Citizenship of people matters when it comes to availing different kinds of benefits offered by the respective Governments. This practice is prevalent in ever country around the globe. People who belong to one nation travel to another for earning money to support their sustenance. Many reside in a different country away from their home country for reasons other than earning money. Irrespective of the reasons, there are certain things that Indians residing outside India or who have returned to India after a foreign stint must keep in mind. Let us look at the same in a detailed manner.
Things to keep in mind by NRI while investing
Investment in India by NRI, per se, does not differ in many ways from investment by resident Indians. There are certain key aspects that need to be kept in mind by NRI’s to understand the trivial difference in the taxation area mainly.
It is important to understand if a person will be considered non-resident Indian (NRI) before venturing further into his financial status in the eyes of the Government. If a person satisfies the following conditions, he will be deemed to be Non Resident Indian (NRI)
• If a person has been in the country for more than 182 days during the Financial year period between April of the previous year and March of the current year
• If a person has been in the country for more than 60 days during the financial year period between April of the previous year and March of the current year provided he has been in the country for 365 days totally during the previous 4 years of time.
When a person is declared as a Resident Indian, he will further be classified into two categories namely ordinarily resident of India and Not ordinarily Resident of India.
To be considered as an Ordinarily Resident of India one should have been
• Residing in India for a minimum of 2 years out of the 10 years that precedes the current Fiscal year period of April of last year to March of this year (or)
• Residing in India for 730 days out of the 7 years that precedes the current Fiscal year period of April of last year to March of this year
India is the best investment decision in the World
Major decisions being taken across the globe by many countries have created a fear it the minds of Indians living abroad. Job related insecure feelings and strong financial options available in the Indian market have made many Indians abroad think of investing more in India. The financial surge of India is better than all other Asian nations making it a financial haven among the other countries. Let us look at the investment options available for NRI’s who decide to invest in India.
Direct Equity – Direct Equity which does not impose any cap for investment is one of the best options for NRI’s to invest. It is important that NRI’s who invest in Direct Equity take into consideration the risk factors involved and the return on their investment before venturing in to the same.
Mutual Funds – Mutual Funds is one of the safest means to invest for NRI’s who decide to invest their hard earned money abroad. Check for the acceptance rules of the Mutual Fund companies before investing in the same since some Companies may have restrictions pertaining to investment from NRI’s in USA and Canada
Real Estate – Real Estate is one of the profitable investments a NRI can make in India. NRI who wants to invest in Real Estate in India can avail Home Loan in India much against the myth that they are not eligible for.
NRI Taxation pattern
The first and foremost thing to understand about the taxation structure is as follows:
• If the residential status of NRI is Resident and Ordinarily Resident (ROR) both income earned from India and abroad are taxable.
• If the residential status is NRI is Non Resident Indian only income earned from India taxable and income earned from abroad is not taxable.
Indian income encompasses all earnings from within India and growing through investments in India. Foreign Income means all those earnings accrued and accumulating outside India.
Taxability – Dividends
Dividends that are earned Mutual Funds which have more than 65% is invested in equities in the form of Assets are tax free for NRI’s. Debt oriented dividends where less than 65% is invested in equities in the form of Assets are also tax free for NRI’s. However, dividends NRI’s receive from companies abroad are fully taxable.
Taxability – Capital Gains
Mutual Fund units held for a period that is less than 12 months is considered as Short term capital asset. For the purpose of clarity, capital gains is divided into two categories namely short term capital gains and long term capital gains.
Equity oriented Mutual Funds sold by the investors within one year from the date of acquisition of the same is considered as short term capital gain. Taxation on individuals depends on the Income Tax slab that the individual investor falls on. When the NRI investors hold the Equity oriented Mutual Funds and redeem after a year it is completely tax free.
One of the important factors taken into account is the type of Bank Account a NRI uses to make his investments from. The source of the money in the concerned Bank Account from where investments are made might be earned from India or abroad. This decides whether the type of Account is Non Resident External) NRE) or Non Resident Ordinary (NRO). NRE Account is helpful in converting the foreign currency into Indian rupees where as a NRO Account is used predominantly for converting Indian Rupees into a foreign currency.
Ensure you keep yourself abreast of all developments happening in the finance arena from time to time. Updated knowledge about the benefits and limitations enables you be cautious about your investments. This will also help you to invest in a prudent manner at all points of time safeguarding your interests on the long run.