(Image source: Shutterstock)
Over the past few decades, Non-Resident Indians or NRIs have been an important source of direct cash inflow in India. Moreover, the depreciating Indian Rupee means that NRIs can avail better returns from their investments. Therefore, more and more NRIs are attracted towards putting their funds in India. As a result, the government too has simplified the rules and streamlined regulations to encourage NRI Investments. While risk appetite and savings determine the scope of investment, here are some additional aspects that you need to know about before you invest in India as an NRI.
- Non-Resident Indian or NRI – Meaning
As per Foreign Exchange Management Act (FEMA), an individual is an Indian Resident if he stays in the country for 183 days or more during the preceding financial year (from 1st April to 31st March.) However, if this condition is not fulfilled, i.e. they reside in India for a period less than 183 days, he or she shall be considered as a Non-Resident.
Moreover, the Income Tax act 1961, identifies whether an individual is a Resident of India only if:
- He or she has stayed for at least 182 days in India in the existing financial year, or
- He or she has stayed in India for at least 60 days in the preceding fiscal year and at least 365 days in the preceding four years before the previous fiscal year
Therefore, if you satisfy any one of the above conditions, you are considered as an Ordinary Resident. If neither condition is met, you are eligible to be recognised as a Non-Resident Indian.
- Investment Goals
Once you have established that you are an NRI, the next step would be to decide your investment goals, primarily how to invest your money in India. Therefore, you must have a clear approach towards your financial goals and whether the investment is to:
- Build a retirement corpus to have financial security in the future
- Utilise your savings to create wealth
- Flow the money back to your loved ones in your own country
- Create financial assets in your home country
Overall, there are several opportunities available for NRIs to convert their savings in foreign currency into assets and long-term investments in India.
- Investing into Bank Fixed Deposits
For NRIs, opening a fixed deposit account in a bank authorised to handle foreign exchange, is the preferable mode of investment in India. This is the most common and one of the favourite method of investing by NRIs. Being an NRI, you can open a Fixed deposit account in an Indian bank authorised to deal in foreign exchange. Moreover, being an NRI, you can open a term deposit through three different types of accounts in India, mainly NRE, NRO and FCNR accounts. Banks too, provide attractive and a higher rate of interest on NRI Fixed Deposits. Here is a breakdown of the three account types that you can open as an NRI:
NRE or Non-Resident External Accounts
These accounts can be in the form of savings, recurring, current, or fixed deposits. Furthermore, you need to have an NRE account before you can apply for an NRI deposit. Overall, NRE Deposits can earn interest from 7 to 9 percent per annum, while the principal and accrued interest earned is tax exempted. Moreover, both principal and interest earned can be easily repatriated anytime.
NRO or Non-Resident Ordinary Accounts
These accounts give NRIs the flexibility to manage their income in the form of rent, pension or dividend received in India. However, NRO accounts offer limited repatriation per year, currently capped at $1 million. Also, NRO Fixed deposits are taxable as per Indian laws at approximately 30 percent, and only the accrued interest can be repatriated.
FCNR or Foreign Currency Non-Resident
In case you wish to maintain a bank account in foreign currency, you have the option to opt for an FCNR Fixed Deposit. These accounts can also help you avoid the fluctuations in the exchange rate. Also, you would be entitled to receive fully repatriable and tax-free interest on your investment.
- Buying Term Insurance
Both Indian residents and NRIs (Non-Resident Indians) are eligible to purchase term insurance in India. Therefore, if you are looking to buy a term plan, you can go online to compare various options from reputable insurers, before making your decision. Insurers like Max Life Insurance offer features such as critical illness cover, flexibility to choose death benefit payout, availability of riders, limited premium payment term, increasing life cover and so forth. Considering these features is crucial while buying a term plan.
That said, in case of any eventuality, the sum assured is paid out to your nominee in their NRE account. Also, if you miss out on paying the premium on the due date, you don’t have to worry about the policy getting lapsed. Instead, you have a grace period of 15 to 30 days to make the payment.
In short, NRIs can choose to invest in their home country. Whether its mutual funds, life insurance, pension plans or term insurance for NRI, you can invest in any long-term investment instrument to create wealth while availing tax benefits on your investment. While the process may have its fair share of hassles initially, the return on investment, in the long run, would be worth it.