Who is an NRI?
NRIs are citizens of India who have been away from India for more than 182 days in a financial year (1st April to 31st March). NRIs are known as citizens of India, but the difference is they don’t pay tax here.
India’s massive industrial development is attracting Foreign Direct Investment(FDI). Thus NRIs are taking a keen interest in investing in India. Here we at AIF & PMS Experts will guide you to cross all the hassle that comes in the path of NRI investing. Our primary aim is to help our clients serve them with the best market opportunities. And to make investing a happy one.
Investing in India would be an excellent option for NRIs. India’s colossal economy has the caliber to deliver good investment returns. Make your investing pathways easy with https://aifpms.com/about-us/.
Can NRIs Invest In India?
There are many misconceptions related to NRI investing, like NRI investing is complicated, riskier, and many more such assumptions. Let’s ditch all misconceptions and learn the best possible options for NRI investing in India.
Options Available For NRI Investment In India
- Alternative Investment Fund (AIF)
- Portfolio Management Service (PMS)
There are many mistakes that NRIs make while investing in India. A team of experts can help NRIs make judicious use of their hard-earned money.
We at AIF & PMS Experts Pvt. Ltd. have an experienced investment team to help NRIs make wise investment decisions. Contact https://aifpms.com/contact/, Write your queries and make smart, intelligent investment decisions.
Why is investing in India a perfect choice?
India is the largest democracy in the world with a stable government. The stable governing of the country is what acts as a base for the economy to grow. Hence, a stable government is crucial while investing in a country’s market. The Indian market is also governed by two government bodies: the Reserve Bank of India and India’s Securities and Exchange Board. Their vigilant governing makes India a safe and stable market to invest in.
India’s position and ranking globally are increasing in all aspects. India was ranked at 63rd position in 2019 from the 142nd ranking in 2014 in the World Bank’s Ease of Doing Business Ranking 2020. On the Global Competitiveness Index of 2018 to 2019, India ranked 68th globally. India’s Aadhar Scheme is one of the most extensive social security programs globally.
India is one of the fastest-growing economies in the world. The economy of India is predicted to grow by 6.7% in the year 2022. The country’s GDP is increasing at an excellent pace. The country is expected to see a substantial increase in GDP in the financial year. The real GDP growth is supposed to be recorded at 11% and the nominal GDP at 15.4%, the highest growth since independence. The government of India launched the Atmanirbhar Bharat Abhiyan, which, if translated, means Self-reliant India. It is a special economic package of more than $270 billion, which equals 10% of India’s GDP, which gave the Indian economy the backing and a boost necessary to counter the effect of the Covid-19 pandemic.
The Indian market is a perfect choice for NRIs as it offers them various tax benefits. NRIs get a tax benefit under the Double Taxation Avoidance Agreement. Under this agreement, investors avoid double taxation where the investment is made and at the country of residence. India has this agreement with many countries, including France, the USA, Italy, the UK, Canada, etc.
Eligibility criteria for NRIs for investing in AIF and PMS in INDIA
AIF and PMS allow all Indians to invest in the Indian market. Under the regulation of the Securities and Exchange Board of India, Non-resident Indians are also permitted to invest in the market, although certain restrictions are imposed.
These rules are not only on the investment but the investor also. There are a few eligibility criteria set by the Securities and Exchange Board of India that the Non-resident Indians need to qualify.
There are various parameters included in these criteria which are different based on the source of the funds. The source of funds can either be self-investing or backed by angel investors. Self-investing is when the investment corpus is funded by the investor itself. On the other hand, An investor being backed by angel investors is when the investor contributes to a part of the corpus and the rest by the angel investors or sponsors.
Non-resident Indians need to have a minimum corpus of Rupees 20 crores if they are self-investing. However, if they have angel investors backing them, the minimum corpus required is Rupees 10 crores. The sponsor or manager should bear a continuous interest for Rupees 5 crores or less than 2.5% on the initially invested corpus. One thousand investors are the maximum number of investors for each scheme.
It is also mandatory for Non-resident Indians to have a Demat account and a trading account.
