NRIs and investments
Larissa Fernand
So you are an NRI keen on taking positions on Dalal Street. And you also want to know what's going to happen to your investments abroad when you come to India. These FAQ's should solve most of your doubts.
After returning to India, for how long can a person hold on to the stocks and mutual funds that he has invested in abroad?
You can continue to hold stocks and mutual funds abroad so long as your status is that of a 'not-ordinary resident'.
If I sell the investments I bought abroad once I return to India, will I have to pay capital gains on it?
Capital gains on your foreign stock shall be taxable in India if it is received or deemed to be received or accrued or deemed to be accrued in India. So, yes, you will have to pay taxes on capital gains. In case you also have to pay taxes abroad, you are eligible to take credit for such taxes paid abroad when filing your returns in India.
On returning to India, do I have to declare the money and assets that I have abroad?
Individuals who have returned to India on or after April 18, 1992 and have stayed abroad for a continuous period of not less than one year have been granted general the following permission:
- To maintain and operate their foreign currency accounts with banks abroad
- To hold, transfer, dispose off their other foreign currency assets (shares, securities, life insurance policies, immovable property) abroad
- To enjoy absolute freedom for utilization of their foreign currency assets, including freedom to gift or settle their foreign currency assets to anybody, anywhere
- To earn, retain abroad pension and retirement benefits after return to India
- To earn, hold, dispose off or invest, in any manner they deem fit, income on their foreign currency assets
- To make any payments to or make any further investments abroad provided that the payments and the cost of such fresh investments and any subsequent payments required thereof and met exclusively out of their currency assets
Hence, they can continue to maintain their foreign currency accounts, shares, securities, property abroad without declaration to the Reserve Bank of India (RBI), provided these funds and assets were lawfully acquired by them out of foreign currency earned through employment or business taken up when they were outside India.
Once I come to India, can I continue to invest in the markets abroad?
The last two points above mentioned above will answer that question. To sum, you are allowed to trade in stocks only if it is done from your foreign funds.
Can NRIs invest in the Indian stock market?
Yes. NRIs are allowed to invest in shares and debentures through the stock exchanges in India under the Portfolio Investment Scheme. There is a repatriation scheme and a non-repatriation scheme.
Is any approval needed?
Yes again. These investments require prior approval of the RBI. This is granted for a four-year period and can be continuously renewed.
How is this done?
The application is to be submitted to RBI through a designated branch of a bank in India in one of the prescribed forms (NRC/NRI/RPC/RPI).
The RBI has authorised a few branches of each bank to conduct the business under Portfolio Investment Scheme on behalf of NRIs. These branches are the main branches of major commercial banks located close to the stock exchange/s. Your application will have to be routed only through these.
Can NRIs invest in IPOs of Indian firms in India?
The prospectus of the company seeking investment will specify whether the investment in its IPO is covered under 'automatic approval' or 'specific approval of RBI.'
Can I hand over the Power of Attorney to someone and ask them to invest on my behalf?
Yes. That person will have to attach a photocopy of the PoA alongwith the application form while applying for the shares. Generally, the forms for NRIs are different from those for the general public.
Are there any limits on how much I can invest?
Yes. NRIs cannot hold more than the overall ceiling of 10 per cent of the paid-up equity share capital of the company or paid-up value of each series of convertible debentures. The company can raise this limit to 30 per cent at a special resolution in its general body meeting.
Is there any limit individually?
Individually, there is a limit too. It is restricted to 5 per cent of the paid-up equity share capital or each series of convertible debentures.
Will I be subject to capital gains tax on selling?
Yes. Depending on when you sell, you have to pay either short-term or long-term capital gains tax.
Any restrictions on mutual funds?
If mutual funds are what you have set your sights on, then go for it. No restrictions on that end.
What are the tax implications for an NRI investing in mutual funds as a long-term investment?
The income earned by way of long-term capital gain will be taxable at the rate of 10 per cent. Dividends received from mutual funds are not taxable in the hands of recipient.
But this is only if he fulfills the conditions:
- The taxpayer is a Non-Resident at the time of sale of capital assets
- He acquires shares by utilising foreign currency
- The asset may be long-term or short-term
The mode of computation to be followed in case the above conditions are met:
- Capital gain to be computed in the same currency which, was utilised for acquiring shares or units
- Capital gain so calculated in foreign currency to be reconverted into Indian currency
- The benefit of Indexation not available
What is the exchange rate to be utilised while selling?
The average exchange rate is the average of the telegraphic transfer buying rate and telegraphic selling rate of the foreign currency initially utilised in the purchase of said asset.
For this purpose, telegraphic transfer buying/selling rate in relation to a foreign currency rate is rate of exchange adopted by State Bank of India for purchasing or selling such currency where such currency is made available by that bank through telegraphic transfer.
Can an NRI continue investing in his PPF account?
Yes.
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