Jigar M. Patel
International Tax Attorney
As we celebrate the upcoming Pravasi Bhartiya Divas and the Vibrant Gujarat Festival, let’s answer some of the queries an NRI likely has, when investing into India.
Q.1. What are the various investment options for NRIs in the financial sector?
A.1. Under the FEMA regulations, NRIs are freely permitted to invest in movable properties without any restrictions. They can invest through foreign currency remittances or out of the balances lying in their NRE/FCNR or NRO bank accounts in equity, fixed deposits, mutual funds, bonds, debentures and the like.
Q.2. Is it mandatory for NRIs to have a Permanent Account Number (PAN) or Aadhaar Card?
A.2. Under the Income-tax Act, although it is not mandatory for an NRI to obtain a PAN, on practical considerations for ease of managing investments, it would be advisable for an NRI to do so. NRIs can apply for a PAN Card online, by filling out the details in Form 49AA and submitting relevant documents in regard to ID and Address Proofs.
NRIs have been exempted from the requirement of an Aadhaar Card. Seeking an Aadhaar Card requires Biometrics and thus physical presence in India at the time of application. However, it may be kept in mind that the earlier condition of six months stay in India prior to making an application for Aadhaar has now been waived in case of an NRI and therefore, it is possible to apply for the same, immediately upon his arrival in India.
Q.3. Are the investments made by NRIs repatriable?
A.3. RBI has granted general permission to an NRI for repatriation outside India for any bonafide purpose, of up to USD 1 million per financial year, out of the balances held in his NRO accounts. This repatriation would however be subject to payment of applicable taxes and based on appropriate certification by a Chartered Accountant.
An NRI is also entitled to the transfer of funds from his NRO Account to his NRE Account, within this overall limit of USD 1 million in a financial year. In view of the twin benefits of total income-tax exemption for NRE Interest and repatriation of NRE funds without any monetary ceiling, executing such transfer from NRO to NRE account has proved to be an attractive option for NRIs seeking to invest in Bank FDs.
Q.4. Can an NRI become a Director, Partner or Proprietor in India?
A.4. An NRI can become a Director in an Indian Company. However, atleast one of the Directors on the Board of such a Company must be a Resident of India. Moreover, NRIs can also invest in any eligible business in India through as a Partner of a Firm or LLP or as a Proprietor.
Q.5. Do NRIs have freedom to hold assets abroad after their return to India?
A.5. Under FEMA, NRIs returning to India for settlement are freely permitted to continue to hold, own, transfer or invest their Foreign Currency Assets and properties situated outside India, which were acquired by them while they were non-residents. However, it needs to be borne in mind that when a returning NRI acquires the status of Resident & Ordinarily Resident (R & OR) under Income-tax, he is under obligation to declare his overseas income and assets under Schedule FA of the Income-tax Return (ITR).
Q.6. Filing of I.T. Returns by NRIs
A.6. An NRI is not mandated to file an ITR in India, unless his gross total income exceeds the basic income tax exemption limit. In case any TDS or TCS is deducted or collected, it would be prudent to file a tax return and claim applicable tax refund. Where an ITR is filed, it is also necessary to declare exempt income such as NRE interest etc. in Schedule EI of the ITR. It is also important for an NRI to correctly mention his tax status in the ITR, along with his country of residence and Tax Identification Number (TIN) in such country.
