NRI Investment Plans

NRIs and OCIs can choose to invest in the Indian stock market. Equity investments can beat the inflation rate and provide higher returns over the long term. NRI and OCI investors can purchase the shares of a company listed on the Bombay Stock Exchange or the National Stock Exchange.

They need to open a Portfolio Investment Scheme (PIS) Account with a bank to invest in direct equity. The PIS Account will be linked to the Demat Account with a registered broker in India and their Non-Resident Ordinary (NRO) Account or the Non-Resident External (NRE) Account for the transfer of funds.

NRIs and OCIs can open a trading account. However, they cannot do intra-day trading and only sell the stocks they previously held.    

Tax^~ implications -The applicable income tax^~ is 15% if the investment is sold within one year of purchase (Short Term Capital Gains) and 10% without indexation benefit on the amount exceeding ₹1 lakh if it is sold after one year of purchase (Long Term Capital Gains).

Mutual fund investment plans for NRIs and OCIs are less risky than investments in direct equities as it is managed by professionals of an Asset Management Company. 

OCI and NRI mutual fund options extend to equity, debt, or hybrid fund investments. The option can be exercised based on the individual risk profile. Furthermore, investments in mutual funds can be made using the Systematic Investment Plan (SIP) or the Systematic Withdrawal Plan (SWP). SIP investment for NRIs and OCIs can be more convenient, affordable, and profitable over the long term.

It is important to note that investments in mutual funds are restricted to the NRIs and OCIs residing in the USA and Canada. 

Tax^~ implications - The applicable income tax^~ rate for OCI and NRI mutual fund investments is as detailed below.

Please Note: Tax^~ and TDS are subject to Surcharge and Health and Education Cess at 4%, if applicable or at the rate specified under the DTAA, whichever is lower under Section 196A of the IT Act 1961.

ULIP^{^^} Plans are comprehensive life insurance plans that provide dual benefits, life insurance, and market-linked^@ returns. Therefore, it is one of the good investment options for NRIs and OCIs because they can secure their family in their absence while also ensuring the capital appreciation of their investments in India.

ULIP^{^^} plans provide the option to invest in the fund options based on the individual risk appetite and requirements. For example, investors can choose between high-risk equity fund options, low-risk debt options, and medium-risk hybrid options. In addition, the policyholders can switch between the fund options during the policy term based on the changing economic conditions.

Tax^~ implications - The ULIP^{^^} tax^~ benefits are applicable to investors who stay insured and invested for 5 policy years. 

The premium paid for a ULIP^{^^} Policy will qualify for the tax^~ deduction benefit under Section 80C of up to ₹1.5 Lakhs under the Income Tax Act, subject to the prevailing tax^~ rules. 

On the other hand, the ULIP^{^^} returns qualify for tax^~ exemption based on the following conditions:

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  Premium should be less than 10% of the sum assured for policies purchased between 1st April 2012 and 1st February 2021.

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  Premium should be less than 20% of the sum assured for policies purchased before 1st April 2012.

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  Premium should be less than ₹2.5 lakhs for policies purchased after 1st February 2021.

At Tata AIA Life Insurance, we provide varied ULIP^{^^} Plan solutions. In addition, The NRI and OCI investors can choose between the fund options, premium payment options, etc., and customise the ULIP^{^^} policy based on their requirements and maximise the applicable benefits.

NRIs and OCIs can invest in residential and commercial real estate properties in India. However, OCI real estate investment does not apply to farms, plantations, and agricultural land.

Investing in reputed properties can provide higher returns in the long term and is considered one of the best investment options for NRIs and OCIs. 

Tax^~ Implications - Based on the total income taxable in India, the short-term gains shall be taxed at the applicable income tax slab rates, and the long-term capital gains are taxed at 20%, for the NRIs and OCIs.

Further, the TDS on the sale of a property is as follows:

NRIs and OCIs can claim tax^*TDS Rate shall be increased by applicable surcharge & education cess.

NRIs and OCIs can claim tax^~ exemptions under Section 54(selling a residential property and investing in another property), Section 54EC (investment gains from property sale are invested in specified bonds), and Section 54F (sale of any asset other than a residential property and investing in a residential property) on long-term capital gains.

