Non-resident Indians (NRIs) often look for investment opportunities in Indian capital markets. They have a strong inclination towards investing in real estate and fixed deposits (FD) through NRE, NRO, and FCNR accounts. These apart, they also bet big-time on mutual funds, direct equities, portfolio management services (PMS), life insurance products, and national pension schemes (NPS).
If you are an NRI and looking to invest in any field of your domestic country, you need to be aware of taxation policy.
Tax Rates and Interests
Tax on interest earned on investment made in FDs from the NRE account and in FCNR deposits is not levied.
Interest earned on a savings account and a fixed deposit made from an NRO account, however, is taxable.
If you live in the United States, United Kingdom, Canada or the Middle East and wish to invest in fixed deposits of the funds, you can expect attractive tax-free interest rates.
However, if you live US and Canada, you would face some restrictions when it comes to investing in mutual funds, direct equities, unlisted shares, debentures and insurance products, and government securities. As per the Foreign Exchange Management Act (FEMA) and RBI regulations, you, as an NRI, however, can invest in these either on a repatriation or non-repatriation basis. Also, the tax rate depends upon the type of instrument and the period for which you hold them before selling.
The tax liability on a capital gain of financial assets can be classified as below:
Long-term and short-term Capital Gains on Listed Equity Shares and Mutual Funds
If the investment in mutual funds and listed equity shares are sold for less than one year, they come under short-term capital gains tax, and you’re liable to pay tax at 15%.
If you invest in mutual funds and listed equities and sell after a year, they come under long-term capital gains tax, and 10% of it is levied on capital gains from the sale of mutual fund units and listed equity shares if the gains from these assets exceed Rs 1,00,000 of gains in a given financial year.
Short-term Capital Gain on Other Assets
You can invest in unlisted shares or securities either on a non-repatriation basis or on a repatriation basis. If you opt for the second option, your transaction must be reported to the RBI.
The capital gains on investment in unlisted shares will be considered as short-term if you choose to sell them out within 2 years, and you will be taxed at 20% with indexation benefits on your gains.
And for unlisted securities, you will get your tax deducted at the highest slab rate of 30%.