For NRIs investing in India, taxation might seem daunting and scary. While information regarding taxation for individual investment options can be found quite easily on the website of the respective vendors, this post will try to make things a bit easier to understand.
Income tax for NRIs
Do NRIs have to pay taxes in India? In short, yes. It is, however, important to understand how NRIs are liable for taxation. Although any income earned by an NRI abroad is not possible to be taxed in India. However, if you’re investing in India, then the amount of money generated due to the rate of interest, otherwise known as capital gains, is taxable as per the income tax act of India. Furthermore, for most investment options available for NRIs, unless a tax exemption is availed, most capital gains are taxed directly at the source, hence, there usually isn’t a need to file for taxes separately. Certain investments might be taxed based on the income tax slab. Another thing to note is that NRIs can also avoid paying double taxes depending on the country they’re in as per the Double Taxation Avoidance Agreement (DTAA), so do look if you’re in a country that is eligible.
Best Investment options in India for NRI
If you’re already here learning about how to file taxes in India as an NRI, then you must also be wondering what the best investments in India for an NRI are. Certain investment options are not available to an NRI. For example, if you’re an NRI and you’re wondering if you can open a PPF account, then the answer is no. Investment options vary depending on your needs. Here are some common questions that an NRI might have when deciding to invest in India.
Can NRIs invest in a Unit Linked Insurance Plan?
Unit-linked insurance plans, or ULIPs, as the name suggests, are insurance plans that also double as an investment option. It helps in wealth generation while providing insurance benefits to you or your family. This investment option is also open to NRIs and can avail themselves of the same tax benefits as a resident citizen under Section 80C of the Income Tax Act of 1961. How can NRIs invest in a ULIP? Most insurance providers in India also provide ULIPs that NRIs can invest in. The general rule of thumb is to have your necessary documents, as mentioned before. Most companies, they usually require IDs in the form of passports, but will also require proof of Indian residence, as well as proof of residency abroad. Moreover, they must also provide proof of income. Certain companies may require a medical check-up as well.
Can NRIs obtain a National Pension Scheme account?
Of the many savings tools available to both residents and NRIs, pension plans can be a good way to save up for after your retirement. NRIs, for example, can open a National Pension Scheme account. The NPS is a reliable investment option for most people and can be applied for by any citizen between the age of 18 and 60. Typically, an NRI requires a non-resident external (NRE) account or a non-resident ordinary (NRO) account to be able to invest in an NPS. Individual subscribers of an NPS can claim tax benefits of up to INR 1.5 lakhs. Note that tax benefits are only available to a subscriber or a Tier I account.
Can NRIs invest in the Indian share market?
Investing in the share market or stock market has been gaining popularity over the years. While not the safest investment option out there, these investments can often result in very high returns, which is often why they are so popular. If you’re wondering how an NRI can invest in the Indian share market, this should clarify it. While there are a few different options available for NRIs when it comes to investing in the share market, obtaining a Portfolio Investment Scheme (PIS) account, which enables NRIs to buy and sell shares, is probably the best approach. Like with all cases, NRIs have to pay taxes on returns from investing in the share market in India, a so-called capital gains tax. These taxes are based on how long they’ve invested the money. For short-term cases (less the 1 year), the tax rate is 15%, while for longer periods, the tax rate is 10%. For unlisted shares, there is usually a TDS at the highest rate of 30% as per the normal income tax slab rate.
Can NRIs invest in mutual funds in India?
Although volatile and risky, mutual funds can be a solid investment option for most people due to their high returns. NRIs can invest in the mutual funds' industry as per the regulations of the Foreign Exchange Management Act (FEMA) of 2000. You would require an NRO or NRE account to be able to buy mutual funds. Mutual funds can be purchased directly if you have the necessary account, or through someone else with the help of a power of attorney. Taxation is based on the holding period of the mutual funds, as well as the type of mutual funds. For the most part, short-term capital gains are taxed at 15% for most mutual funds and at 10% for long-term capital gains. However, depending on the type of mutual funds you’ve purchased, these rates may vary.
Can NRIs invest in a systematic investment plan (SIP)?
Most citizens, including NRIs, OCIs, and PIOs are allowed to invest in a SIP. SIPs are a simpler way to invest in and manage mutual funds. In a SIP, the user invests a small, fixed amount regularly into their desired mutual funds. This is often a better option for those wanting to invest in mutual funds. For investing in SIPs, NRIs require either an NRO or an NRE account. NRIs must also register themselves with a Registered Transfer Agent (RTA). Do tax returns on SIP fall under the same category as mutual funds?
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