Common Mistakes NRIs Make While Investing in India

Last week, I spoke with Rajesh, an IT professional in Dubai. He'd been investing in India for five years. When we reviewed his portfolio, he went pale.

He'd been using his old resident savings account. 

His property earned him just 2% rental yield. He hadn't claimed DTAA benefits. His tax liability? Over ₹3 lakh in penalties alone.

Rajesh isn't alone. 

At Belong, we've seen hundreds of NRIs make similar errors. The good news? Every single one is avoidable.

This article covers 15 costly mistakes NRIs make when investing in India. 

By the end, you'll know exactly what to avoid, how to protect your money, and where to find smarter alternatives. Our community of over 10,000 NRIs in our WhatsApp groups asks us these questions daily.

Let's help you invest smarter.

The Account Status Mistake That Attracts RBI Penalties

This is the most common error we see. NRIs continue using their resident savings accounts after moving abroad.

Here's the problem: RBI regulations under FEMA clearly state that once you become an NRI, you cannot operate a resident account. You must convert it to an NRE or NRO account.

The consequences? Penalties up to ₹2 lakh under FEMA violations. All transactions become illegal. Your mutual fund investments get frozen. Banks report non-compliance to authorities.

What you need to do:

• Convert your savings account to NRO or NRE as soon as you become an NRI (promptly upon change in status) (source)
• ​Update your Demat account to NRO Demat
• Update KYC documents with your foreign address
• Provide PAN, passport, visa copies

👉 Tip: Most banks like HDFC, ICICI, and SBI allow online conversion. You don't need to fly to India.

Account Types Comparison:

Learn more about different NRI account types and their specific benefits.

Also Read -NRE vs NRO vs FCNR

Real Estate: The "Safe" Investment That Isn't

Between 2000-2010, Indian real estate boomed. NRIs poured money into properties, expecting gold. Today? Many are stuck with illiquid assets earning 2-3% rental yields.

Here's the reality: Rental yields in major Indian cities average 3-5%, comparable to or slightly above the current ~2% inflation rate in 2025 (historical average 5-6%)Your property value might increase nominally, but real returns are negative. (source)

The hidden costs:

• Property tax (up to 20% of rental income)
• Maintenance (₹5,000-15,000 monthly in cities)
• Tenant issues (eviction can take years)
• Capital gains tax (20% on sale with indexation, or 12.5% without)

What works better:

• GIFT City fixed deposits offering ~4-5% in USD (rates as of September 2025) (source)
• Diversified mutual funds with 10-12% historical returns
• Commercial real estate (if you must invest in property)

Remember: Property ties up capital for years. You can't sell quickly when you need cash. Check our guide on where to invest money for better alternatives.

The Tax Trap: Why You're Paying More Than Needed

Priya, an NRI in Abu Dhabi, invested ₹50 lakh in Indian FDs. She was shocked when the bank deducted 30% TDS on her interest income.

She didn't know she could have:

• Submitted Form 15CA/15CB to claim lower TDS
• Used India-UAE DTAA benefits to reduce tax to 12.5%
• Invested in NRE fixed deposits where interest is tax-free
• Filed ITR to claim refund (most NRIs don't)

TDS Rates for NRIs:

Understand TDS rules for NRIs under Section 195 to avoid overpaying. Many NRIs lose ₹50,000-2 lakh annually by not claiming DTAA benefits.

Also Read -DTAA and Capital Gains Tax: The Confusing Bits Explained

👉 Tip: Download Belong app to track your tax obligations and file ITR easily. Our team helps you claim every rupee you're owed.

Also Read -Taxation on Rental Income in India for NRIs

Taking Investment Advice from Friends and Family

Your cousin recommends a ULIP. Your friend swears by a particular mutual fund. Your relationship manager pushes products with high commissions.

