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NRI Corner

Who is a NRI as per FEMA?
NRI is legally defined under the Income Tax Act, 1961 and the Foreign Exchange Management Act, 1999 (FEMA) for applicability of respective laws. NRI is defined under FEMA as a person resident outside India who is either a citizen of India or is a Person of Indian Origin (PIO).

How many days are required for NRI status?
An Indian citizen becomes an NRI if he fulfils the conditions mentioned below. 1. He stays outside India for more than 182 days during the preceding financial year, between April 1 to March 31.

What is FEMA law?
The Foreign Exchange Management Act, 1999 (FEMA) is an Act of the Parliament of India "to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India".

Can a NRI have a savings account in India?
Yes. According to the FEMA regulation, it is illegal for NRIs to hold resident savings account in India. You will need to convert your resident savings account into an NRO account. If you continue to use your resident account, you might incur huge penalties.

What is the difference between NRI and NRE account?
Primarily there are two reasons for opening such account: NRI wants to repatriate overseas earned money back to India and/or NRI wants to keep India based earnings in India. NRI has the option of opening a Non Resident Rupee (NRE) account and/or a Non Resident Ordinary Rupee (NRO) account.

Can Indian resident open a joint account with an NRI?
RBI has allowed residents of India to include non-resident close relative in their resident bank accounts on 'former or survivor' basis. ... It also permitted NRIs to open NRE/FCNR account with their resident close relative. In this case, the resident relative can operate the account as a power of attorney holder.

Who are persons of Indian origin?
Persons of Indian Origin Card (PIO Card) was a form of identification issued to a Person of Indian Origin who held a passport in a country other than Afghanistan, Bangladesh, Bhutan, China, Nepal, Pakistan and Sri Lanka.


NRIs can invest in all categories of Mutual Funds like Equity Funds, Debt Funds, Balanced Funds, Liquid Funds, etc. Unlike direct equities, MFs do not need a PIS account for the purchase. Though investing in MFs looks simple and easier compared to direct stocks, it is important for you to understand the risk profile and investment strategy of a fund before investing. By SEBI regulations, all MFs grade the schemes, according to their risk profiles as Low, Moderately Low, Moderate, Moderately High, and High. Mutual Fund Schemes are classified as Open-Ended, Close-Ended and Interval schemes, at the top most level Depending on the investment philosophy and nature, the MF schemes are further classified into Equity Funds, Debt Funds and Hybrid Funds at the highest level. Depending on the investment strategy, they are classified as Sector Funds, Contra Funds, Index Funds, etc. You can invest across any of these MF schemes from an NRE or an NRO account, but the repatriation rules will vary depending on whether investments were made from NRE or NRO account. The tax on the capital gains on MF schemes varies according to the type of the schemes and the holding period of the MF units.

There are some limitations for NRIs residing in the US and Canada to invest in Indian MFs due to the strict FATCA Rules which mandate all the fund houses to report to the US government, a comprehensive detail of all transactions of US citizens including NRIs on a regular basis. Even though some of the fund houses have started accepting investments from US/Canada NRIs with some additional conditions, It’s not advisable for them to invest in Indian MF. The eight Asset Management Company (AMC) or the fund houses which currently accept investments from US and Canada based NRIs are:

1. ICICI Prudential Mutual Fund 2. SBI Mutual Fund 3. UTI Mutual Fund 4. Birla Sun Life Mutual Fund 5. Sundaram Mutual Fund 6. L&T Mutual Fund 7. PPFAS Mutual Fund 8. DHFL Pramerica Mutual Fund As an Indian staying overseas, if you want to take advantage of the high growth back home, you can do so by investing in stocks and mutual funds by following some simple steps. Despite the recent dull phase in Indian equity markets, the country's economic prospects continue to be bright and its long-term growth story remains intact. But before we go ahead with the procedures for investment, it is important to know who according to Indian law is considered a non-resident Indian.

KYC FOR NRIs • Submission of passport copy is mandatory. Relevant pages of passport having name, photo, date of birth and address should be submitted.


