An Indian residing abroad is generally known as a Non-Resident Indian (NRI). NRI is defined under the Foreign Exchange Management Act, 1999 (FEMA) and the Income Tax Act, 1961.

NRI as per FEMA.

Non-Resident Indian (NRI) means an Indian citizen or a person of Indian origin residing outside India.

Person of Indian Origin (PIO) means a citizen of any country other than Bangladesh or Pakistan,

1. who at any time held Indian Passport, or
2. who or either of whose parents or any of the grandparents was a citizen of India under the Constitution of India or the Indian Citizenship Act, 1955, or
3. who is the spouse of an Indian citizen or a spouse of the person referred to in 1 and 2 above

A person residing outside India means a person who is not residing in India.

As per FEMA, a person resident in India means a person residing in India for more than one hundred and eighty-two days (182 days) during the preceding financial year (April-March) and who has come to or stays in India either for taking up employment, carrying on business or vocation in India or for any other purpose, that would indicate his intention to stay in India for an uncertain period.

In other words, to be treated as ‘a person resident in India’, under FEMA a person has not only to satisfy the condition of the period of stay (being more than 182 days during the preceding financial year) but has also to comply with the condition of the purpose/intention of stay.” FEMA excludes individuals moving out of India for employment or business from the category of Resident. Similarly, it also excludes a person coming as a tourist/visitor from the category of Resident.

NRI under the Income Tax Act, 1961 For Income Tax purposes, a person would be a RESIDENT of India if-

• He/ She is in India for 182 days or more during the financial year. OR
• If he/she is in India for at least 365 days during the 4 years preceding that year AND at least 60 days in that year.

If you do not satisfy the condition laid out above– you will be considered a NON RESIDENT INDIAN.

If you take up a job outside India, the 60 days minimum period will be increased to 182 days.

The difference in NRI definition as per FEMA and Income Tax Act

• For being resident in India, Income Tax Act requires a stay of 182 days in India while FEMA requires a stay of more than 182 days.
• Income Tax Act considers the Current Financial year for the determination of residential status. FEMA considers the preceding financial year.
• Income Tax Act considers the number of stays in India and does not consider the reason for staying in India or visiting abroad but, FEMA does consider the reason of stay or visiting outside India to determine the residential status.
• For Income Tax purposes, you are either resident or non-resident for the entire financial year but in the case of FEMA, the person (leaving India for employment abroad), can be resident for one part of the year and non-resident for another part of the year.

A company incorporated in India including NBFC registered with the Reserve Bank of India cannot accept deposits on a repatriation basis. It can, however, renew the deposits it had accepted following Schedule 6 of Foreign Exchange Management (Deposit) Regulations), 2016, as amended from time to time. Here, the NRI can take the money out of India at any time through the normal banking channel.

Some of the investment avenues in India available to NRIs are as under:

• Fixed Deposit bank accounts
• Mutual Funds
• Real Estates
• Direct Equity
• Bonds and non-convertible Debentures
• Government Securities
• Certificate of Deposits
• National Pension Schemes

Investment in the Fixed Deposits is the most common form of investment by NRI in India. NRI can deposit their funds in fixed deposit and the fund can be kept safe for a predetermined time earning interest at the same time.

The Investment can be done in NRO, NRE and FCNR accounts, details of the accounts have been mentioned earlier in this article.

Yes, NRIs are allowed to invest in Mutual Funds in India as per the Foreign Exchange Management Act (FEMA). Indian Mutual Funds market has diverse products to offer. You may choose from Equity, Debt, or Hybrid funds or even go for SIP. Indian Debt funds have a higher rate of interest.

Mutual funds are large pools of investors’ money managed by qualified and certified professional fund managers. Mutual Funds are operated under strict regulations of the Securities Exchange Board of India (SEBI). Mutual funds are a bit riskier than fixed deposits, but the returns of mutual funds are more than that of fixed deposit accounts.

