Investing in stock markets and Mutual Funds in India is a popular choice among many NRIs looking to grow their wealth. However, figuring out the steps and procedures needed before and after moving abroad can be confusing.
In this post, we’ll discuss the process, documents, and verifications for investing in India as an NRI. Read on!
Who qualifies as a Non-Resident Individual (NRI)?
A Non-Resident Individual (NRI) is an individual who is not a resident of India for tax purposes. To qualify as an NRI, you must satisfy both of the following conditions:
1. You should be in India for a period not more than 182 days during the previous year,
and,
2. You should be in India for a period of not more than 60 days during the previous year, and not more than 365 days during the 4 years immediately preceding the previous year.
If you visit India during the year, the period of 60 days as mentioned in (2) above shall be substituted with 182 days. Similar concession is provided if you leave India in any previous year as a crew member or for the purpose of employment outside India.
As per the changes made in the Finance Act 2020:
If your income, excluding income from foreign sources, is more than ₹15 lakh, the 60-day threshold mentioned above extends to 120 days.
Additionally, if you are earning over ₹15 lakh, excluding income from foreign sources, and not liable to pay tax in any country, you are deemed a resident under new Section 6(1A).
How can NRIs continue investing in Stocks and Mutual Funds - A simple procedure
Keeping your ongoing investments running in India while living abroad is straightforward. Let’s look at how to do this:
1. Get an NRE/NRO bank account
Mutual Fund asset management companies (AMCs) in India do not accept investments made in foreign currency. Hence, you need to maintain either or both of the following:
NRE (Non-Resident External) account
NRO (Non-Resident Ordinary) account
Here’s how you can go about this:
I. Convert your existing domestic savings account to NRO
NRO accounts allow you to manage your income earned in India. It lets you manage your funds without the complexities associated with currency conversion and transfer regulations.
If you have been investing in Mutual Funds and stocks while in India, you should convert all associated domestic savings accounts to NRO accounts (as required by RBI regulations). These NRO accounts will remain linked to your existing investments, and will further help you invest any income earned in India (e.g., through rental, interest etc).
II. Setup an NRE account
An NRE account would enable you to invest your UAE income in Indian stocks and Mutual Funds. This comes with the added advantage of being able to freely move your money back to UAE. The savings interest earned in NRE accounts is also tax free!
2. Update your KYC status from Resident Individual (RI) to Non-Resident Individual (NRI)
This is crucial for compliance and to ensure your investment process runs smoothly. Here’s how you can get this done:
Request your existing or new intermediary (e.g., your stock broker/platform, Mutual Fund distributor/AMC, bank etc) to update your KYC status. They can accomplish this by submitting an application with supporting documents to the centralised KYC database.
If you are in India, you can also go to the closest Karvy or CAMS office.
Several service providers, including the KYC registration agencies (KRAs) like CAMS and Karvy, offer the facility to carry out this process electronically. However, if this option is unavailable or you prefer to handle these changes in person, you can visit your nearest CAMS/Karvy office in India. Here’s what you should carry:
Passport copy (including visa pages)
Foreign visa and/or residence permit
Overseas address proof (e.g., utility bill, rental agreement, or bank statement)
Indian address proof (if required)
PAN card copy
Recent passport-sized photographs
- Bank statement/cancelled cheque leaves as proof of holding NRO/NRE account
Make sure to check the latest requirements with your intermediary at the outset of the process.
3. Update your NRI Status in your existing Mutual Fund folios
It's important to update your Non-Resident Indian (NRI) status for all your Mutual Fund accounts.
You need to tag all your existing investments to your NRO accounts.
Besides, you must update your NRI status in all your fund folios.
You can do so either though your investment intermediary or directly with each Mutual Fund house where you have invested.
To successfully update your folios, you will need to ensure your KYC is current, which includes providing updated bank account details such as IFSC code, account number, account type (NRO/NRE), and the name on the account.
Pro tip: It's vital that the name on all your documents (PAN card, Aadhaar Card, Passport, bank account/statement) exactly matches the name in your Mutual Fund KYC and folios. Even minor discrepancies can lead to the rejection of your update request. This attention to detail ensures smooth processing and avoids potential delays or complications.
4. Tax Implications for NRIs Investing in India
A Double Taxation Avoidance Agreement (DTAA) is a treaty between two countries that prevents individuals and companies from being taxed twice on the same income. Since India has a DTAA with UAE, this ensures you don’t pay tax on the same income twice.
However, your mutual fund and stock investments will have certain tax implications. As per Indian Income Tax laws, here’s a quick look at the mutual funds' holding periods and taxation on capital gains for NRIs:
Holding Periods for Mutual Funds | ||
---|---|---|
Fund Type | Short-term Holding | Long-term Holding |
Equity oriented Mutual Funds (including Balanced Funds with equity exposure >=65%) | Less than 12 months | 12 months and more |
Debt-oriented Mutual Funds (including Balanced Funds with equity exposure <65%) | Less than 36 months | 36 months and more |
Taxation on Capital Gains from Mutual Funds | ||
---|---|---|
Fund Type | Short-Term Capital Gains (STCG) Tax | Long-Term Capital Gains (LTCG) Tax |
Equity oriented Mutual Funds (including Balanced Funds with equity exposure >=65%) | 15% | 10% without Indexation on gains in excess of Rs 1 lakh |
Debt-oriented Mutual Funds (including Balanced Funds with equity exposure <65%) | As per tax slab | 20% after Indexation |
NRE Fixed Deposits: An Alternative Investment Option for NRIs
As per Section 10(4) of the Income Tax Act 1961, NRE FDs are exempt from income tax in India.
This means you can invest your money in India at competitive interest rates without worrying about taxes! The principal and interest remain fully repatriable.
NRE Fixed Deposits vs Mutual Funds vs Stocks | |||
---|---|---|---|
Parameter | NRE Fixed Deposits | Mutual Funds | Stocks |
Risk Level | Virtually risk-free | Subject to market risks | Exposed to overall market risk plus individual stock selection risk |
Return Potential | Offers steady, fixed returns | Potential for high returns | Offers highest potential for returns |
Market Volatility | Not affected by market fluctuations | Prone to market volatility | Individual stock volatility can exceed aggregate market volatility |
Liquidity | Generally high, with interest rate penalties for early withdrawal | Varies by fund type (Open-ended funds have high liquidity, whereas close ended funds do not allow premature withdrawal) | Varies as per market cap (large cap stocks usually have greater liquidity than small cap stocks) |
Tax Efficiency | Interest is tax-free in India | Subject to capital gains tax based on holding period | Subject to capital gains tax based on holding period |
Suitability | Ideal for conservative investors seeking safety | Suitable for those seeking growth over time | Best for risk-tolerant investors seeking substantial growth |
Wrapping Up
Continuing your mutual fund and stock investments in India from UAE is easily manageable with the right steps.
Make sure you update your NRI status, set up appropriate investment accounts, gather the necessary documentation, and understand the tax implications. This will ensure a smooth and compliant investment journey!