NRIs returning to India? Investment opportunities available are manifold
Senior Tax Professional, EY
Global mobility has become a key catalyst of the Indian economy, both due to an increase in Indian outbounds looking to attain international experience and a rise in "returning Indians", given the recession in the west and opportunities back home.
However, such movements bring with them issues like the future state of Indian investments once an individual stays out of India long enough to become a 'non-resident Indian', or the question of overseas assets held by returning Indians once they resettle in India.
Investments are regulated by the Indian exchange control laws, which are set out under the Foreign Exchange Management Act (FEMA), whose approving authority is the RBI. The FEMA broadly covers all matters related to investment avenues such as investment in immovable property, foreign exchange, bank deposits, government bonds, investment in shares, units, securities, and foreign direct investment in India, and has a wide network of notifications and circulars, elucidating permissible avenues for each category of individual.
The residential status under FEMA is the basis of applicability of permissible avenues and this status is determined on the basis of the intention of the person, as also the number of days spent in India in the prior year concerned (there is a current threshold of 182 days).
The analysis of who qualifies as a resident or a non-resident Indian (NRI) is a fact-specific exercise. Transactions of residents in foreign exchange such as investment abroad are being liberalised at a very fast pace. India is still not close to full capital account convertibility, though returning Indians do enjoy certain concessions in relation to existing overseas assets. Some of the key benefits for this category of individuals are:
Foreign currency, foreign security or immovable property acquired, held or owned by an individual while he/she was abroad, or inherited from a person who was a resident outside India, can be continued to be owned even after his/her return to India for permanent settlement. There is no specific provision on movable assets like jewellery, motorcar and personal household effects.
Income earned on overseas assets needs to be repatriated to India. Credit to a resident foreign currency (RFC) account, which is an account free from all restrictions regarding utilisation of foreign currency balances, may also be considered and analysed. As regards the million-dollar question of maintaining overseas bank accounts, technically, a returning NRI would require the RBI's approval to maintain bank accounts abroad. Another important "to-do" for returning Indians is the redesignation of bank accounts once they settle in India and thus become 'residents'.
The bankers would typically do this once an application, along with, relevant proof of the Indian employment is submitted. For the category of Indians attaining the status of NRI on account of moving out of the country for overseas assignments or employment, a burning question is the maintenance or continuity of their erstwhile investments in India. The investment opportunities available to such NRIs are endless.
Some of them are: NRIs can freely invest in government securities, UTI, National Saving Certificates, shares and mutual funds. They are permitted to invest in the FDI scheme on a repatriation basis in equity shares/CCPS/CCDs of an Indian company. They are also permitted to make portfolio investments.
NRI, who is a citizen of India, is permitted to acquire any immovable property (residential/commercial) in India other than agricultural land/plantation/farm house. The purchase can be done out of funds remitted to India through normal banking channels or funds held in certain types of accounts in India. Loans can be taken from authorised dealers or from the Indian employer for purchase of accommodation. NRI can freely invest in any partnership or proprietorship firm (not engaged in agriculture/plantation/real estate) on a non-repatriable basis. The sale or transfer of shares and debentures to Indian residents is permissible.
Sale or transfer of any residential/commercial property in India is permitted subject to certain exceptions. An amount of $1 million per year from such sale can be remitted outside India from a nonresident ordinary account.With the low return rates in the west, the Indian market is indeed booming and investment opportunities galore. Before venturing out, an important caution point is to keep bankers in the loop, especially for transactions out of foreign exchange, as they are the gate-keepers to the Reserve Bank of India.