This is dangerous. Here's why:

• ULIPs have high charges (30-40% in first 3 years)
• Friends don't know your residential status or tax situation
• Relationship managers earn on products they sell, not your returns
• Family means well but lacks regulatory knowledge

What you should do:

• Work with a SEBI-registered investment advisor (like Belong)
• Understand product structure before investing
• Ask: What are the fees? What's the lock-in? How do I exit?
• Check past returns (not guaranteed future returns)

At Belong, we don't earn commissions. We're advisors, not sellers. Our recommendations are based on your goals, not our profits.

Ignoring Your Residential Status Changes

Many NRIs don't realize they might be "Resident but Not Ordinarily Resident" (RNOR) or even "Resident" for tax purposes.

Your residential status determines:

• Whether you pay tax in India on global income
• Your TDS rates
• Your investment eligibility
• Your repatriation rights

Use our Residential Status Calculator to know exactly where you stand. Getting this wrong can mean:

• Double taxation (India + host country)
• Incorrect ITR filing
• Penalties and interest

Status Changes:

Understanding NRI vs RNOR vs Resident differences is crucial for proper tax planning.

Also Read - Residential Status Under Section 6 Of Income Tax Act

FEMA Compliance: The Rules You Didn't Know Existed

FEMA (Foreign Exchange Management Act) governs everything NRIs do financially in India. Breaking these rules brings serious penalties.

Common FEMA violations:

• Buying agricultural land (not allowed for NRIs)
• Investing without PIS account for stocks
• Repatriating more than USD 1M per year from NRO
• • Trading in currency/commodity derivatives (prohibited)

FEMA guidelines are complex but non-negotiable. Recent updates in 2025 allow NRIs to hold INR accounts overseas through SRVA and SNRR accounts, making transactions easier.

What's allowed:

• Residential and commercial property
• Stocks, mutual funds, bonds through PIS
• Government securities
• GIFT City investments

What's not allowed:

• Agricultural land, farmhouses, plantations
• Bearer securities
• Chit funds, gambling
• Certain strategic sectors (railways, atomic energy)

👉 Tip: Before making any investment, check RBI's rules for NRI investments. A single violation can freeze your assets.

Currency Risk: The Silent Wealth Eroder

Amit in London invested £50,000 (₹50 lakh) in Indian equity in 2015. In 2020, when he sold, his portfolio had grown to ₹70 lakh. He felt great.

But in pounds? He got back only £52,000. Why? The rupee had depreciated 18% against the pound. His real return? Just 4% over 5 years.

Currency depreciation can wipe out your gains. The Indian rupee has depreciated roughly 3-4% annually against major currencies like USD, GBP, and EUR.

How to protect yourself:

• Invest in USD-denominated assets through GIFT City
• Use natural hedging (if expenses are in INR, keep investments in INR)
• Consider FCNR deposits to lock in exchange rates
• Track INR movement using our Currency Monitor Tool

Currency Impact Example:

Belong's USD fixed deposits in GIFT City eliminate this risk entirely. Your returns are in USD, protected from rupee depreciation.

Over-Reliance on Fixed Income Investments

Many NRIs put 70-80% of their portfolio in FDs and bonds, thinking they're "safe."

But here's the problem:

• NRE FD rates currently offer 6-7%
• Inflation in India averages 2%-4%% (source)
• Your real return is near zero or negative
• You're not building wealth, just preserving (barely)

Better approach:

• 40% in equity/mutual funds for growth
• 30% in GIFT City FDs or NRE FDs for stability
• 20% in alternative investments (AIFs, bonds)
• 10% liquid for emergencies

Remember: Time is your biggest asset as an NRI. You have 20-30 years before retirement. Use that horizon for equity growth.

Explore our guides on best investment options and monthly investment plans for better allocation strategies.

Repatriation Planning: When You Can't Bring Your Money Back

Suresh sold his property in Mumbai for ₹1.5 crore. When he tried to repatriate the proceeds to the US, he hit a wall.

Why? He'd bought the property using INR funds from his NRO account. RBI limits NRO repatriation to USD 1 million per financial year. He could only send part of it.

