There are a large number of Non Resident Indians (NRIs) that are looking for superior returns, when it comes to investment options in India. Before investing you must understand the tax implications, including income tax and capital gains tax.
1) NRE/NRO Fixed Deposits
To begin with we would like to mention that NRO Fixed deposits attract heavy Tax Deducted At Source (TDS) and the interest is taxable. If you are able to invest from funds from abroad, than place the same in your NRE Account rather than NRO Account. Then proceed to open an NRE Fixed deposit.
This is because the interest earned on NRE deposits are tax free, while NRO Deposits attract tax. Also, one needs to remember that you can credit your NRE Account with the proceeds from the NRE Fixed deposit and freely repatriate the proceeds. No questions asked.
Non Resident Indians cannot operate through a normal domestic stock trading account. They have to open a portfolio investment scheme (PIS) through one of the authorized brokers and than buy and sell shares. Such shares cannot be transferred to individuals in India. Such PIS accounts cannot be opened in multiple accounts.
Shares are a good opportunity for NRIs looking at investments with high returns. However, you might need professional help and guidance before investing. Please also understand the rules as you cannot trade in stocks as a NRI, like domestic residents. There are various other rules for compliance purposes.
With the Sensex having fallen from 30,000 points to 24,000 points, it could be one of the best investment options for NRIs.
3) Mutual Funds
Non Resident Indians can invest in mutual funds in India. However, NRIs in the US might find it difficult to invest in select mutual funds which have their headquarters in the US, due to some restrictions. But, by and large they are free to invest in mutual funds. The amounts can freely repatriated, which is another advantage.
4) Real estate investment for NRIs
This is one area that has always attracted Non Resident Indians. We see a lot of them having bought apartments and now keeping them locked or giving them out on rent. These are basically because of investment purposes. The government has also been encouraging investments in the sector. However, one really needs to be select and look at places, where there will be some appreciation.
Also remember, as a Non Resident Indian your rental income will be subject to income tax. Basically, any income that he or she earns in India will be subject to tax, barring of course interest earned on NRE deposits in India.
If you are looking at immediate liquidity, real investment may not be the right place.
NRIs looking at higher investment returns today have a number of options. They can also look at company deposits also with a high rating. The government is continuously looking at liberalizing and bringing in more money from Non Resident Indians. Repatriation has also become much easier than it was before.
At the moment the best investment option for NRIs would be shares and stocks, as the stock markets are down considerably.