Rules to Consider for NRI Investment in India

The investments by NRIs in India are regulated according to the Foreign Exchange Management Act, 1999. The act is modified from time to time along with the FDI policy brought in place by the Government of India. For effective regulation, the government permits investments under two routes: the automatic route and the government route.

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Disclaimer: #The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CAGR 8%; ₹50,45,591 @ CAGR 4%. *Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.

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

Q. Who is a Non-Resident Indian?

Ans: A Non-Resident Indian is an individual who has gone out of India or stays out of India for employment, carrying out business, or vocation. Therefore, anyone residing outside of India for more than 183 days in a financial year can be called a Non-Resident Indian.
Q. What does Person of Indian Origin mean?

Ans: The Person of Indian Origin are individuals that have at any time held an Indian passport, are of Indian origin or have a spouse currently holding Indian citizenship. To comprehend the investment regulations in the Real Estate Sector, the Person of Indian Origin does not include the spouse as mentioned above.
Q. Which are the facilitation agencies present in India?
Ans: The agencies that govern the investments by NRIs are listed below:
- Reserve Bank of India (RBI)
- Securities and Exchange Board of India (SEBI)
- Authority for Advance Ruling for Income Tax
- Authority for Advance Ruling for Customs and Central Excise
- Foreign Investment Implementation Authority
- Secretariat for Industrial Assistance
Q. What is the provision for students?

Ans: Students often go overseas to study. As per the regulations in force, they are entitled to receive remittance up to USD 10 Lakhs a year from their NRE or NRO account.
Q. What are the investment options for NRIs in India?

Ans: The investment options for NRIs in India include fixed deposits, mutual funds, government bonds and securities, etc.

†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in

Past 10 Years' annualised returns as on 01-12-2024

^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

Tax benefit is subject to changes in tax laws. Standard T&C Apply
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%

¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.

**Returns are based on past 10 years’ fund performance data (Fund Data Source: Value Research).