NRI investment opportunities and tax implications
India has benefited from large remittances, in fact in calendar year 2020 India received the largest $ 83 billion remittance among all nations, credit for these remittances Generous fund is awarded to contributions made by the growing and vibrant Indian diaspora. thriving in different corners of the world.
When investing, NRIs should be mindful of taxation and the convenience of repatriation.
Taxation on interest received on investments made in term deposits
Taxation on interest received on investments made in term deposits from the NRE account and interest received on investments made in FCNR deposits are exempt from tax. However, interest earned on a savings account and a fixed deposit made from the NRO account is taxable. NRIs based in the Middle East and other developed countries like USA, Canada, UK etc. have always preferred to invest in term deposits of the funds they pay out, because the interest rate is attractive and non-taxable.
NRIs have also invested in the capital markets through mutual funds, direct equities, PMS and insurance products. NRIs based in the United States and Canada have certain restrictions on their investments in mutual funds, direct stocks, and PMSs. NRIs based in other countries may invest in mutual funds, direct stocks, unlisted stocks, government securities, bonds and insurance products on a repatriation or non-repatriation basis. .
The tax rate depends on the type of instruments and the length of time these instruments are held.
The liability to capital gains tax on financial assets can be classified as follows:
1. Tax on short and long-term capital gains of listed shares and equity UCITS
The units of UCITS shares and listed shares held for more than one year relate to long-term capital gains. Investment in mutual funds and listed shares sold within one year is subject to short-term capital gains tax and is taxed at 15%. Investing in mutual funds and listed stocks that are sold after one year is a long-term capital gain. A long-term capital gains tax of 10% is levied on capital gains from the sale of mutual fund units and publicly traded stocks whether the gains from these assets together or in isolation are greater than Rs 1 lakh in earnings in any given fiscal year.
2. Tax on short and long-term capital gains of debt UCITS
Investment in debt mutual funds that are sold for less than 3 years will be subject to the short-term capital gains tax on the debt and the gains will therefore be taxed according to the tax bracket on the debt. Income from appraisals and investment in debt mutual funds that are sold after 3 years will be subject to long-term capital gains tax on the debt and any gains will be taxed at 20% with indexation benefits or earnings will be taxed at 10% without indexation benefits.
3. Short and long term capital gains on unlisted shares
NRIs can invest in unlisted shares on a non-repatriation basis, NRIs can also buy shares on a repatriation basis, in which case the transaction must be reported to RBI. Capital gains on investment in unlisted shares will be considered short-term if these unlisted shares are sold within 2 years and capital gains will be taxed at the marginal tax rate of the base. . Capital gains on unlisted shares will be considered long term if these shares are sold after 2 years and capital gains will be taxed at 20% with indexation benefits. For short-term capital gains on unlisted securities, there will be a withholding tax at the highest rate of 30%.
NRIs may benefit from the Double Taxation Avoidance Agreement Act if the Indian government has an agreement with the country of its residence. As per the agreement, NRIs can pay taxes in either country or can pay taxes in both countries and claim tax relief in their country of residence.