Non-repatriable investments will now be treated at par with domestic investments by resident Indians – The Economic Times

Clipped from: https://economictimes.indiatimes.com/nri/invest/non-repatriable-investments-will-now-be-treated-at-par-with-domestic-investments-by-resident-indians/articleshow/81774092.cmsSynopsis

When an NRI invests in India, she has to mention in the KYC form whether the funds will be repatriable or not. As the name suggests, non-repatriable investments are those wherein the principal and gains made by the individual are retained in the country.

Raj Khosla

Managing Director, MyMoneyMantra.com, Contributor Content

A Chartered Accountant qualified in 1979, Khosla worked overseas with KPMG for 2 years and practiced professionally for a decade before founding MyMoneyMantra 1989. He is a highly regarded figure in the financial products distribution arena and advises several banks on their distribution strategy.There is good news for NRIs who wish to invest in India. The Department for Promotion of Industry and Internal Trade (DPIIT) has changed the rules for non-repatriable NRI investments. Such investments will henceforth enjoy the same treatment as domestic investments by residents of India. These investments will also not be considered for calculation of indirect foreign investment.

When an NRI invests in India, she has to mention in the KYC form whether the funds will be repatriable or not. As the name suggests, non-repatriable investments are those wherein the principal and gains made by the individual are retained in the country.

NRIs are permitted to invest in the following avenues on a non-repatriable basis.

  • Futures and options of equities
  • Listed equity stocks
  • IPOs of companies
  • Mutual funds (equity, debt and hybrid)
  • Government securities
  • Treasury bills (T-bills)
  • Listed non-convertible or redeemable debentures
  • National Pension System
  • Chit funds

The tax treatment for NRIs is no different than that for resident Indians. Short-term capital gains (held for less than 1 year) from equity and equity-oriented hybrid funds are taxed at 15% while long-term capital gains (more than 1 year) beyond Rs 1 lakh are taxed at 10%. For non-equity funds, the short-term capital gains (held for less than 3 years) are added to income and taxed at slab rate while long-term capital gains (more than 3 years) are taxed at 20% after indexation.

The tax withholding rules for NRIs are different. NRI investments are subjected to TDS when redeemed and they are taxed at the highest rate applicable to such investments. The TDS for long-term capital gains from equity and equity-oriented hybrid funds is 10% ; and 20% for debt-oriented hybrid schemes and debt funds.

It might be the perfect time for you to invest in mutual funds

If NRI investments will be treated just like domestic investments by resident Indians, they won’t get subjected to TDS or a high rate of withholding tax.

There are other impediments for NRIs as well. They can invest in stock markets under the portfolio investment scheme (PIS) of the RBI. Also, the aggregate investment by an NRIs/PIOs cannot exceed 10% of the paid-up capital in an Indian company. The RBI tracks the investment limit by an individual through the PIS account because each transaction is reported to the apex bank.

Also, NRIs are not allowed to conduct non-delivery transactions. In other words, they can neither do day trading nor short-sell in India. A stock bought by an NRI can be sold off only after it first gets credited to his demat account. This can take up to two days.

The new rule for non-repatriable investments will change this, allowing NRIs the same flexibility and benefits that Indian residents enjoy. The change has been incorporated in consolidated FDI policy which came into effect from 15 October 2020. This means even investments made up to six months earlier will be eligible for this benefit.

All in all, these are steps in the right direction, and NRIs should certainly evaluate and take full advantage of the progressive changes in rules for investments.

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