Mutual funds are not allowed to accept foreign currencies, as such an NRI must have an NRE, NRO, or FCNR account in India to invest in an Indian mutual fund. These accounts are used for making the investment and pay-out process.

Self / Direct NRI can do the transactions through normal banking channels by himself. The application with the required KYC details must indicate that the investment is on a repatriable or non-repatriable basis. KYC documents include the latest photograph, attested copies of PAN card, passport, residence proof (outside India), and bank statement. The bank may require an in-person verification, which you can comply by visiting the Indian Embassy in your resident country or do so when you are in India.

Via Power of Attorney Another mode is that you can authorised someone in India to invest on your behalf. Mutual fund companies allow Power of Attorney (PoA) holders to invest on your behalf and make decisions about your investments. However, signatures of both the NRI investor and PoA should be present on the KYC documents to invest.

There are two main categories of Mutual Funds.

Equity Funds – An equity fund is a mutual fund that invests principally in stocks (Shares). Equity funds are also known as stock funds. To be categorized as Equity funds, more than 65% of the funds must be invested in Equity Funds. Tax rate is 15% tax if the investment is sold within the first year. The investment is tax-free after owning it for more than one year, if the gains are less than INR 100,000/-

Debt Funds – Debt funds are the mutual funds that invest in Debt funds. NRIs pay 30% tax after selling it within 3 years of owning it. You will only pay 20% tax when you sell it after owning it for more than 3 years.

Long-term capital gains on debt fund are taxable at the rate of 20% after indexation. Indexation is a method which involves factoring the rise in inflation from the time of purchase to sale of the units. The short term capital gains tax (SCGT) is taxable as per the income tax slab, the investor fall under.

Balanced Funds - Balanced funds are equity-oriented hybrid funds if at least 65% of the funds is invested in equities. Balanced funds attract equity tax only if it has more than 65% of equity exposure. If the equity exposure is less than 65% or is equally exposed to equity and debt instruments i.e., 50% equity and 50% debt, it will still fall under Debt taxation.

NRI investors are often concerned that there would be double tax on their gains on investment in India as well as in their country of residence. In case India has signed the Double Taxation Avoidance Treaty (DTAA) with the respective country, you can claim tax relief in your country of residence, if you have already paid taxes in India.

A SIP or a systematic investment plan is offered by AMCs (Asset Management Companies). Under SIP, the investors can invest even a small amount of money in various mutual funds across fund houses. Investors can invest a fixed amount daily, weekly, fortnightly, monthly, or quarterly.

As detailed above, gains from SIPs are taxable as per the type of mutual fund you invest in and its holding period. Each SIP, treated as a new investment, attracts taxes on its gains separately.

There are two main categories of Mutual Funds. NRIs can invest their money into stocks on the National Stock Exchange of India Ltd. (NSE) directly. He needs to be part of the Portfolio Investment Scheme (PINS) of the Reserve Bank of India (RBI). This will allow him to trade stocks on the NSE.

1. An NRE/NRO savings account is dedicated only for PIS purposes.
2. A dematerialized account that holds shares in an electronic form.
3. A SEBI trading account with a registered broker.

Other conditions:

• NRIs can’t trade in all Indian stocks. RBI publishes the list of stocks that are eligible for NRI investments.
• He can’t own more than 10% of the paid-up capital.
• Further, NRIs are not allowed to do any intra-day trading or short-selling. They can only trade on a delivery basis.
• Taxes are deducted at source (TDS) by the brokerage.

NRIs can invest in immovable properties. It serves as a good long-term investment with steady growth.

NRIs can purchase both residential and commercial properties but are not allowed to buy agricultural lands, farmhouses, or plantations. However, this rule doesn’t apply if he gets ownership of agricultural land through inheritance or as a gift.

Payment for the acquisition of immovable property has to be made in INR and can be made out of:

Funds are received in India through normal banking channels by way of inward remittance from any place outside India or by debit to the NRE / FCNR(B) / NRO account.

Such payments cannot be made either by traveler’s cheque or by foreign currency notes or by other modes except those specifically mentioned above.