Tax Free Investments In India For NRI

Tax-Free Investments in India for NRI


Investments and savings are mandatory in life. Such investments become even more important in case of uncertain times that almost majority of the population is currently facing. Investments are required by everyone whether a resident Indian or a non-resident Indian. However, in the case of investments by non-resident Indians, there are certain specific guidelines and rules related to NRI investment in India. In case the NRI individual wishes to invest in India, he or she should first understand such rules and guidelines regarding investments and which investments would be better than the other.

Tax-Free Investments in India for NRI

Just like any resident Indian, an NRI individual too is open to investing in almost every financial instrument such as mutual funds, direct equity, real estate, government bonds, and fixed deposits. Though there are certain restrictions and limitations which the NRI individual needs to follow in case of investments, such investments are allowed to be made. However, the Non-resident Indians or NRI are not allowed to invest in any saving or investment schemes offered by the post offices in India. Thus the NRI individual is not allowed to invest in schemes such as the National Savings Certificates, Public Provident Fund, Monthly Income Schemes and other time and term deposits offered by the post offices in India.

Whatever investments are done by a resident or non-resident Indian, they are ought to pay taxes on all such incomes from these investments. Taxes are to be paid by everyone – resident or non-resident Indian- earning an income in India. However, there are certain special provisions for NRI whereby they can earn money that too tax-free by investing in tax-free investments such as:

  • Fixed Deposits in Bank: Since long, Bank Fixed Deposits have been considered to be the best and the safest option of investment. An NRI too can invest in such fixed deposits provided by various banks in India at attractive rates of interests through three different types of accounts - NRE, NRO, and FCNR accounts. The NRIs are offered fixed deposits at interests ranging from 7-9 percent. The principal and interest earned on NRE Deposits (using NRE accounts) and FCNR accounts are not taxable in India. However, NRO fixed deposits are taxable at the rate of 30 percent as per Indian taxation laws. It is important to understand the difference between these three types of accounts (the difference is mainly on the type of income which can be saved and maintained in such accounts) and then make suitable investments.

  • Mutual Funds: Just like fixed deposits, NRIs can also invest in Mutual Funds using these three accounts. However, the NRI individual needs to confirm whether the country where they are presently residing allows such investments in mutual funds in India or not.

  • Direct Equity: An NRI individual can also invest in direct equity, though with a prior permission of Portfolio Investment Scheme (PINS) of Reserve Bank of India. However, the NRI individuals are allowed to open only one PIS account per individual and they also need to understand which Indian stocks they can trade since not all stocks are open for trading for the NRIs. The NRI’s are also not allowed to do intraday trading and short selling in India.

  • Real Estate: The NRIs are allowed to invest in both residential and commercial real estate and there is no limitation as far as numbers of properties are concerned. However, the NRI individuals are not allowed to invest in agricultural lands, farmhouse or plantations, through ownership of such properties can be acquired through gift or inheritance.

  • Government Tax-Free Bonds and Securities: The NRIs though are allowed to invest in government tax-free bonds open to the public in the primary market for subscription such as NHAI and PFC tax-free bonds.

Tax-Free Investments in India for NRI Requirements

  • Taxes are meant for all Indian citizens, whether they are the resident or non-resident of India. However, there are certain provisions and schemes where the individuals can earn tax-free returns.
  • But in order to invest in such avenues and schemes, the NRI individuals should clearly understand the requirements of such investments.
  • The above segment clearly specifies that there are typical investments which individuals are not allowed to make or do. In case of other investments where the individuals are free to invest, they are supposed to understand the basic requirements such as whether they qualify for being an NRI or not.
  • If they do qualify as an NRI, which type of account (as mentioned above) can they operate, based on the type of incomes and sources of funds they have or expect in the future.
  • The NRIs also need to understand which incomes are taxable under the income tax act of India, for example, foreign income for Non-Resident Indian (NRI) are not taxable but the same income is taxable for resident and ordinary residents (ROR). Further, the NRIs should also understand the different tax treatments and deductions allowed to them under the Income Tax Act of India.

Process for NRI to File Tax-Free

While the taxation process for NRIs remains almost similar to that of resident Indians, the tax filing process also remains similar. In case the income of the NRI individual exceeds INR 250000 in any financial year, they are supposed to file an income tax return in India. Such returns should also mention the tax-free returns earned in India in order to avoid any tax notices or queries from the Income Tax Authorities in India.