing the dividend / interest and maturity proceeds of units may be remitted through normal banking channels or credited to NRE / FCNR account of the investor, as desired by him subject to payment of applicable tax.
Tax Treatment:-
- Dividend from Mutual fund specified under section 10 (23D) is exempt from income tax and there is no TDS since Mutual Funds pay Dividend Distribution Tax
- Long term capital gain is exempt from tax where STT is paid
- Short term capital gain is chargeable to tax
- Indexation benefit available to NRIs
- Units issued to investors (including NRIs) etc. will not be treated as assets under Wealth-Tax Act, 1957.
Real Estate
- NRI’s can buy real estate property in India without any approval
- NRIs cannot buy agricultural land or a farm house
- The payment for acquiring property should come only from NRO/NRE/FCNR account, payment cannot be made in foreign currency.
- NRI’s generally invest in real estate to take advantage of capital appreciation. They invest in project-launch stage and within 3 years they book profits.
- NRI’s cannot take away profit to their residing country. If payment for property is made using FCNR account, then money equal to paid amount from FCNR can be repatriated.
- If payment is made through NRE account then case is different. Suppose an NRI had $70,000 in NRE account. The NRI paid $60,000 (in equivalent Indian Rupee) to buy a real estate property. After that he maintained $10,000 in NRE account till sale of property. He sold property after 3 years for $1000,000. After the sale, NRI can repatriate only $10,000 (balance) + $60,000 (paid earlier).
- NRI can repatriate full amount subjected to limit of $1 million for transaction done through NRO account
- Foreign national of non Indian origin resident outside India shall not acquire/transfer any immovable property in India other than on lease not exceeding five years, without prior approval of Reserve Bank of India.
- No payment of purchase price for acquisition of immovable property shall be made either by traveller’s cheque or by foreign currency notes
- NRI may acquire any immovable property in India other than agricultural land / farm house plantation property, by way of gift from a person resident in India or from a person resident outside India who is a citizen of India or from a person of Indian origin resident outside India
- NRI may acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations or from a person resident in India
- NRI may transfer any immovable property in India to a person resident in India
- NRI may transfer any immovable property in India to a person resident in India
- In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.
National Pension Scheme (NPS)
- NRIs can invest in NPS without any restrictions.
- It’s the contributory pension scheme and regulated by Regulated by PFRDA (Pension Fund Regulatory and Development Authority)
- Valid age-group lies between 18 years to 60 years and for Individuals only
- Citizenship of India is essential
- Giving-up citizenship compels for closure of this a/c
- Flexibility in investment options
- Tax benefits under Section 80C
- Investment limit for 1 yr: Minimum is INR 6,000
Bonds
- Long-term investment
- These are redeemable
- Fixed rate of interest
- Tier-1 capital’s banks are issuer
- Lock principal amount for some time
- Various type of Bonds available to invest:
- PSU Bonds, Corporate Bonds, NCDs, Government Bonds, Treasury Bonds, Infrastructure Bonds etc.
- Taxable unless it is tax free
Fixed Deposits
- Most preferred source of investment by NRIs
- NRE fixed deposit or an FCNR account is preferable as interest is high and it is tax free in India.
- Interest earned on NRO fixed deposit is taxable and not repatriable.
- NRIs can invest in Company Fixed Deposits provided Company confirms the investment limit from RBI before accepting the funds.
