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1. What financial products from India can an NRI buy and how can he transact?
Answer : NRE is Non-resident rupee account from where money can be repatriated abroad freely.
NRO is Non-resident ordinary account. When you become an NRI, your account in India is automatically changed to NRO which you use to make payments in India. Both accounts give 3.5 per cent interest.
The other financial products that an NRI can buy are :
Life insurance
# NRIs can buy life insurance in India from abroad
# Premiums can be paid in rupees through NRO
# In forex through NRE or FCNR accounts
# Claims process is the same as in India
# Money sent through NRE or FCNR accounts
# If premiums paid from NRO account, then $1 million cap on repatriation
Fixed Deposits
# Choice of NRO, NRE and FCNR fixed deposits
# Can invest online from abroad
# NRO FDs earn between 3.75 per cent to 9.5 per cent
# NRE FDs earn between 3.87 per cent to 4.5 per cent
# FCNR FDs earn between 3 per cent to 5.7 per cent
# On investments in India, NRIs will have to pay tax here
PPF/NSC
# NRIs cannot open new PPF accounts or buy fresh NSCs
# They can continue old accounts
# Both earn 8 per cent compound interest a year
# Section 80C benefit
# PPF interest is tax-free
# NSC interest is fully taxable
# Repatriation through NRO account and only up to $1 million per calendar year
Stocks
To invest from abroad :
# Open account called Portfolio Investment Scheme (PINS)
# Buy/sell shares and convertible debentures through PINS
# Online buying is possible
# There are maintenance and transaction charges
# NRIs can’t trade in derivatives
# Limitless transactions in the primary market
# In secondary market, limit is of 5 per cent of a company’s paid up capital
# Similar limit for debentures
Taxation :
# Long term - no capital gains tax
# Short term - capital gains tax is charged
# Securities transaction tax of 0.2 per cent
Repatriation :
# Is allowed if original purchase was made on repatriation basis
# And if investments were made from NRE or FCNR account
Mutual Funds
# Need an NRO or NRE account
# Can invest like a resident Indian
# Online buying is possible
# Can use Sebi - registered portfolio management services
# Tax impact is the same as a resident Indian
# Repatriation is possible if original purchase was made on repatriation basis
# And if investments were made from NRE or FCNR account
Real Estate
# You can own real estate in India
# But, not agricultural land, plantation property or farmhouse
# Money can be remitted abroad if property held for 10 years
# If held for less than 10 yrs need to keep in NRO account for remaining period
# Repatriation allowed only for 2 properties
# If bought before leaving: Up to $1 million a year from an NRO account
# If bought through NRE and FCNR accounts: Principal amount can be repatriated
Inheritance
# Can hold without RBI permission
# Sale proceeds up to $1 million per calendar year can be repatriated without RBI permission
# Tax: Registration and stamp duty same as for resident Indians
2. What are the various types of bank accounts for NRIs?
Answer : NRIs/PIOs are permitted to open bank accounts in India out of funds remitted from abroad, foreign exchange brought in from abroad or out of funds legitimately due to them in India.
Such accounts can be opened with banks specially authorised by the Reserve Bank in this behalf [Authorised Dealers].
There are three types of Non-Resident accounts :
RUPEE ACCOUNTS
1. Non- Resident (External) Rupee Accounts (NRE Accounts
NRIs and PIOs are eligible to open NRE Accounts. These are rupee denominated accounts. Accounts can be in the form of savings, current, recurring or fixed deposit accounts. Accounts can be opened by remittance of funds in free foreign exchange. Foreign exchange brought in legally, repatriable incomes of the account holder, etc. can be credited to the account. Joint operation with other NRIs/PIOs is permitted. Power of attorney can be granted to residents for operation of accounts for limited purposes.
The deposits can be used for all legitimate purposes. The balance in the account is freely repatriable. Interest lying to the credit of NRE accounts is exempt from tax in the hands of the NRI.
Funds held in NRE accounts may be freely transferred to Foreign Currency Non Resident (FCNR) accounts of the same account holder. Likewise, funds held in FCNR accounts may be transferred to NRE accounts of the same account holder.
2. Ordinary Non-Resident Account (NRO Accounts)
These are Rupee dominated non-repatriable accounts and can be in the form of savings, current, recurring or fixed deposits. These accounts can be opened jointly with residents in India. When an Indian National /PIO resident in India leaves for taking up employment etc. outside the country, other than Nepal or Bhutan, his bank account in India gets designated as NRO account.
The deposits can be used to make all legitimate payments in rupees. Interest income from NRO accounts is taxable. Interest income, net of taxes is repatriable. Authorised dealers may allow remittances upto US $ 1 million, per calendar year, out of balances held in NRO account for any bonafide purpose.
FOREIGN CURRENCY ACCOUNTS
3. Foreign Currency Non Resident (Bank) Accounts (FCNR (B) Accounts)
NRIs/PIOs are permitted to open such accounts in US dollars, Sterling Pounds, Japanese Yen, Euro, Canadian Dollars and Australian Dollars. The accounts may be opened in the form of term deposit for any of the three maturity periods viz; (a) one year and above but less then two years (b) two years and above but less then three years and (c) three years only. Now RBI has allowed banks to accept FCNR (B) deposits upto maximum maturity period of five years.
Interest income is tax free in the hands of the NRI until he maintains a non-resident status or a resident but not ordinarily resident status under the Indian tax laws.
FCNR (B) accounts can also be utilised for local disbursement including payment for exports from India, repatriation of funds abroad and for making investments in India, as per foreign investment guidelines.
3. What is a NRI Demat account?
Answer : NRIs need to fill in NRI in the type and “repatriable or “non-repatriable” in the sub-type on the form. No special permission from the RBI is required by NRIs to open a demat account, though specific cases may require authorization from the designated authorised dealers.
NRIs require separate demat accounts for securities under the foreign direct investment (FDI) scheme, which is repatriable; and the Portfolio Investment Scheme and Scheme for Investment which can be either repatriable or non-repatriable. Repatriable and non-repatriable securities cannot be held in a single demat account.
Resident Indians can continue to hold non-repatriable demat accounts they hold even after they acquire non-resident Indian status. However, when a NRI returns to India permanently, he must inform his designated authorised dealer of his new status, and a fresh account would have to be opened. The securities held in the NRI demat account would have to be transferred to the new resident demat account, and the NRI demat account closed.
The demat account would have to be linked with the NRI’s NRO account for non-repatriable accounts and NRE accounts for repatriable accounts to credit dividends and interest. |
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