Repatriation rules you must know:

• NRE account: Fully repatriable (principal + interest)
• NRO account: Up to USD 1M per year
• Property sale: Only 2 properties can be repatriated (if bought with foreign funds)
• Capital gains must be in INR if source was INR

Planning for repatriation:

• Buy property using NRE funds if you plan to repatriate later
• Keep detailed records of fund sources
• File Form 15CA/15CB for every repatriation
• Work with a CA familiar with NRI taxation

👉 Tip: GIFT City investments are fully repatriable in USD without the 1M cap. This is one reason Belong focuses on GIFT City products.

Documentation Disasters: The Papers You're Missing

Incomplete documentation is the #1 reason investment applications get rejected.

Documents NRIs often miss:

• Overseas address proof (not Indian address)
• Copy of visa/work permit
• Passport with entry/exit stamps
• PAN card with foreign address updated
• Form 60/61 for account opening
• Power of Attorney (if managing remotely)

Not having these ready means:

• Delays in account opening (3-6 months)
• Rejected applications
• Missed investment opportunities
• Frozen funds during verification

Create a digital folder with:

• Passport (all pages scanned)
• Visa/residence permit
• Address proof (utility bill, tenancy contract)
• PAN card and Aadhaar
• Bank statements (last 3 months)
• Employment letter

Keep physical copies too. Some banks still require originals. Learn how to reprint your PAN card if you've lost it.

Not Understanding the PIS Account Requirement

Want to buy stocks or trade in Indian markets? You need a Portfolio Investment Scheme (PIS) account.

Many NRIs try to use regular trading accounts and face rejections. Here's what you need:

• Open an NRE or NRO PIS designated account
• Link it to your NRI Demat account
• Only one bank can be your PIS banker
• All stock transactions must route through this account

PIS restrictions:

• Only delivery-based trades allowed
• No intraday trading
• Investment caps per company (5% of paid-up capital individually, 10% collectively for all NRIs)
• Cannot invest in currency/commodity derivatives

Check our detailed guide on investing in the Indian stock market for step-by-step instructions.

Overlooking Gift Tax and Inheritance Rules

Many NRIs gift money to parents or receive property as inheritance without understanding tax implications.

Gift tax rules:

• Gifts above ₹50,000 from non-relatives are taxable
• Gifts from specified relatives (parents, siblings, spouse) are tax-free
• Property received as gift/inheritance may attract capital gains tax when sold
• NRIs gifting to residents need to follow FEMA guidelines

Understand NRI gift tax rules before transferring money. Proper documentation is crucial.

Inheritance considerations:

• Agricultural land inherited is allowed (but can't be purchased)
• Property inherited must be reported to RBI within 90 days
• Rental income from inherited property is taxable
• Repatriation of sale proceeds limited to USD 1M per year

Ignoring Annual Information Statement (AIS)

The Income Tax Department now issues an Annual Information Statement (AIS) showing all your financial transactions.

This includes:

• Interest from FDs
• Dividend income
• Property sale details
• TDS deducted
• Foreign remittances

If you don't file ITR matching your AIS, you'll get notices. Many NRIs ignore this, thinking "I don't live in India, why should I file?"

Why you must file:

• Claim TDS refunds
• Avoid penalties (₹5,000-10,000 for late filing)
• Maintain compliance for future investments
• Show proof of income for visa applications

Even if your income is below taxable limit, filing helps claim refunds. Learn about NRI tax filing deadlines and filing with no income.

Not Comparing Investment Platforms and Costs

Many NRIs stick with one bank because it's familiar. They don't compare rates, fees, or services.

What to compare:

• FD rates across banks
• Account maintenance charges
• Forex conversion margins
• Fund transfer fees
• Customer service quality (can you reach them from UAE?)

Example comparison of NRI FD rates (October 2025):

(Source: ICICI. HDFC, SBI, GIFT City USD, GetBelongVisit our NRI FD Comparison Tool to see live rates from 30+ banks.

Hidden charges eat into returns. Some banks charge:

• ₹500-2,000 annual debit card fees
• 1-2% forex markup on transfers
• ₹100-500 per cheque
• ₹1,000+ for premature FD withdrawal

Check NRI account hidden charges before opening accounts.

