NRI Investment Opportunities in India — Explained

The Indian economy is booming. India's GDP growth is 6.8–7.8%. Many NRIs are interested in investing in India since NRI remittances exceed Rs. 120 billion. NRIs must understand their investing options and limits.

Learn more on the background, resident status, exceptions and the investment avenues along with the restrictions.

Possible Investments for NRIs — What is it?

This document covers

Background
Who is Resident & Non-Resident?
Exception to Resident Status
NRI investment avenues in India & Restrictions
Liberalised Remittance Scheme (LRS)

1. Background

The Indian economy is experiencing remarkable growth and advancement. The growth of India's GDP is currently situated between 6.8 and 7.8 percent. An increasing number of NRIs are expressing interest in investing in India, as NRI remittances have surpassed Rs. 120 billion. It is essential to comprehend the various investment avenues available to NRIs and the constraints associated with them.

2. Who is Resident & Non-Resident?

The definition of residential status varies between FEMA and the Income Tax Act. According to FEMA, there are two residential statuses: Resident and Non-Resident. According to FEMA, a resident in India is defined as an individual who has resided in India for more than 182 days during the preceding financial year.

3. Exception to Resident Status

The following persons are not treated as persons resident in India even though they have resided in India for more than 182 days

A person who has gone out of India or stays outside India for any of the 3 purposes given below
A person who has come to or stay in India otherwise than for any of the 3 purposes given below

For or on taking up Employment
For Carrying on a business or vacation
For any other purpose in such circumstances as would indicate stay for an uncertain period

4. NRI investment avenues in India & Restrictions

According to FEMA, Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) are permitted to engage in certain types of investments in India while being restricted from others.

NRI and OCI investors must adhere to FEMA, SEBI, and RBI regulations when investing in India. If an NRI or OCI wishes to redeem, the Income Tax Act becomes relevant. The following outlines the types of investments permissible and impermissible for NRIs and OCIs.

S.No	Type of Investment	Eligibility for NRI's
1	Agriculture land	NRI's are not allowed to purchase new agriculture land, plantation or farmhouses in India. However, they can inherit agriculture lands and continue to hold the lands acquired during resident period. Refer @ Exception Note on purchasing Agri Land through RBI
2	Public Provident Fund (PPF)	NRI's cannot open a new PPF account. However they can continue the PPF account which was opened during resident period until maturity
3	Sukanya Samriddhi Scheme	NRI's cannot open a new Sukanya Samriddhi Scheme account.
4	Mutual Funds	NRI's can invest in Mutual Funds. These can be invested through NRE or NRO accounts and FATCA declaration needs to be done while investing. Refer @ Exception Note on investments in MFs
5	Equity Shares /ETF's/Bonds/Debentures/PMS	NRI's can invest in Equity Shares in India. These can be invested through NRE or NRO accounts
6	Fixed Deposits /Recurring Deposits	NRI's can open fixed deposits in NRO or NRE Accounts. NRE accounts are tax free whereas NRO accounts are taxable in India
7	Gold	NRI's can invest in physical gold, Sovereign Gold Bonds and Gold ETF's.
8	Insurance Policies/ULIP	NRI's can buy Life Insurance, Term Insurance, ULIP, Health insurance or any other insurance. Premium payments should be done from NRO/NRE accounts
9	Residential or Commercial properties	NRI's can purchase residential or commercial house properties in India. There is no restriction on number of properties. Purchase needs to be done through NRO or NRE accounts
10	Transferable Development Rights (TDR's)	NRI's are not allowed to trade in TDR's
11	Chit Funds	NRI's are allowed to invest in chit funds only in specific states.
12	Investments in Startup	NRI's can invest in startup's and Venture capital funds. Investments needs to be done through NRO accounts
13	Intraday Trading	NRI's are not allowed to do Intraday Trading in India
14	Futures and Options	NRI's are allowed to do trading in F&O segment in India
15	Currency/Commodity derivatives trading	NRI's are not allowed to do trading in Currency /Commodity derivates.
16	Regular Savings Account	An NRI cannot maintain regular Savings account in India. He should close or convert the same to NRO or NRE Account
17	Start a Business	An NRI can start a business in India but there are certain restrictions in forming different types of entities.
18	Home Loan	An NRI can take home loans in India. NRI's need to work on with their NRO/NRE Banks
19	Paintings, Arts, Antique Jewellery etc	NRI's can invest in Paintings, Arts, Antique Jewellery etc in India. However an NRI needs to ensure he is complying with FEMA

Exception Note on purchasing Agri Land through RBI

Nevertheless, an NRI may invest in agricultural land in India with the RBI's prior approval. The RBI will assess the residential status, purpose of the land purchase, and other relevant factors before granting approval.