NRIs and OCIs can open an NPS account with the aid of a Point of Presence (PoP), a service provider through which they can open and operate the account. It is one of the best investment options for an NRI or OCI looking forward to planning their retirement in India. Both the NRE and the NRO account can be utilised for the OCI and NRI National Pension Scheme. All the subscribers will get a Permanent Retirement Account Number.

There are two stages in the NPS investment: Tier I and Tier II. Tier I is compulsory, and Tier II is voluntary. Tax benefits do not apply to an investment made in Tier II.

Furthermore, the investors can choose between Active and Auto Choice methods. With the Active Choice investment method, the investors can choose the allocation between equity, corporate bonds, etc. And with the Auto Choice method, the allocation is done automatically based on the age of the OCI or the NRI investor.

Some of the key aspects, regarding withdrawal, that need to be noted for this OCI and NRI investment in India are:

NPS Tier-I account withdrawals are subject to specific rules for financial planning and emergencies.

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  Partial Withdrawals: Allowed after 3 years for reasons like illness or education, capped at 25% of personal contributions and limited to three withdrawals.

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  Premature Withdrawal: Post 5 years, or within 3 for those joining after 60, up to 20% can be withdrawn as a lump sum, with at least 80% used for an annuity.

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  Normal Withdrawal: Upon reaching 60, or after 3 years, if joined post-60, up to 60%, is withdrawable as a lump sum, with a minimum of 40% allocated for an annuity.

For premature withdrawals, if the corpus is below ₹2.5 lakhs, or below ₹5 lakhs for normal withdrawals, the entire amount can be taken as a lump sum. Subscribers have the option to: 

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  Continue contributions until age 75, offering flexibility in retirement planning.

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  Upon exiting NPS, options include deferring the lump sum withdrawal or annuity purchase until age 75, allowing for tailored financial arrangements.

Tax implications

The tax~ implications based on the Income Tax Act of 1961 for the OCI and NRI National Pension Scheme on income earned in India are as follows:

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  Salaried individuals - Under Section 80CCD (1), the applicable deduction is up to 10% of the salary, which includes basic pay and dearness allowance. However, it can be up to ₹1.5 Lakhs under Section 80CCE.
  In addition, the employer’s contribution under Section 80 CCD (2) over the limit of ₹1.5 Lakhs under Section 80CCE up to 10% of the salary is eligible for the tax deduction for the employee.

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  Self-employed individuals - Under Section 80CCD (1), the applicable deduction is up to 20% of the gross annual income. However, it can be up to ₹1.5 Lakhs under Section 80CCE. 

In addition to these benefits, both the salaried and the self-employed individuals can avail of ₹50,000 under Section 80CCD(1B).

Tax^~ benefits on maturity - The withdrawal benefit from the NPS investment is tax^~-exempt at the time of maturity. However, the amount earned from the annuity post-maturity is taxed based on the applicable tax^~ slab rate. Furthermore, partial withdrawal made after 3 years of investment of up to 25% is tax^~-exempt.

NRIs and OCIs can invest in the pre-IPO market. Investors can purchase company shares that are yet to be listed on a public exchange. The private companies issue the shares through an investment firm. 

The units purchased will be deposited in the NRI's or the OCI’s Demat account. Pre-IPO investment can provide significantly higher returns if the company performs well in its business operations. However, it is highly riskier considering the unregulated market for unlisted shares.

NRIs and OCIs can choose to invest in unlisted shares on a non-repatriation basis. However, they can also invest on a repatriation basis but must report the investment to the RBI. 

Tax^~ implications – If the holding period for the unlisted share is more than 2 years, it is a long-term capital asset, else it is a short-term capital asset. If the shares are long-term capital assets, the gains would be taxed at 20% with indexation or taxed at 10% without indexation and without computation of capital gain in foreign currency. If it is a short-term capital asset, the gains would be taxed at 15% if STT (Securities Transaction Tax) is paid at the time of sale. In other cases, the STCG will be calculated based on the applicable tax~ slab rate.