• Overseas address is mandatory. Either the permanent or correspondence address must be an overseas address.

• Tax Residency Proof/Number, Social Security No.

All investments made by NRIs have to be in local currency, that is, the rupee. Mutual funds in India are not allowed to accept investments in foreign currency. For investing in Indian mutual funds, therefore, an NRI needs to open one of the three bank accounts-non-resident external rupee (NRE) account, non-resident ordinary rupee (NRO) account or foreign currency non-resident account (FCNR)-with an Indian bank.

An NRE account is a rupee account from which money can be sent back to the country of your residence. The account can be opened with money from abroad or local funds. An NRO account is a non-repatriable rupee account. An FCNR account is similar to the NRE account, except for the fact that the funds are held in a foreign currency.

The amount that is be invested can be directly debited from an NRE/NRO account or received by inward remittances through normal banking channels. An NRI needs to give a rupee cheque or draft from his NRE/NRO account. He can also send a rupee cheque/draft issued by an exchange house abroad drawn on its correspondent bank in India.

If the investment is made through cheques or drafts, the investor should attach with the application form a foreign inward remittance certificate (FIRC) or a letter issued by the bank confirming the source of funds.

FIRC is a proof of payment received by the individual from outside the country in a foreign currency. It is issued by the bank where you have the account to receive the funds.

Other know-your-customer documents such as Permanent Account Number and address proof are also to be submitted, just as in case of resident investors.


After you have made the initial investments, is it possible for you to keep track of your money and react to market movements that at times may call for additional purchases, switches or redemptions even as you are away?

Mutual funds allow a power of attorney (PoA) holder to take these decisions on your behalf. All that the PoA holder needs to do is to submit the original PoA or an attested copy of it to the fund house. The PoA should have signatures of both the NRI and the PoA holder. The PoA holders signature will be verified for processing any transaction.

Similarly, an NRI can make a resident Indian his/her nominee in the mutual fund scheme. An NRI can also be the nominee for investments made by a local resident. Fund houses also allow an NRI to have a joint holding with a resident Indian or another NRI in a scheme.

Redemption proceeds are either paid through directly credited to the investor's bank account. All earnings will be payable in rupees.

As mentioned earlier, investments made through inward remittances or from NRE/FCNR accounts are fully repatriable. Hence, earnings made by redeeming the units or through dividends are fully repatriable.

However, in case of investments made through NRO accounts, only the capital appreciation is repatriable, not the principal amount.

TAX LIABILITIES While tax liabilities of an NRI investing in India are the same as that of a resident investor, tax is deducted at source in case of the former.

"The key difference between investment rules for NRIs and those for resident Indians in case of both MFs and stocks is tax deduction at source (TDS),"

But are NRIs subject to double taxation-once in India and again in the country of their residence? It depends on the country of residence. If the Indian government has a avoidance of double taxation treaty (ADTT) with that country, the NRI will be spared from paying tax twice.

Numbers of countries have an ADTT with India.

"To give an example, India has an ADTT with the US. If an NRI based in the US makes short-term capital gains from equity investments in India, he pays 15% tax. However, the rate for such gains is 30% in the US. The investor will need to pay tax only for the difference in rate. This means he gets a deduction on the tax paid in India from his tax payable in the US.


NRI earnings from investments in India is taxed at the rate given below:
Short-term Capital Gains Tax 15% + 15 % SC+4 % CESS=17.94% As per tax slab + 15 % SC + 4 % CESS
Long-term Capital Gains Tax 10% without indexation+ 15 % SC+4% CESS=11.96% 10% without indexation + 15 % SC + 4 % CESS , 20% with indexation + 15 % SC + 4 % CESS =11.96 %
Dividend Distribution Tax 10% + 15 % SC + 4 % CESS = 11.96 % AT MF SOURCE 25% + 12 % SC + 4 % CESS = 29.12% AT MF SOURCE
Total NRI investment should not go beyond 10% of the paid-up capital of a company.
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