It is also essential to have a Non-resident External (NRE) account or a Non-resident Ordinary (NRO) account. A Non-resident External (NRE) account is where an NRI can park their foreign earnings in India. An NRE account is tax-free. At the same time, a Non-resident Ordinary (NRO) account is an account where an NRI can park their profits from or make in India. An NRO account is subject to tax deduction at source (TDS).
Taxation for NRIs
NRIs must pay tax in India on capital gains from shares, mutual funds, term deposits, and rental property if they exceed the basic exemption ceiling, although income received outside of India is not subject to tax there.
In India, taxes play a significant role in the economy of the country. On the goods and services that Indian citizens use, a variety of taxes is applied. The purpose of taxes is to give consumers’ utilization of services and goods a more favorable shade. For the majority of individuals living in India, terminology like income tax, service tax, property tax, and tax deducted at source are well-known and familiar. The subject of how taxation in India affects non-resident Indians, or those of Indian descent who does not dwell in India, thus becomes relevant.
As and when they are subject to the Income Tax Act of 1961, non-resident Indians must likewise pay the necessary taxes. NRI taxation refers to the specifics of what taxes an NRI must pay and how they should be handled. NRI taxation includes, among other things, components of income tax, wealth tax, and property tax.
Income Tax for NRIs
It is crucial to comprehend just how an NRI begins to be responsible for paying taxes in India. According to the Foreign Exchange Management Act’s provisions, a citizen of Indian descent can only be referred to as an NRI if they have maintained a relative duration of absence from India while travelling abroad for a predetermined number of days. By default, an NRI’s foreign income is not subject to tax in India. Nonetheless, an NRI would need to submit a tax return if their income in India from things like capital gains from investments in mutual funds, shares, rental property, and term deposits exceeded the basic exemption amount as outlined in the Income Tax Act.
The interest generated on capital gains from term deposits, shares, and mutual funds is taxed at the highest rate under the taxation imposed on the income of NRIs from sources headquartered in India. That usually eliminates the requirement for filing any tax returns. On the other hand, it is also possible that the entire TDS surpasses the NRI’s bare minimum tax due. As a result, submitting tax returns is the sole way to request a tax refund.
Taxation Rules for NRIs
Compared to the rules that are applicable to resident Indians, the tax laws in India for NRIs differ significantly. The following are some crucial aspects to remember:
- NRI income tax brackets are determined only by income, without consideration of a person’s gender, age, or any other factor.
- TDS is applied to all NRI income, regardless of any threshold amount.
- On investment income, only certain circumstances allow for nominal deductions.
- If the income is covered by provisions under Section 115G of the Income Tax Act, NRIs often are not required to file taxes.
The capital gains are regarded as short-term capital gains if the investment in equity shares or mutual funds is kept for less than a year. Such short-term capital gains are subject to TDS at the same rates and are taxed at 15%. If not, investments held for more than a year would be considered long-term capital gains and will be subject to a 10% tax on long-term capital gains over Rs 1 lakh.
Moreover, any long-term capital gains will be reduced by TDS at 10%. The investment in debt mutual funds will be deemed a short-term capital gain and liable to tax at the standard tax slab rates if it is held for less than 36 months. Short-term capital gains on debt mutual funds, however, will be subject to a 30% TDS deduction. If the investments are retained for a period of time longer than 36 months, both the TDS and the investments will be subject to a 20% long-term capital gain tax.
Gains on listed equity shares or units of equities-oriented mutual funds are subject to capital gains tax. Long-term and short-term capital gains are the two categories for the tax liability on capital gains on listed equity shares or units of equities-oriented mutual funds. The capital gains are regarded as short-term capital gains if the investment in equity shares or mutual funds is kept for less than a year. Such short-term capital gains are subject to TDS at the same rates and are taxed at 15%. If not, investments held for more than a year would be considered long-term capital gains and will be subject to a 10% tax on long-term capital gains over Rs 1 lakh. Moreover, any long-term capital gains will be reduced by TDS at 10%.
Note: We are not experts in taxation, please check with your chartered account before filing your returns. These are best practiced followed by many investors.