The moment you became an NRI you had to figure out how to manage your money given your changed status. And you certainly want to invest in the opportunities available in the Indian market. At the same time you need to ensure that your money is available when and where you need it. The first thing you need to recognize on becoming an NRI is that your money now has two possible origins and two destinations: India and Abroad. And you need to be able to move it to meet your needs while abiding by the laws in both countries.
You need to get 4 things right:
- Which Bank accounts do you need as an NRI?
- What you need to do to invest in Indian Mutual Funds?
- What you need to do to invest in Indian Stocks?
- What you need to know about NRI taxation?
In this post we will cover which banks accounts you need to have and what it will enable you to do. There are three types of accounts you can open as an NRI:
- NRE (Non Resident External) account
- NRO (Non Resident Ordinary) account.
- FCNR Deposits
NRE Account: You need this account to manage the money you have earned abroad and wish to be able to move to India and back to the country where you are currently residing ie repatriate without any hassles. You can transfer money earned abroad to your NRE account. This is converted to Indian rupees, at the rate prevailing at the time of transfer. You can use it for spending or investing in India. You can repatriate the entire money and the interest earned on it back to your account abroad. However, you cannot put any money earned in India eg income from rent, salary and dividends or money got from sale of an asset say a house, in the NRE account.
An NRE account is completely tax-free i.e no tax is payable even on the interest earned. An NRE account can be savings accounts, recurring deposit or a fixed deposit account
NRO Account: If you want an account to transfer your earnings in India, an NRO account is what you need. Foreign funds can also be deposited into this account. You can repatriate money; transfer from NRO account to your NRE account up to a maximum of 1 million USD in a year provided you have paid the income tax on your Indian income.
The interest income earned on in this account is subject to tax in India which is deducted at source @ 30% plus applicable surcharge plus education cess.
The advantage of an NRO account is that it can be jointly opened with a resident Indian. This account should be primarily used to manage your earnings in India.
FCNR Deposits: A Foreign currency Non-Resident (FCNR) account is like an NRE account except the money is held in the foreign current and not converted to Rupees. This enables you to hold money in a foreign currency and convert it only when you need the money in India, thus avoiding the cost of conversion and the possible exchange rate risk.
The interest earned in this type of account is completely tax free. However, investing in Indian stocks or mutual funds can be done only in Rupees and hence the need for the NRE/NRO account in addition to this.
The deposits in FCNR account can be made for a minimum of one year and a maximum of five years So in all likelihood you will need both the NRE and NRO accounts.
Your bank will help you open the account. They will require the Know Your Customer, KYC details and documents. KYC documents include a recent photograph, certified copies of PAN card, passport and residence proof (outside India). At times, certain banks may also require an in-person verification, which you can comply with by visiting the Indian Embassy in your resident country.
Once you have opened the account you are ready to invest in Indian Mutual Funds through the sites of the different AMCs. However, for investing in stocks you will need to open a demat account linked to your NRI account-this is covered in our post What an NRI needs to do to Invest in Indian Stocks?
There are the two ways in which you can manage your investments:
You can carry out transactions, debiting or crediting directly through the normal banking channels.
- Power of Attorney:
It is also possible for someone else to invest on your behalf. Mutual Funds accept the Power of Attorney (PoA) to invest on your behalf and also take calls regarding your investments.
However, this requires the signatures of both the NRI and the person getting the PoA on the KYC documents.
- What an NRI needs to do to Invest in Indian Stocks?
- What an NRI needs to do to Invest in Indian Mutual Funds?
- I’m an NRI. How should I Invest in Indian Stocks?
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