Exception Note on investments in MFs

In general, NRIs or OCIs from the majority of foreign countries are able to invest directly in mutual funds through NRO or NRE accounts. However, certain mutual funds do not permit nonresident Indians (NRIs) from the United States or Canada to invest as a result of the FATCA declaration. Before investing, NRIs and OCIs must consult with the mutual fund companies.

5. Liberalised Remittance Scheme (LRS)

FEMA regulates transactions between residents and Non Residents
FEMA makes provisions in respect of dealings in foreign exchange
LRS means liberalised remittance scheme. Under LRS, resident individuals including minors can freely remit upto USD 2,50,000 per financial year (April to March) for any permissible transactions.

5.A. Current Account Transactions

As per FEMA, Current Account Transactions means transactions other than capital account transaction and includes the following transactions

Payments in the course of ordinary course of foreign trade, other services such as short term banking and credit facilities in the ordinary course of business
Payments in the form of interest on loans or income from investments
Remittances for living expenses of parents, spouse or children living abroad
Expenses in connection with foreign travel or education etc

NOTE

Current Account transactions are freely permitted by RBI and Central Government unless specifically prohibited. However Central Government has power to impose reasonable restrictions in consultation with RBI.

(i). Prohibited Transactions under Current Account

Below are the transactions for which withdrawal of foreign exchange is prohibited

Remittance out of lottery winnings, income from racing/riding or any other hobby
Remittance for purchase of lottery tickets, banned or prescribed magazines, football pools, sweepstakes etc
Payment of commission on exports made towards equity investment in Joint Ventures/Wholly owned Subsidiaries abroad of Indian companies
Remittance of interest income on funds held in Non Resident Special Rupee Scheme A/c
Payments related to call back services of telephones
Remittance of dividend by any company to which the requirement of dividend balancing is applicable.

(ii). Withdrawal of Foreign Exchange by the individuals under Current Account

The individuals can avail the facility of foreign exchange withdrawal for the following purposes within the limit of 2,50,000 USD only.

Private visits to any country except Nepal and Bhutan
Gift or Donation
Going abroad for employment
Emigration
Maintenance of close relatives abroad
Expenses in connection with medical treatment abroad
Studies Abroad
Business Travel expenses or attending a conference or specialized training or for meeting expenses for medical treatment abroad or accompanying as attendant to a patient going abroad for medical treatment
Any other current account transaction

5.B. Capital Account Transactions

Capital Account transactions means a transaction which alters the assets or liabilities including contingent liabilities outside India of persons resident in India or person resident outside India
Capital Account transactions are regulated by Reserve Bank of India and Central Government
Capital Account Transactions are prohibited unless generally or specifically permitted

(i). Permissible Transactions made by persons resident in India

Investment by a person resident in India in foreign securities
Foreign current loans raised in India and abroad by a person resident in India
Transfer of Immovable property outside India by a person resident in India
Guarantees issued by a person resident in India in favour of person resident outside India
Export, Import and holding of currency/currency note
Loans and Overdrafts by a person resident in India from /to a person resident outside India
Maintenance of foreign currency accounts in India and outside India by a person resident in India
Taking out of insurance policy by a person resident in India from an insurance company outside India
Undertake derivative contracts
Remittance outside India of capital assets of a person resident in India

(ii). Permissible Transactions made by persons resident outside India

Acquisition and transfer of Immovable property in India by a person resident outside India
Guarantee by a person resident outside India in favour of or on behalf of a person resident in India
Import and Export of currency/currency notes into/from India by a person resident outside India
Deposits between a person resident in India and a person resident outside India
Foreign Currency accounts in India of a person resident outside India
Remittance outside India of capital assets in India of a person resident outside India
Undertake Derivative Contracts
Investment in India by a person resident outside India