It is always important to review the eligibility and tax benefits available with certain investment products when it comes to investing. NRIs may be restricted to investing in certain investments, while some specific investment products are available only for NRIs with added tax benefits. Here are some of the NRI account benefits as well as let’s explore the tax implications on such investment opportunities:
- Fixed Deposits – NRIs can invest in Non-Resident External (NRE)/ Non-Resident Ordinary (NRO)/ Foreign Currency Non-Resident (FCNR) deposits depending upon the source of funding for such deposits and preference to hold the deposit in Indian currency or specified foreign currency. As per the tax laws, the interest income from NRE and FCNR deposits is exempt from tax for the depositor. Further, NRIs can also benefit from the Double Tax Avoidance Agreement (DTAA) for interest income from NRO deposits if such DTAA provision lowers the overall tax liability for them.
- Mutual Funds – NRIs can also invest in mutual funds in the same manner the resident Indians can invest in mutual funds. While the investment process is broadly similar, NRIs may require additional KYC documents and FIRC (Foreign Inward Remittance Certificate) to invest on a repatriable/ non-repatriable basis. The taxation of mutual fund investments for NRIs is similar to that of the resident Indians.
- Immovable Property – NRIs can invest in any residential or commercial property in India. However, they cannot purchase agricultural land, farmhouse, or plantation areas. Any rental income from such immovable property is taxed similarly to resident Indians. If received within India, such rental income must be received only in NRO accounts.
- PPF Accounts – While NRIs cannot open a new PPF (Public Provident Fund) account, NRIs can continue to hold an existing PPF account opened while being resident. Thus, an NRI can continue to invest in the PPF account till the maturity date of such account, i.e., 15 years from the account opening date and earn the interest income at the applicable interest rates. However, NRIs are not allowed to extend the maturity of the PPF account. The interest income from PPF accounts remains tax-free for the account holder.
- National Savings Certificates (NSCs) – Just like restrictions on opening fresh PPF accounts, NRIs cannot invest in NSCs. However, they can continue to hold NSCs purchased earlier while being residents. One would continue to earn interest on NSCs till the maturity date. While the interest income from NSCs is taxable for the taxpayers, one can avail deduction under Section 80C of the Income Tax Act for such interest income except during the maturity year. This deduction is based on the premise that the interest accrued is reinvested in the NSC account and thus eligible for deduction.
- Portfolio Investment Scheme (PIS) accounts for Investment in Shares – NRIs can invest in equity shares through PIS accounts. Such accounts carry restrictive features regarding short-selling and intraday trading. Such investments can be made on a repatriable or non-repatriable basis, depending upon the source of funds. If the investments have been made through NRE accounts, the investments can be made on a repatriable basis. Similarly, if the equity investments were made while being resident, such investments can be held in NRO Demat accounts without a PIS account. NRIs can avail of special tax rates for Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG). However, setting off STCG or LTCG from shares against the basic exemption limit is not allowed under the tax laws.
The information provided in this article is for informational purposes only. You may consider consulting tax professionals for specific guidance for the applicable Income Tax rules, as tax benefits are subject to changes due to change in tax laws.