Making Investment Decisions Without Financial Goals

What's your investment goal? Retirement? Child's education? Property purchase in 5 years?

Most NRIs invest reactively: "Friend invested, so I will too." No clear plan. No timeline. No target amount.

Goal-based investing works better:

Use our tools to calculate how much you need to save monthly. Proper planning means you're never scrambling for money or selling investments at loss.

👉 Tip: Join our WhatsApp community to discuss your goals with other NRIs and get expert advice.

How to Avoid These Mistakes: Your Action Plan

Here's your step-by-step checklist:

Immediate actions (this week):

1. Check if you're still using resident accounts - convert to NRE/NRO immediately
2. Update KYC documents with foreign address
3. Download your AIS from income tax portal
4. Calculate your residential status
5. Review your portfolio allocation

Short-term actions (this month):

1. File pending ITRs (if applicable)
2. Submit Form 10F to banks to claim DTAA benefits
3. Open PIS account if you want to invest in stocks
4. Consolidate investments across banks (too many accounts = too many charges)
5. Set up nomination for all accounts

Long-term actions (this quarter):

1. Work with a SEBI-registered advisor to review portfolio
2. Rebalance: move from 80% FDs to diversified allocation
3. Consider GIFT City USD FDs for better returns + currency protection
4. Set up SIP in good mutual funds
5. Create estate planning documents (will, POA)

For property owners:

1. Check if rental income is being properly taxed
2. Ensure tenant is deducting TDS on rent
3. Evaluate if selling and reinvesting makes sense
4. Understand Section 54 tax exemptions on property sale

Why Belong Makes This Easier

We built Belong because we faced these exact problems ourselves. As NRIs who returned to build this platform, we know the pain points.

What Belong offers:

1. GIFT City USD Fixed Deposits - Tax-free, rupee-risk-free, higher returns than regular NRE FDs
2. Compliance Tools - Residential Status Calculator, Compliance Compass
3. Live Tracking - GIFT Nifty Tracker, FD Rate Comparison
4. Expert Advice - SEBI-registered advisors, not salespeople
5. Community - 10,000+ NRIs sharing experiences

We handle:

• Full digital KYC (no flying to India)
• Doorstep document collection in UAE
• Regulatory compliance
• Tax-efficient structuring
• Easy repatriation

Unlike banks that push products, we're advisors first. Our licenses (PSP and broker-dealer from IFSCA) mean we're regulated and accountable.

Conclusion: Invest Smarter, Not Harder

These 15 mistakes cost NRIs thousands of rupees every year. Most are completely avoidable with the right knowledge and guidance.

Remember:

• Update your account status within 30 days of becoming NRI
• Don't over-invest in real estate (2-3% yield isn't good enough)
• Claim DTAA benefits to reduce TDS from 30% to 10%
• Diversify beyond FDs (equity is your friend for long-term)
• Plan for repatriation from day one
• Work with SEBI-registered advisors, not friends

The Indian market offers tremendous opportunities. GDP is growing at 7%+. The stock market has delivered 12-15% over decades. You should benefit from this growth.

But you need to play by the rules. And you need the right platform.

Ready to invest smarter?

1. Download the Belong App - Open GIFT City FD accounts, track investments, access expert advice
2. Join our WhatsApp Community - Ask questions, learn from other NRIs, get updates on regulations
3. Schedule a call with our SEBI-registered advisors - Free 30-minute consultation to review your portfolio

At Belong, we're building the financial platform NRIs deserve. One that understands your unique needs. One that makes compliance simple. One that helps you grow wealth, not just park money.

Let's make your India investments work harder for you.

Sources:

• Reserve Bank of India - FEMA Master Directions
• Income Tax Department - NRI Taxation
• SEBI Guidelines on NRI Investments
• Economic Times - NRI Real Estate Analysis
• Mint - Rental Yields in India
• Outlook Money - NRI Investment Mistakes

This article is for informational purposes only. Please consult with a SEBI-registered investment advisor before making investment decisions. Belong (GetBelong.com) is a SEBI-registered investment advisor (Registration No. provided by IFSCA). Past performance does not guarantee future results.