If you have just joined the NRI club, congratulations!With the Indian economy booming and the country attracting huge foreign investments, surely you would like to be a part of the India growth story? Till date, you may have made all your investments in shares, mutual funds, bank deposits and other debt instruments as a resident. Given your changed status,are you allowed to continue investing here? Are there any new regulations to be complied with?
Bank Accounts
One of the first things you should know as an NRI is that your existing bank accounts are no longer valid.The Foreign Exchange Management Act (FEMA) requires you to inform all the banks where you have an account,be it savings or deposits, about your changed residential status.
The banks will then classify your account as NRO (Non-resident Ordinary). Except for the change in nomenclature, there is nothing new about the account. You can continue using it as before. Payment of EMIs (Equated Monthly Instalment) can go on. You can also hold the NRO account jointly with a resident. But the balance in the NRO account cannot be remitted outside India.
If you want the funds in your account to be freely repatriable outside India, an NRE (Non-Resident External) account would be ideal. This account will be maintained in rupees and any debit or credit of foreign exchange will be converted into rupees.
It cannot be opened jointly with a resident but you can allow a resident to operate it on your behalf.
For example, you can authorise your mother to make local payments or even remit money to you through this account by giving her a power of attorney.
Investment options
NRI s can invest only in five asset classes in India — bank deposits, stocks, mutual funds, real-estate and insurance. You can also invest in government securities and company deposits. But you cannot invest in PPF (Public Provident Fund), or bearer instruments such as NSC (National Savings Certificate) or Kisan Vikas Patras once your residential status changes.
Though you are barred from making any fresh investments, existing ones can be left undisturbed.
However, they cannot be extended beyond maturity. You can continue to make periodic contributions to the existing PPF account even when you are abroad through your NRE or NRO account. When the investments mature, the proceeds will be credited to the NRO account.
Banks allow NRIs to invest in deposits through FCNRB (Foreign Currency Non-Resident (Banks) accounts. These are term deposits and can be maintained in some currencies such as the US dollar, pound sterling and yen. The funds in this account can be repatriated.
Equity Investments
With the stock markets on a roll, you are welcome to join the party. As an NRI, you are allowed to invest to your heart’s content in both stocks and mutual funds.
While you can continue investing in IPOs (Initial Public Offers) unmindful of your NRI status, there are some procedures to be followed when investing in the secondary market. All along, as a resident, you would have used a demat account to buy and sell shares.
Now, this demat account has to be closed and the shares are to be transferred to a new NRO Demat Account. After this, you can either continue to hold those shares or sell them.
Although an NRO account means that funds are non-repatriable, the Reserve Bank of India allows funds from the sale of financial assets to be remitted outside India after some paperwork. Hence, wherever you are, you can enjoy the proceeds from the sale of shares.
To invest from abroad, you need to open a fresh NRI PINS (Portfolio Investment Scheme) demat account. PINS is a scheme of the RBI under which NRIs can buy and sell shares by routing them through their NRE/NRO account. (An NRE account is preferable, since you can freely transfer the funds abroad after selling the shares). Speculative transactions are not encouraged under PINS. Hence, you need to take/give delivery of shares.
For mutual fund investments, there are no procedural changes. Money can either be remitted from abroad or moved out of your NRE/FCNR accounts maintained at a local bank.
The redemption or the dividend proceeds will be credited to the same account. Again, investments can be made both on a repatriable and on a non-repatriable basis.
For these purposes, the PAN card you obtained when you were a resident will hold good. You need not apply afresh.
Insurance and Real-Estate
Presently, NRIs can invest in life insurance policies in India without any limit on the cover. Some companies offer foreign-currency denominated policies and also allow you to pay the premium in foreign currency.
You can also invest in residential and commercial property in India without obtaining any special permission from the RBI. Investment in agricultural land/plantation property/farm house is, however, not allowed.
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Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
(Republished with Amendments by Team Taxguru)
I wish to bring into your notice that my NRI son invested in LIC lumpsum in lakhs fifteen years back. On maturity, in spite of LIC mentioning investment made out of NRE account, the maturity proceeds was NOT allowed to be credited in his NRE account. I took up the matter with LIC Headquarters who said RBI has refused to credit the amount into NRE account since they cannot/do not have evidence of investment made out of NRE account. (thoughLIC indicated in the NEFT investment made out NRE A/c, RBI did not accept it). One of my friend’s son also faced the same problem with LIC though he showed all evidences of money invested out of NRE account. Taking into
consideration such cases please take up the matter with RBI. Why should NRIs transfer dollars to invest in India when the proceeds are not allowed to be credited into their NRE accounts. i feel RBI should accept when LIC itself verifies the amount invested out of NRE account.