NRIs Investing in India – How to avoid problems with your investments!

Investing in India but how?

Jai has been working outside of India for over 2 years now. He was initially at HongKong and then moved to the US. However, he made absolutely no changes to the way he was investing.

When he was in India, he had opened a Sukanya Samriddhi Scheme account for his daughter. He continued to invest Rs. 1.5 lakhs in it.

The PPF account was also funded continuously.

Finally, his mutual fund investments via SIPs continued too from an ordinary savings account. He did not have an NRE account till date. All his personal documents including KYC, PAN, etc. continued to mention him as a Resident Indian.

Now, that he was in the US he planned to continue doing the same thing.

I had to intervene. 

What he was doing was completely wrong.

When an individual turns into an NRI, the requirements under various laws in India change. Foreign Exchange Management Act, Prevention of Money Laundering Act, etc have provided for various rules that a person has to follow as an NRI.

Of course, the reason is he was not aware of what to do. So, here I sit with him to help him become aware.

First things first. When do you officially become an NRI?

There are several definitions based on a range of factors that can be applied. One common one is that if you stay for more than 180 days outside India in a single financial year, you are deemed to be an NRI for that financial year.

However, if you have taken up a job outside India with an intention to be there for a long period of time, you are designated an NRI as soon as you move out of India. This definition is usually not taken into account.

In the latter scenario, it is important that you take care of a few things.

What you can or cannot do for Investing as an NRI

There are 7 key points to make note of.

1. As an NRI, you cannot hold an ordinary savings account. Speak to your bank or visit them and inform about the change in your status. The savings account has to be converted into a NRO or a Non-Resident Ordinary Account. You can receive all local payments such as rent, interest from bank deposits or any other investment monies in this account. You can also pay any local (India) bills, etc out of this account.
2. You should open an NRE (Non-Resident External) Account with your bank along with online banking facility. Using this account, you can transfer your foreign currency receipts into Rupees. This can be used to make any further investments in India. Of course, they need to be allowed to you as an NRI. Remember, you can use only the NRE account to make investments from your foreign earnings.
3. Based on a recent ruling issued by Govt of India, as an NRI you cannot hold small savings or Postal scheme investments in India. If you have such deposits, you should inform the respective investment provider and get your account closed. You will be paid interest till the date you became an NRI (if you went for a job outside, it is the same date as you left India). Subsequently, your investment will be redeemed and sent to your account. The investment account will be closed.
4. When it comes to Mutual Funds if you are not based on US/Canada, you can pretty much invest in any mutual fund. However, there are restrictions on the number of funds that take in investments from US/Canada based NRIs. That too comes in with some regular compliance related paperwork. Click here to know more.
5. Inform your current mutual funds about the change in status along with the updated KYC. The funds that you cannot hold as an NRI (specially for US based NRIs) will probably need to be redeemed.
6. Update your PAN, KYC, FATCA and other necessary documents with regards to your new status as an NRI. This will ensure that you remain compliant at all times and can buy or sell your investments without any hassles. Click here to do or update your KYC fully online.
7. As an NRI, become aware of taxation in the new country of work. While India might not tax you on your NRE Bank account FD interest, you may have to show it in the Tax return of the current resident country and pay up taxes.

Pro tip: You should test run your entire investment process for buying and selling to find out any issues right in the beginning.

It is not compulsory but ideal that you if you have any earnings in India, you file your tax returns in India even though there is no tax. This can be useful for any future requirements that you may have in India.

Jai is finally acting on this and sorting out all the issues to restart the investment journey. He has now opened his NRE account too.

In fact, he is now building up a financial and investment plan to invest his savings so as to fund his retirement back in India.

Say good luck to him!