Navigating financial and tax obligations as a Non-Resident Indian (NRI) can be complex, but taking the right steps can simplify the process and ensure compliance with Indian laws. From converting bank and demat accounts to maintaining an Indian mobile number for OTPs, there are several key actions NRIs should not overlook. Understanding trading restrictions, tax implications on selling property, and investment opportunities can also significantly impact your financial health. This guide outlines essential financial steps and tax tips that every NRI must consider.
Convert Your Bank Account
- NRIs must convert their savings bank account into a Non-Resident Ordinary (NRO) Account to comply with the Foreign Exchange Management Act, 1999 (FEMA).
Update Your Demat Account
- Convert your resident demat account into an NRO Demat Account through your respective banker or broker, and update your banking details in it accordingly.
Maintain an Indian Mobile Number
- It is advisable for NRIs to have an Indian mobile number for receiving OTPs and SMS alerts while outside India.
Trading Restrictions
- NRIs cannot trade shares like resident Indian individuals and they need to take the delivery of shares.
Types of NRI Trading Accounts for Investing in Stock Market
1. Portfolio Investment Scheme (PIS) Account
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- Requires a permission letter from the RBI through the bank.
- Allows use of funds from both NRO and NRE Accounts.
2. Non-PIS Account
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- No special permissions needed.
- Only funds from NRO Accounts can be used.
- Generally preferred due to lower costs, fewer restrictions, and easier investing experience.
Selling Immovable Property
- When selling immovable property, the buyer must deduct Tax Deducted at Source (TDS) before paying the consideration amount and deposit the TDS to the government. This prevents NRI from saving the interest on self-assessment tax while filing the Income Tax Return due to the buyer’s ignorance of income tax provisions.
- NRIs must file income tax returns timely and correctly, with proper disclosure, regardless of profit or loss from selling immovable property.
The majority of them face issues with getting Income Tax Refund
- Common reasons for refund issues include:
- Bank account not revalidated before ITR filing.
- Inconsistent mobile number and email address between the bank account and the income tax portal.
- Return not verified due to OTP failures.
Disclosure Requirements
- Only Resident and ordinary resident individuals need to disclose details of foreign income or assets. NRIs only need to report income earned or accrued in India and do not need to disclose foreign assets when filing income tax returns.
Investment Opportunities
- FEMA-compliant NRIs can invest in government securities, sovereign bonds, and treasury bills through the RBI direct retail scheme. (https://rbiretaildirect.org.in/#/) There are no ceiling limits on investment, no commission or brokerage fees, and no annual maintenance fees.
UPI Payments
- NRIs from certain countries can use UPI payments through an international phone number linked with NRE and NRO Accounts, provided the KYC is updated.
NRI Availing DTAA Benefits – Mandatory Reporting in ITR
- If you are claiming a benefit under a Double Tax Avoidance Agreement (DTAA), it is mandatory to report income under the head “Income Claimed as not chargeable to tax as per DTAA. “The “Nature of Income” depends on the type of income you receive and the country with which the DTAA is established. For example, if you are claiming DTAA benefit for dividend income on US stocks, the “Nature of Income” will be “dividend,” and the relevant article of the India-US DTAA will be “Article 10.”
Conclusion: By following these essential financial steps and tax tips, NRIs can effectively manage their financial affairs in India while ensuring compliance with regulatory requirements. Converting bank and demat accounts, adhering to trading restrictions, and understanding tax implications on property sales are crucial. Additionally, staying informed about investment opportunities and leveraging DTAA benefits can enhance your financial strategy. Proper planning and timely action can help NRIs navigate the complexities of their financial and tax obligations, ensuring a smooth and compliant experience.
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