Rules to Consider for NRI Investment in India

As the name depicts, the government route requires the prior approval of the Government of India or the Ministry of Finance, or the Foreign Investment promotion board.

Investment Exclusions for NRIs

Listed below are the activities that are excluded for NRI investment:

• Asset Reconstruction Companies
• Tea Sector
• Development of Integrated Township
• Operation and Establishment of Satellite
• Courier Services
• Postal Services
• Broadcasting 
• Print Media
• Atomic Minerals
• Defence and Strategic Industries
• Investing companies in the Infrastructure and Services Sector
• Petroleum Refining, Natural Gas, LNG Pipelines
• Lottery Business
• Atomic Energy
• Gambling and Betting 
• Retail Trading 
• Housing and Real Estate Business
• Agriculture and Plantations

Rules for NRI Investment in the Real Estate Sector

Non-resident Indians can buy any immovable property in India other than agricultural land or a plantation. However, NRIs should pay out of the funds earned in India through normal banking channels or a non-resident account maintained in compliance with FEMA. 

The payments made in any other mode are not permitted. Accordingly, travellers’ cheques or any foreign currency notes are not acceptable.

For inherited farmhouse or agricultural land or plantation, NRIs should transfer it to an Indian citizen permanently residing in India. Property other than plantation or agricultural land can be sold to a person residing outside India who is an Indian citizen, a Person of Indian Origin (PIO) residing outside India, or a person resident in India. 

The property can be transferred in the form of a gift to an NRI or PIO or a person resident in India and/or sold to the person resident in India. 

The regulations further prescribe that no citizen of Bangladesh, China, Iran, Afghanistan, Pakistan, Nepal, Bhutan, or Sri Lanka is allowed to buy any immovable property in India. However, they can lease for five years with the prior permission of the Reserve Bank of India.

What is a Portfolio Investment Scheme (PIS)?

The Government of India has allowed the Non-Resident Indians and the Persons of Indian Origin to invest in the secondary capital market in India. Shares of Indian companies can be acquired through the stock exchanges in India via the PIS account.

In this context, the following documents are required: 

• PIS permission letter
• Copy of passport and visa
• Bank account proof
• Proof of Address – driving license, foreign passport, PIO/OCI Card
• Local address along with proof for communication

NRIs should make delivery-based transactions, avoid trading in banned and caution scripts, maintain a PIS account with only one bank, and purchase not more than 5% of the company's paid-up capital.

Which Bank Accounts Are Permitted? 

As a Non-Resident Indian, you cannot hold a savings bank account. However, you can open one of the following types of accounts:

• Non-Resident Ordinary Rupee Account (NRO): This account is maintained to receive inward remittances from outside India, which can then not be repatriated to another country.   
• Non-Resident External Rupee Account (NRE): This account is exempt from taxation in India. Money can be transferred from outside India as well as sent back. 
• Foreign Currency Non-Resident Account (FCNR): The funds hereby are completely repatriable. Any foreign currency can be deposited.      

Investments Modes in Mutual Funds

Following two alternatives are provided to invest in mutual funds:

• Transactions executed through normal banking channels. This case requires completion of KYC norms, address proofs and in-person verification.
• Through Power of Attorney, you can authorize someone to make decisions and invest on your behalf. 

What is OCB (Overseas Corporate Body)?

Overseas Corporate Body is a company, partnership fund, overseas trust, society that the Non-Resident Indians own. They are allowed to undertake activities covered under the general permissions in the Foreign Exchange Management Act.

Rules of Taxation for NRI Investments in India

The provisions of taxation are as per the Income Tax Act, 1961. An individual is considered as a Non-Resident if he/she does not reside in India for at least 182 days in the financial year or at least 365 days during the 4 years preceding that year and at least 60 days in that year. 

• The interest earned in a Non-Resident External Account is tax-free. 
• The interest earned in a Non-Resident Ordinary Account is taxable at 30%.
• The amount withdrawn from a Foreign Currency Non-Resident account is not taxed. 
• The transactions entered in an SNRR account are liable to tax as per the provisions in place. 
• Equity funds are taxed at the rate of 15% if the investment is sold before the completion of the first year. Gains greater than one lakh are taxed in case the investment exceeds one year. In the case of debt funds, 20% tax is levied if you sell it after three years. If you sell it before the term of three years, a tax of 30% is levied by the Indian government. 
• India has entered into several double tax avoidance agreements with several countries to avoid tax being charged two times in two different locations.

In Conclusion

NRIs need to acquaint themselves with multiple investment options, their inclusions and exclusions. You must note that all investments are subject to distinct regulations and restrictions prescribed by the Government of India.

Frequently Asked Questions